EXHIBIT 10.05

PLACEMENT AGREEMENT

        This PLACEMENT AGREEMENT (as amended or supplemented from time to time,
this “Agreement”) dated as of the 17th day of April, 2006, by and between DERMA
SCIENCES, INC., a Pennsylvania corporation (the “Company”), and TAGLICH
BROTHERS, INC. (the “Placement Agent”).

        W I T N E S S E T H:

        WHEREAS, in reliance upon the representations, warranties, terms and
conditions hereinafter set forth, the Placement Agent will use its best efforts
to privately place all or a portion of a minimum principal amount of $5,400,000
(the “Minimum Amount”) and a maximum principal amount of $6,600,000 (the
“Maximum Amount”) of the Company’s series H units (the “Units”), with each Unit
consisting of four shares (the “Shares”) of the Company’s common stock, $.01 par
value per share (the “Common Stock”), and one warrant (as amended, or
supplemented from time to time, each, an “Investor Warrant”) with a five (5)
year term for the purchase of one share of Common Stock with an initial exercise
price equal to $1.00 per Share, subject to adjustment as provided in the
Investor Warrants;

        WHEREAS, the Units will be sold at a purchase price (the “Purchase
Price”) equal to $2.40 per Unit, with a minimum purchase of 5,000 Units, subject
to the right of the Company to accept investments of lesser amounts;

        WHEREAS, the Units are being issued pursuant to the Company’s
Confidential Private Placement Memorandum and the Exhibits thereto, dated April
5, 2006 (as amended or supplemented from time to time, collectively, the
“Offering Materials”); and

        WHEREAS, the Units are being issued to investors referred by the
Placement Agent (the “Taglich Investors”) and other investors (the “Other
Investors”; and, together with the Taglich Investors, the “Investors”) pursuant
to an exemption from the registration requirements of the Securities Act of
1933, as amended (the “1933 Act”).

        NOW, THEREFORE, in consideration of the premises and the respective
promises hereinafter set forth, the Company and the Placement Agent hereby agree
as follows:

        1.    Sale and Purchase of Units.

        (a)    Subject to the terms and conditions of this Agreement, the
Company shall sell the Units to the Investors. The Placement Agent is hereby
appointed as the exclusive placement agent of the Company for the purpose of the
offering and sale of the Units to the Taglich Investors.

        (b)    The Initial Closing (as defined below) shall take place at such
place as shall be acceptable to the Company and the Placement Agent on such date
or dates as the Placement Agent shall advise the Company on two (2) business
days notice or such shorter notice as shall be reasonably acceptable to the
Company. In no event shall the Initial Closing

 

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occur unless the Minimum Amount of Units is sold and the Company’s acquisition
of Western Medical is successfully completed, as determined by the Placement
Agent, in its sole discretion. Notwithstanding the foregoing, if the Placement
Agent raises at least $2,000,000 from the Taglich Investors and no Closing
occurs, the Company shall pay the Placement Agent a break-up fee equal to
$100,000. Subsequent sales and purchases of the Units, up to the Maximum Amount,
shall take place at one or more Closings held on such dates and in such
locations as the Company and the Placement Agent shall mutually determine. All
Closings pursuant to this Agreement shall occur not later than April 30, 2006,
unless such date is extended for up to thirty (30) days by mutual agreement of
the Company and the Placement Agent. The term “Closing” means the purchase and
sale of the Units as described in Section 1(b) of this Agreement. The initial
Closing hereunder shall be referred to as “Initial Closing”; the final Closing
hereunder shall be referred to as “Final Closing”; and the date of the Final
Closing shall be referred to as the “Final Closing Date”.

        (c)    All capitalized terms used in this Agreement which are not
otherwise defined shall have the meanings ascribed to them in the Offering
Materials.

        2.    Payment. At each Closing, the Company or its agent shall deliver
to the Placement Agent an irrevocable direction letter addressed to the
Company’s stock transfer agent authorizing completion of the Common Stock
certificates and the Investor Warrants representing the Units being purchased by
the Taglich Investors at such Closing, against receipt at such Closing by the
Company of payment for such Units by certified or bank check drawn on a bank
located in the United States or by Federal wire transfer, in the amount of the
aggregate purchase price for such Units (less any fees payable to, and
reimbursement of expenses incurred by, the Placement Agent in accordance with
this Agreement). With respect to each Closing, the Company or its agent shall
deliver to the Placement Agent within 15 days after such Closing, on behalf of
the TaglichInvestors, the original executed and sealedCommon Stock certificates
and Investor Warrants representing the Units being purchased by the Taglich
Investors in such Closing. All Units being purchased by the TaglichInvestors
shall be issued in the respective names of the TaglichInvestors in accordance
with instructions provided by the Placement Agent.

        3.    Representations and Warranties of the Company. The Company hereby
represents and warrants to and covenants and agrees with the Placement Agent, as
of the date hereof and as of the date of each Closing, as follows:

        (a)    The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Pennsylvania and is qualified
and in good standing as a foreign corporation in each jurisdiction in which the
nature of the business conducted by the Company or the property owned or leased
by the Company requires such qualification. Except as set forth in the Offering
Materials, the Company has no subsidiaries and does not own any equity interest
and has not made any loans, advances or guarantees of indebtedness to any
person, corporation, partnership or other entity. Each of Derma Sciences Canada
Inc. and Sunshine Products, Inc., each a wholly-owned subsidiary of the Company
(collectively, the “Subsidiaries”), is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation
and each Subsidiary is qualified and in good standing as a foreign corporation
in each jurisdiction in which the nature of the business conducted by such

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Subsidiary or the property owned or leased by such Subsidiary requires such
qualification. Except as disclosed in the Offering Materials, no Subsidiary has
any subsidiaries, no Subsidiary owns any equity interest in any other entity and
no Subsidiary has made any loans, advances or guarantees of indebtedness to any
person, corporation, partnership or other entity. The Company owns all of the
issued and outstanding shares of common stock of each of the Subsidiaries free
and clear of any lien, charge, claim, mortgage, pledge, encumbrance, other
security interest, pre-emptive right or contractual right of first refusal.

        (b)    The capital structure of the Company is as described in the
Offering Materials. Except as set forth in the Offering Materials or pursuant to
its stock option plan in the ordinary course of business, the Company is not a
party to any agreement to issue, nor has it issued, any warrants, options or
rights or preferred stock, notes or other evidence of indebtedness or other
securities, instruments or agreements upon the exercise or conversion of which
or pursuant to the terms of which additional shares of Common Stock may become
issuable. No holder of any of the Company’s securities (including, without
limitation, the Common Stock, the Preferred Stock (as defined below), or any
options or warrants) has preemptive rights or contractual rights of first
refusal.

        (c)    The Company has the full right, power and authority to execute,
deliver and perform under this Agreement, the Investor Warrants and the
Placement Agent Warrants (as defined below). This Agreement has been duly
executed by the Company and, at each Closing, the Units and the Placement Agent
Warrants being issued will have been duly executed by the Company, and this
Agreement, the Investor Warrants, the Placement Agent Warrants and the
transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action and each constitute, the legal, valid and binding
obligations of the Company, enforceable in accordance with their respective
terms.

        (d)    All of the issued and outstanding shares of Common Stock and
preferred stock of the Company (the “Preferred Stock”) have been duly and
validly authorized and issued, are fully paid and nonassessable (with no
personal liability attaching to the holders thereof or to the Company) and are
free from preemptive rights or rights of first refusal held by any person. All
of the issued and outstanding shares of Common Stock and Preferred Stock have
been issued pursuant to either a current effective registration statement under
the 1933 Act or an exemption from the registration requirements thereof, and
were issued in accordance with all applicable Federal and state securities laws.
All of the issued and outstanding shares of common stock of each Subsidiary have
been duly and validly authorized and issued, are fully paid and nonassessable,
with no personal liability attaching to the Company.

        (e)    The Units and the Placement Agent Warrants to be issued at each
Closing, the shares of Common Stock issuable upon the exercise of the Investor
Warrants (the “IW Shares”) and the shares of Common Stock issuable upon the
exercise of the Placement Agent Warrants (the “PAW Shares”), have been duly and
validly authorized for issuance and, when issued pursuant to this Agreement will
be duly and validly authorized and issued, fully paid and nonassessable and free
from all taxes, liens, charges, preemptive rights or rights of first refusal
held by any person. The Company covenants and agrees that it will not take any
action which would result in any adjustment in the number of shares of Common
Stock purchasable

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in connection with the Investor Warrants and/or the Placement Agent Warrants,
regardless of whether the total number of shares of Common Stock issuable
pursuant to the terms of the Investor Warrants and the Placement Agent Warrants,
upon full exercise of such warrants and full exercise of any or all other
options, warrants and other rights to purchase or convert to shares of Common
Stock then outstanding, would exceed the total number of shares of Common Stock
then authorized by the Company’s Articles of Incorporation, as then amended.

        (f)    The following financial statements of the Company (hereinafter
collectively, the “Financial Statements”) are included in the Offering
Materials: (i) consolidated balance sheets as of December 31, 2005, and
consolidated statements of operations, shareholders’ equity and cash flows for
the fiscal year ended December 31, 2005, and the related notes thereto, which
have been audited by J.H. Cohn LLP, independent certified public accountants,
and (ii) consolidated balance sheets as of December 31, 2004, and consolidated
statements of operations, shareholders’ equity and cash flows for the fiscal
year ended December 31, 2004, and the related notes thereto, which have been
audited by J.H. Cohn LLP, independent certified public accountants. The
Financial Statements, which are included in the Company’s Form 10KSB Annual
Report for the year ended December 31, 2005 (the “Form 10KSB”), were prepared in
accordance with generally accepted accounting principles consistently applied
and present and reflect fairly the financial position of the Company at the
respective balance sheet dates and the results of its operations and cash flows
for the periods then ended. During the period of J.H. Cohn LLP’s engagement as
the Company’s independent certified public accountants, there has been no
disagreements between the accounting firm and the Company on any matters of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure and no events required to be reported on a current report on
Form 8-K relating to the relationship between the Company and the accounting
firm. The Company has made and kept books and records and accounts which are in
reasonable detail and which fairly and accurately reflect the activities of the
Company, subject only to year-end adjustments.

        (g)    The Company and each of the Subsidiaries has good and marketable
title to all of its material property and assets and, except as set forth in the
Offering Materials or the Financial Statements, none of such property or assets
of the Company or any of the Subsidiaries are subject to any lien, mortgage,
pledge, encumbrance or other security interest.

        (h)    Since December 31, 2005, there has not been any material adverse
change in the financial condition or in the operations, business or prospects of
the Company from that shown in the Financial Statements or any damage or
destruction, not covered by insurance, which affects the business, property or
assets of the Company.

        (i)    Except as set forth in the Exhibits to the Offering Materials,
the Company has not filed any current reports on Form 8-K or any other reports
with the Securities and Exchange Commission (the “SEC”) subsequent to December
31, 2005.

        (j)    Neither the execution or delivery of this Agreement, the Units or
the Placement Agent Warrants by the Company nor the performance by the Company
of the transactions contemplated by this Agreement, the Investor Warrants or the
Placement Agent Warrants: (i) requires the consent, waiver, approval, license or
authorization of or filing with or

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notice to any person, entity, stock exchange or public authority (except any
filings required by Federal or state securities laws, which filings have been or
will be made by the Company on a timely basis); (ii) violates or constitutes a
default under or breach of any law, rule or regulation (including, without
limitation, rules and regulations promulgated by any stock exchange on which the
Common Stock is currently listed) applicable to the Company; or (iii) conflicts
with or results in a breach or termination of any provision of, or constitutes a
default under, or will result in the creation of any lien, charge or encumbrance
upon any of the property or assets of the Company with or without the giving of
notice, the passage of time or both, pursuant to (A) the Company’s articles of
incorporation (as amended) or by-laws, (B) any mortgage, deed of trust,
indenture, note, loan agreement, security agreement, contract, lease, license,
alliance agreement, joint venture agreement, or other agreement or instrument,
or (C) any order, judgment, decree, statute, regulation or any other restriction
of any kind or character to which the Company is a party or by which any of the
assets of the Company may be bound.

        (k)    Neither the Company nor any of the Subsidiaries has any
indebtedness to any officer, director, five percent (5%) stockholder or other
Affiliate (as defined in the Rules and Regulations of the SEC under the 1933
Act) of the Company.

        (l)    The Company and each of the Subsidiaries is in compliance with
all laws, rules and regulations of all Federal, state, local and foreign
government agencies having jurisdiction over the Company and each of the
Subsidiaries or affecting the business, assets or properties of the Company or
any of the Subsidiaries, except where the failure to comply has not and will not
have a material adverse effect on the business, financial condition or results
of operations of the Company or its Subsidiaries, taken as a whole (a “Material
Adverse Effect”). The Company and each of the Subsidiaries possesses all
licenses, permits, consents, approvals and agreements (collectively, “Licenses”)
which are required to be issued by any and all applicable Federal, state, local
or foreign authorities necessary for the operation of its business and/or in
connection with its assets or properties, except where the failure to possess
such Licenses has not and will not have a Material Adverse Effect.

        (m)    Neither the Company nor any of the Subsidiaries is in default
under any note, loan agreement, security agreement, mortgage, contract,
franchise agreement, distribution agreement, lease, alliance agreement, joint
venture agreement, other agreement, license, permit, consent, approval or
instrument to which it is a party, and no event has occurred which, with or
without the lapse of time or giving of notice, or both, would constitute such
default thereof by the Company or any of the Subsidiaries or would cause
acceleration of any obligation of the Company or any of the Subsidiaries or
would adversely affect the business, operations, or financial condition of the
Company or any of the Subsidiaries, except where such default or event, whether
with or without the lapse of time or giving of notice, or both, has not and will
not have a Material Adverse Effect. To the best of the knowledge of the Company,
no party to any note, loan agreement, security agreement, mortgage, contract,
franchise agreement, distribution agreement, lease, alliance agreement, joint
venture agreement, other agreement, license, permit, consent, approval or
instrument with or given to the Company or any of the Subsidiaries is in default
thereunder and no event has occurred with respect to such party, which, with or
without the lapse of time or giving of notice, or both, would constitute a
default by such party or would cause acceleration of any obligations of such
party.

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        (n)    To the best of the Company’s knowledge, except as set forth in
the Offering Materials, no officer, director or five percent (5%) stockholder of
the Company and no Affiliate of any such person either (i) materially
participates in any corporation, partnership, business, trust, sole
proprietorship or any other entity which is engaged in a business similar to
that conducted by the Company or any of the Subsidiaries (other than a passive
immaterial interest in a public company engaged in any such business) or (ii)
engages in business with the Company.

        (o)    There are no material (i.e., involving an asserted liability in
excess of twenty-five thousand dollars ($25,000)) claims, actions, suits,
proceedings, labor disputes, inquiries or investigations (whether or not
purportedly on behalf of the Company or any of the Subsidiaries), pending or, to
the best of the Company’s knowledge, threatened, against the Company or any of
the Subsidiaries, formal or informal, at law or in equity or by or before any
Federal, state, county, municipal or other governmental department, the SEC, the
National Association of Securities Dealers, Inc. (the “NASD”), board, bureau,
agency or instrumentality, domestic or foreign, whether legal or administrative
or in arbitration or mediation, nor is there any basis for any such action or
proceeding. Neither the Company, any of the Subsidiaries nor any of their
respective assets are subject to, nor is the Company or any of the Subsidiaries
in default with respect to, any order, writ, injunction, judgment or decree that
could adversely affect the financial condition, business, assets or prospects of
the Company or any of the Subsidiaries. Within the past three (3) years, there
has been no correspondence between the Company or any of the Subsidiaries and
any Federal, state, county, municipal or other governmental department, the SEC,
the NASD, board, bureau, agency or instrumentality, domestic or foreign, other
than filings required in the ordinary course of the Company’s and the
Subsidiaries’ respective business and receipts therefor.

        (p)    The accounts receivable of the Company and the Subsidiaries
represent receivables generated from the sale of goods and services in the
ordinary course of business. The Company knows of no material disputes
concerning accounts receivable of the Company and the Subsidiaries not disclosed
in the Offering Materials.

        (q)    The accounts payable of the Company and the Subsidiaries
represent bona fide payables to third parties incurred in the ordinary course of
business and represent bona fide debts for services and/or goods provided to the
Company and the Subsidiaries.

        (r)    Except as set forth in the Offering Materials, neither the
Company nor any of the Subsidiaries has (i) any written employment contracts or
oral employment contracts not terminable at will by the Company or any
Subsidiary, as applicable, with any five percent (5%) shareholder, officer or
director of the Company; (ii) any consulting agreement or other compensation
agreement with any five percent (5%) shareholder, officer or director of the
Company of any Subsidiary, as applicable; or (iii) any agreement or contract
with any five percent (5%) shareholder, officer or director of the Company or
any Subsidiary, as applicable, that will result in the payment by the Company or
any Subsidiary, as applicable, or the creation of any commitment or obligation
(absolute or contingent), of the Company or any Subsidiary, as applicable, to
pay any severance, termination, “golden parachute,” or similar payment to any
present or former personnel of the Company or any Subsidiary, as applicable,
following

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termination of employment. No director, executive officer or other key employee
of the Company or any Subsidiary, as applicable, has advised the Company that he
or she intends to resign as director and/or executive officer of the Company or
any Subsidiary, as applicable, or to terminate his or her employment with the
Company or any Subsidiary, as applicable.

        (s)    Except as set forth in the Offering Materials, neither the
Company nor any of the Subsidiaries is a party to a labor agreement with respect
to any of its employees with any labor organization, union, group or association
and there are no employee unions (nor any similar labor or employee
organizations). There is no labor strike or labor stoppage or slowdown pending,
or, to the knowledge of the Company, threatened against the Company or any of
the Subsidiaries, nor has the Company or any of the Subsidiaries experienced in
the last five (5) years any work stoppage or other labor difficulty. The Company
and the Subsidiaries are in compliance with all applicable laws, rules and
regulations regarding employment practices, employee documentation, terms or
conditions of employment and wage and hours and neither the Company nor any of
the Subsidiaries is engaged in any unfair labor practices, except where the
failure to comply has not and will not have a Material Adverse Effect. There are
no unfair labor practice charges or complaints against the Company or any of the
Subsidiaries pending before the National Labor Relations Board or any other
governmental agency.

        (t)    Except as disclosed in the Offering Materials, there are no
employee pension, retirement or other benefit plans, maintained, contributed to
or required to be contributed to by the Company or any of the Subsidiaries
covering any employee or former employee of the Company or any of the
Subsidiaries. Neither the Company nor any of the Subsidiaries has any material
liability or obligation of any kind or nature, whether accrued or contingent,
matured or unmatured, known or unknown, under any provision of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”), or any provision
of the Internal Revenue Code of 1986, as amended, specifically relating to
persons subject to ERISA.

        (u)    The Company and each of the Subsidiaries has timely filed or will
timely file with the appropriate taxing authorities all returns in respect of
taxes required to be filed through the date hereof and has timely paid or will
timely pay all taxes that it is required to pay or has established an adequate
reserve therefore. There are no pending or, to the knowledge of the Company,
threatened audits, investigations or claims for or relating to any liability of
the Company or any of the Subsidiaries in respect of taxes.

        (v)    Neither the Company nor any of the Subsidiaries has any
liabilities of any kind or nature whether accrued or contingent, matured or
unmatured, known or unknown, except as set forth in the Offering Materials and
those liabilities incurred by the Company and each of the Subsidiaries in the
ordinary course of business since December 31, 2005.

        (w)    Except as set forth in the Offering Materials, no customer of the
Company or any of the Subsidiaries during fiscal year 2005, accounted for more
than ten percent (10%) of the revenues of the Company (on a consolidated basis)
and to the best of the Company’s knowledge, no customer, other than the
customers identified in the Offering Materials, will account for more than
twenty percent (20%) of the Company’s revenues (on a consolidated basis) during
fiscal year 2006 or fiscal year 2007.

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        (x)    There are no finder’s fees or brokerage commissions payable with
respect to the purchase of Units by the Taglich Investors due to the actions of
the Company, except as provided in Section 12 of this Agreement.

        (y)    Except as set forth in the Offering Materials, the Company is not
currently and has not during the past six (6) months been engaged in
negotiations with respect to: (i) any merger or consolidation of the Company
where the Company would not be the surviving entity; or (ii) the sale of the
Company, any of the Subsidiaries or any of their respective assets other than
sales in the ordinary course of business.

        (z)    The Company and each of the Subsidiaries has the right to conduct
its business in the manner in which its business has been heretofore conducted.
To the knowledge of the Company, the conduct of such businesses by the Company
and each of the Subsidiaries does not violate or infringe upon the patent,
copyright, trade secret or other proprietary rights of any third party, and
neither the Company nor any of the Subsidiaries has received any notice of any
claim of any such violation or infringement.

        (aa)    The Company and each of the Subsidiaries is currently in
compliance in all respects with all applicable Environmental Laws (as defined
below), including, without limitation, obtaining and maintaining in effect all
permits, licenses, consents and other authorizations required by applicable
Environmental Laws, and the Company and each of the Subsidiaries is currently in
compliance with all such permits, licenses, consents and other authorizations,
except where the failure to comply does not and will not have a Material Adverse
Effect. Neither the Company nor any of the Subsidiaries has received notice from
any property owner, landlord, tenant or Governmental Authority (as defined
below) that Hazardous Wastes (as defined below) are being improperly used,
stored or disposed of at any property currently or formerly owned or leased by
the Company or any of the Subsidiaries or that any soil or ground water
contamination has emanated from any such property. For purposes hereof, the term
“Environmental Laws” means, collectively, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Resource
Conservation and Recovery Act, as amended, the Toxic Substances Act, as amended,
the Clean Air Act, as amended, the Clean Water Act, as amended, any other
“Superfund” or “Superlien” law or any other Federal, state or local statute,
law, ordinance, code, rule, regulation, order or decree regulating, relating to,
or imposing liability or standards of conduct concerning any hazardous, toxic or
dangerous waste, substance, or material, as now or at any time hereafter in
effect. For purposes hereof, the term “Governmental Authority” shall mean the
Federal Government of the United States of America, any state or any political
subdivision of the Federal Government or any state, including but not limited to
courts, departments, commissions, boards, bureaus, agencies, ministries or other
instrumentalities. For purposes hereof, the term “Hazardous Wastes” shall mean
any regulated quantity of hazardous substances as listed by the Environmental
Protection Agency (the “EPA”) and the list of toxic pollutants designated by the
United States Congress and/or the EPA or defined by any other Federal, state or
local statute, law, ordinance, code, rule, regulation, order, or decree
regulating, relating to or imposing liability for standard of conduct concerning
any hazardous, toxic substance or material.

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        (bb)    The information contained in the Offering Materials, taken
together, describe in all material respects the business and financial condition
of the Company and the Subsidiaries, and such material, taken together, does not
contain any misstatement of a material fact or omit to state a material fact
necessary to make the information not misleading. The Taglich Investors and the
Placement Agent shall be entitled to rely on such material notwithstanding any
investigation they or any of them may have made.

        (cc)    The Financial Statements included in the Offering Materials
present fairly the financial position of the Company and the Subsidiaries as of
the dates indicated and the results of its operations for the periods specified.
The historical financial information included in the Offering Materials has been
derived from the accounting records of the Company and the Subsidiaries and
presents fairly the information shown thereby. The assumptions underlying pro
forma financial information included in the Offering Materials are reasonable
and are set forth in the Offering Materials.

        (dd)    The Placement Agent Warrants have been authorized for issuance
to the Placement Agent or its designees. The PAW Shares, when issued and
delivered against payment therefor in accordance with the terms thereof, will be
duly and validly issued, fully paid, nonassessable and free of preemptive rights
or rights of first refusal held by any person, and all corporate action required
to be taken for the authorization and issuance of the Placement Agent Warrants
and the PAW Shares has been validly and sufficiently taken. The execution by the
Company of the Placement Agent Warrants has been duly authorized by all required
action of the Company and, when so executed and delivered, will constitute the
valid and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general applicability
relating to or affecting creditors’ rights and to general equity principles.

        (ee)    For so long as the Company is subject to the reporting
requirements of Section 13 or 15 of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), the Company covenants that it will file the
reports required to be filed by it under the 1933 Act and Section 13(a) or 15(d)
of the Exchange Act and the rules and regulations adopted by the SEC thereunder.
If the Company is not subject to the reporting requirements of Section 13 or 15
of the Exchange Act, the Company also covenants that it will provide the
information required pursuant to Rule 144A(d)(4) under the Securities Act upon
the request of any Registered Holder (as defined below) which continue to be
“restricted securities” within the meaning of Rule 144(a)(3) under the 1933 Act
and it will take such further action as any holder of such Registrable
Securities (as defined below) may reasonably request, all to the extent required
from time to time to enable such Registered Holder to sell its Registrable
Securities without registration under the 1933 Act within the limitation of the
exemptions provided by (a) Rule 144 under the 1933 Act, as such Rule may be
amended from time to time, so long as such provision does not require the public
filing of information relating to the Company which the Company is not otherwise
required to file, (b) Rule 144A under the 1933 Act, as such Rule may be amended
from time to time, or (c) any similar rule or regulation hereafter adopted by
the SEC that does not require the public filing of information relating to the
Company. Upon the request of any Registered Holder, the Company will deliver to
such Registered Holder a written statement as to whether it has complied with
such requirements.

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        4.    Representations, Warranties and Covenants of the Placement Agent.

        (a)    The Placement Agent hereby represents and warrants that it is
duly authorized to execute this Agreement and perform its duties hereunder, and
the execution and delivery by the Placement Agent of this Agreement and the
consummation of the transactions contemplated by this Agreement have been
authorized by all necessary corporate action and will not result in any
violation of, or be in conflict with, or constitute a default under, the
Placement Agent’s articles of incorporation or by-laws, any agreement or
instrument to which the Placement Agent is a party or by which the Placement
Agent’s property is bound, or any judgment, decree, order or any statute, rule
or regulation applicable to the Placement Agent.

        (b)    In offering the Units for sale, the Placement Agent will not
offer the Units for sale, or solicit any offers to buy any Units, or otherwise
negotiate with any person in respect of the Units, on the basis of any
communications or documents relating to the Units or any investment therein or
to the Company or investment therein, other than the Offering Materials and any
other document satisfactory in form and substance to the Company. The Placement
Agent will promptly deliver a copy of each amendment or supplement to the
Offering Materials (i) to all prospective investors then being or thereafter
solicited by the Placement Agent, and (ii) to each Taglich Investor who has
subscribed for Units prior to the receipt by such person of such amendment or
supplement.

        (c)    In offering the Units for sale, the Placement Agent shall conduct
such sales in the manner described in the Offering Materials.

        5.    Survival of Representations and Warranties and Indemnification.
The representations and warranties of the Company and the Placement Agent set
forth in Sections 3 and 4 of this Agreement shall survive the execution and
delivery of the Units. The indemnification obligations of the Company as set
forth in the indemnification rider identified as Exhibit B (as amended or
supplemented from time to time, the “Indemnification Rider”) to that certain
engagement letter between the Company and the Placement Agent, dated March 21,
2006 (as amended or supplemented from time to time), is hereby incorporated by
reference in its entirety as if more fully set forth herein, and the provisions
of the Indemnification Rider shall apply and be applicable to, among other
things, all representations and warranties of the Company.

        6.    Use of Proceeds. The net proceeds to the Company from the sale of
the Minimum Amount of the Units and the Maximum Amount of the Units are
estimated to be approximately $4,918,000 and $5,470,000, respectively, after
deducting the fees and expenses associated with the offering of the Units. The
net proceeds from the sale of the Units will be used by the Company as disclosed
in the Offering Materials.

        7.    Unregistered Securities. None of the Shares, the IW Shares or the
PAW Shares have been registered under the 1933 Act, in reliance upon the
applicability of Section 4(2), 4(6) and/or Rule 506 of Regulation D of the 1933
Act to the transactions contemplated hereby. The certificates representing the
Shares, the IW Shares and the PAW Shares will bear an investment legend stating
that they are “restricted securities” (as defined in Rule 144 under the

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1933 Act) and may only be publicly offered and sold pursuant to an effective
registration statement filed with the SEC or pursuant to an exemption from the
registration requirements.

        8.    Registration Rights and “Piggy-Back” Registration Rights.

        (a)    As soon as possible after the Final Closing Date, the Company
shall , at its sole cost and expense, use its best efforts to file not later
than 60 days after the date hereof (the “Anticipated Filing Date”), and use its
best efforts to cause to be declared effective not later than 180 days after the
date hereof (the “Anticipated Effective Date”), a registration statement (as
amended or supplemented from time to time, the “Registration Statement”) on any
appropriate form under the 1933 Act covering all of the Shares, the IW Shares
and the PAW Shares (collectively, the “Registrable Securities”) such as to
permit the public resale of the Registrable Securities by all holders of the
Shares, the Investor Warrants and the Placement Agent Warrants (collectively,
the “Registered Holders”), time being of the essence. In the event the Company
fails to either file the Registration Statement by the Anticipated Filing Date
or cause the Registration Statement to be declared effective by the Anticipated
Effective Date or maintain the effectiveness of the Registration Statement for
the entire Effectiveness Period (as defined below), then (i) the Company shall
pay to each Investor, as liquidated damages and not as a penalty, on the
Anticipated Filing Date, Anticipated Effective Date or the date within the
Effectiveness Period that the Registration Statement ceases to be effective, as
applicable, and each monthly anniversary thereof until the Registration
Statement is filed or declared effective, an amount equal to 2.0% of the
aggregate purchase price paid by such Investor for the Units, such amount to be
payable, at the election of the Company, either in cash or in Common Stock of
the Company valued at the average closing bid price thereof on the OTC Bulletin
Board for the ten trading days immediately preceding the date as to which the
subject liquidated damages are calculated and (ii) the exercise price of the
Placement Agent Warrants will be reduced (and, concomitantly, the aggregate
number of PAW Shares issuable upon the exercise of the Placement Agent Warrants
shall increase) by 2.0%; provided, however, that if as of the Anticipated
Effective Date the Registration Statement has not yet been declared effective,
the Anticipated Effective Date shall be extended for: (1) such periods as the
SEC has under consideration responses of the Company to its comments relative to
the Registration Statement, and (2) such periods, not to exceed 20 days each,
following the SEC’s responses to the filing by the Company of pre-effective
amendments to the Registration Statement; and provided, further, that the
maximum liquidated damages payable by the Company to each Investor, and the
maximum reduction in the exercise price of the Placement Agent Warrants (and,
concomitantly, the maximum increase in the aggregate number of PAW Shares
issuable upon the exercise of the Placement Agent Warrants) pursuant to these
provisions is 10.0% of such Investor’s Purchase Price or the aggregate exercise
price of the Placement Agent Warrants (and, concomitantly, the aggregate number
of PAW Shares), as the case may be.

        (b)    The Company agrees to use its best efforts to keep the
Registration Statement continuously effective and usable for resale of
Registrable Securities until the date which is three (3) years (the
“Effectiveness Period”) after the date upon which the SEC declares the
Registration Statement effective or such shorter period which shall terminate
when all the Registrable Securities covered by such Registration Statement have
been sold pursuant to such Registration Statement or when all Registrable
Securities otherwise have been sold pursuant to

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Rule 144 under the 1933 Act or are freely tradeable in essentially the same
manner as contemplated below. The Effectiveness Period shall be extended, day
for day, by the length of any “black out” periods declared by the Company
pursuant to Section 8(c) hereof.

        (c)    In connection with the Company’s obligation to file the
Registration Statement as provided in Section 8(a) hereof, the Company will as
expeditiously as possible:

        (1)    before filing the Registration Statement or the prospectus
included in the Registration Statement (as amended or supplemented from time to
time, the “Prospectus”) or any amendments or supplements thereto, furnish to the
Registered Holders a copy of all such documents proposed to be filed, which
documents will be subject to the review of the Registered Holders, and the
Company will not file the Registration Statement or any amendment thereto or any
Prospectus or any supplement thereto to which the Registered Holders of a
majority of the Registrable Securities covered by the Registration Statement
shall reasonably object (provided that the Company may assume, for the purposes
of the foregoing that any Registered Holder has no objection if the Company has
not received notice from such Registered Holder within five (5) business days
after delivery of such documents to such Registered Holder);

        (2)    prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement, and such supplements to the
Prospectus, as may be required by the rules, regulations or instructions
applicable to the registration form utilized by the Company or by the 1933 Act
or rules and regulations thereunder or otherwise necessary to keep the
Registration Statement effective for the applicable period and cause the
Prospectus as so supplemented to be filed pursuant to Rule 424 under the 1933
Act, and comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
sellers thereof set forth in the Registration Statement or supplement to the
Prospectus;

        (3)    notify each Registered Holder promptly, and confirm such advice
in writing:

        (A)    when the Prospectus or any supplement or post-effective amendment
thereto has been filed, and, with respect to the Registration Statement or any
post-effective amendment, when the same has become effective,

        (B)    of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose, and

        (C)    of the receipt by the Company of any notification with respect to
the suspension of the qualification of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose;

        (4)    make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement at the earliest
possible moment;

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        (5)    furnish, without charge, to each Investor and, upon request, each
Registered Holder, at least one conformed copy of the Registration Statement and
any post-effective amendment thereto, including financial statements and
schedules, all documents incorporated therein by reference and all exhibits
(including those incorporated by reference);

        (6)    deliver to each Investor and each Registered Holder, without
charge, as many copies of the Prospectus (including each preliminary prospectus)
and any amendment or supplement thereto as such Persons may reasonably request,
and the Company consents to the use of the Prospectus or any amendment or
supplement thereto by each Investor and each Registered Holder in connection
with the offering and sale of the Registrable Securities covered by the
Prospectus or any amendment or supplement thereto;

        (7)    use its reasonable efforts to cause the Registrable Securities
covered by the Registration Statement to be registered with or approved by such
governmental agencies or authorities as may be necessary to enable the
Registered Holders thereof to consummate the disposition of such Registrable
Securities in such jurisdictions as the Registered Holders may reasonably
specify in response to inquiries to be made by the Company, provided that the
Company will not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action which would
subject it to general service of process in any such jurisdiction where it is
not then so subject;

        (8)    if any event shall occur as a result of which it is necessary, in
the opinion of counsel for the Company, to amend or supplement the Prospectus in
order to make the Prospectus not misleading in the light of the circumstances
existing at the time it is delivered by a Registered Holder, prepare a
supplement or post-effective amendment to the Registration Statement or the
related Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the Registered
Holders, the Prospectus will not contain an untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein not
misleading;

        (9)    obtain a CUSIP number for all Registrable Securities (unless
already obtained), not later than the date that the Registration Statement is
declared effective by the SEC;

        (10)    make available for inspection during normal business hours by a
representative of the Placement Agent and any attorney or accountant retained by
the Placement Agent representative, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company’s
officers, directors and employees to supply all information reasonably requested
by the Placement Agent or any such attorney or accountant in connection with the
Registration Statement; provided that all such records, information or documents
shall be kept confidential by such persons unless disclosure of such records,
information or documents is required by court or administrative order or is
generally available to the public other than as a result of disclosure in
violation of this Section 8(c);

        (11)    if at any time an event of the kind described in Section 8(c)(8)
hereof shall occur, notify each Investor and the Registered Holders that the use
of the Prospectus

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must be discontinued, provided that the Company will not declare any such
“black-out” period in excess of twenty (20) business days during any twelve (12)
month period, unless otherwise required;

        (12)    on or prior to the date the Registration Statement is declared
effective by the SEC, cause all of the Shares, the IW Shares and the PAW Shares
to be listed for trading on the exchange(s) on which the Common Stock is listed
(or on any other national securities exchange(s)) and the OTC Bulletin Board;
and

        (13)    upon request, deliver promptly to counsel of each Registered
Holder participating in the offering copies of all correspondence between the
SEC and the Company, its counsel or auditors and all memoranda relating to
discussions with the SEC or its staff with respect to the registration statement
and permit each such Registered Holder to do such investigation at such
Registered Holder’s sole cost and expense, upon reasonable advance notice, with
respect to information contained in or omitted from the registration statement
as it deems reasonably necessary. Each Registered Holder agrees that it will use
its best efforts not to interfere unreasonably with the Company’s business when
conducting any such investigation and each Registered Holder shall keep any such
information received pursuant to this Section 8(c)(13) confidential.

        (d)    Each Registered Holder as to which any registration is being
effected agrees, as a condition to the registration obligations with respect to
such Registered Holder provided herein, to furnish to the Company such
information regarding the distribution of such Registrable Securities as the
Company may from time to time reasonably request in writing.

        (e)    Each Registered Holder agrees that, upon receipt of any notice
from the Company described in Section 8(c)(11), such Registered Holder will
forthwith discontinue disposition of Registrable Securities until such
Registered Holder’s receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 8(c)(6) hereof, or until it is advised in
writing by the Company (which notice the Company shall give as promptly as
possible), that the use of the Prospectus may be resumed, and has received
copies of any additional or supplemental filings which are incorporated by
reference in the Prospectus, and, if so directed by the Company, such Registered
Holder will deliver to the Company (at the Company’s expense) all copies, other
than permanent file copies then in such Registered Holder’s possession, of the
Prospectus covering such Registrable Securities current at the time of receipt
of such notice.

        (f)    All of the following expenses (the “Registration Expenses”)
incident to the Company’s performance of or compliance with this Agreement will
be borne by the Company, regardless of whether the Registration Statement
becomes effective:

        (1)    all registration, filing and listing fees;

        (2)    fees and expenses of counsel acceptable to the Placement Agent
for compliance with securities or blue sky laws;

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        (3)    the Company’s printing, messenger, telephone and delivery
expenses;

        (4)    fees and disbursements of counsel for the Company;

        (5)    fees and disbursements of all independent certified public
accountants of the Company (including the expenses of any special audit
necessary to satisfy the requirements of the 1933 Act); and

        (6)    fees and expenses associated with any filings required to be made
in connection with the Registration Statement.

        The Company will, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the securities to
be registered on the exchange(s) on which the Common stock is listed and the OTC
Bulletin Board.

        (g)     Indemnification by the Company. The Company agrees to indemnify
and hold harmless each Registered Holder, its officers, directors, employees and
agents and each person who controls such Registered Holder within the meaning of
either Section 15 of the 1933 Act or Section 20 of the Exchange Act (each such
person being sometimes hereinafter referred to as an “Indemnified Holder”) from
and against all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation and legal expenses) arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or Prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any such case to the
extent that any such losses, claims, damages, liabilities or expenses arise out
of or are based upon any untrue statement or alleged untrue statement or
omission or alleged omission thereof based upon information furnished in writing
to the Company by such Registered Holder or its agent expressly for use therein;
provided further, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or expense arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission in the Prospectus, if such untrue statement or alleged untrue
statement, omission or alleged omission was completely corrected in an amendment
or supplement to the Prospectus and if, having previously been furnished by or
on behalf of the Company with copies of the Prospectus as so amended or
supplemented, such Registered Holder thereafter fails to deliver such Prospectus
as so amended or supplemented, prior to or concurrently with the sale of a
Registrable Security to the person asserting such loss, claim, damage, liability
or expense who purchased such Registrable Security which is the subject thereof
from such Registered Holder. This indemnity will be in addition to any liability
which the Company may otherwise have.

        (h)    If any action or proceeding (including any governmental
investigation or inquiry) shall be brought or asserted against any Indemnified
Holder in respect of which

15

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indemnity may be sought from the Company, such Indemnified Holder shall promptly
notify the Company in writing (but the omission to so notify the Company shall
not relieve it of any liability that it may have against any Indemnified Holder
otherwise than under this subsection), and the Company shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to such
Indemnified Holder and the payment of all expenses. The Placement Agent shall
have the right to employ its own counsel in any such action and to participate
in the defense thereof, but the fees and expenses of such counsel shall be the
expense of the Placement Agent unless (a) the Company has agreed to pay such
fees and expenses or (b) the Company shall have failed to assume the defense of
such action or proceeding and have failed to employ counsel reasonably
satisfactory to the Placement Agent in any such action or proceeding or (c) the
named parties to any such action or proceeding (including any impleaded parties)
include the Placement Agent and the Company, and the Placement Agent shall have
been advised by counsel that there may be one or more legal defenses available
to the Placement Agent which are different from or additional to those available
to the Company (in which case, if the Placement Agent notifies the Company in
writing that it elects to employ its own counsel at the expense of the Company,
the Company shall not have the right to assume the defense of such action or
proceeding on behalf of the Placement Agent, it being understood, however, that
the Company shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys (together with appropriate local counsel) at any time for the
Placement Agent which firm shall be designated in writing by the Placement
Agent). Any such fees and expenses payable by the Company shall be paid to the
Placement Agent entitled thereto as incurred by the Placement Agent. The Company
shall not be liable for any settlement of any such action or proceeding effected
without its written consent, but if settled with its written consent, or if
there be a final judgment for the plaintiff in any such action or proceeding,
the Company agrees to indemnify and hold harmless the Indemnified Holders from
and against any loss or liability by reason of such settlement or judgment.

        (i)     Indemnification by Registered Holder. Each Registered Holder
agrees to indemnify and hold harmless the Company, its respective directors and
officers and each Person, if any, who controls the Company within the meaning of
either Section 15 of the 1933 Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from the Company to such Registered Holder,
but only with respect to information relating to such Registered Holder
furnished in writing by such Registered Holder expressly for use in any
Registration Statement or Prospectus, or any amendment or supplement thereto, or
any preliminary prospectus. In case any action or proceeding shall be brought
against the Company or its respective directors or officers or any such
controlling person, in respect of which indemnity may be sought against a
Registered Holder, such Registered Holder shall have the rights and duties given
the Company, and the Company or its respective directors or officers or such
controlling person shall have the rights and duties given to each holder by the
preceding paragraph. In no event shall the liability of any Registered Holder
hereunder be greater in amount than the dollar amount of the proceeds received
by such Registered Holder upon the sale of the Registrable Securities giving
rise to such indemnification obligation.

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        (j)     Contribution. If the indemnification provided for in this
Section 8 is unavailable to an indemnified party under Section 8(h) or Section
8(i) hereof (other than by reason of exceptions provided in those Sections 8(h)
and 8(i) hereof) in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then each applicable 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, claims, damages,
liabilities or expenses, (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company from the sale of the Units to each
Investor on the one hand and each Registered Holder from the offering of the
Registrable Securities by such Registered Holder, on the other hand, or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and each Registered Holder on the other in connection with the
statements or omissions that resulted in such losses, claims, damages, or
liabilities, as well as the other relevant equitable considerations. The
relative benefits received by the Company on the one hand and each Registered
Holder on the other shall be deemed to be in the same proportion as the
aggregate amount paid by each Investor to the Company for the Registrable
Securities purchased by such Registered Holder that were sold pursuant to the
Registration Statement bears to the difference (the “Difference”) between the
amount such Registered Holder paid for the Registrable Securities that were sold
pursuant to the Registration Statement and the amount received by such
Registered Holder from such sale. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the particular Registered
Holder and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The Company
and the Registered Holders agree that it would not be just and equitable if
contributions pursuant to this Section 8(j) were to be determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable consideration referred to in the first sentence of this Section
8(j). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities referred to in the first sentence of this Section 8(j)
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigation or defending against any
action or claim that is the subject of this Section 8(j). Notwithstanding the
provisions of this Section 8(j), each Registered Holder shall not be required to
contribute any amount in excess of the amount by which the Difference exceeds
the amount of any damages that such Registered Holder 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 1933 Act), shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.

        (k)    The provisions of Sections 8(g) through 8(j) of this Agreement
shall be in addition to any other rights to indemnification or contribution
which any indemnified party may have pursuant to law or contract and shall
remain operative and in full force and effect regardless of any investigation
made or omitted by or on behalf of any indemnified party and shall survive the
transfer of the Registrable Securities by any such party.

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        (l)    The Registered Holders shall have certain “piggy-back”
registration rights with respect to the Registrable Securities as hereinafter
provided:

        (1)    If, at any time or from time to time on or after the three-year
anniversary of the Final Closing Date, the Company determines to register Common
Stock for its own account for a public offering or for the account of any of its
stockholders to publicly sell their shares of Common Stock, other than a
registration on Form S-1 or S-8 relating solely to employee stock option or
purchase plans, the Company will promptly notify each Registered Holder of such
registration.

        (2)    If within five (5) days after such notice from the Company a
Registered Holder gives notice to the Company of such Registered Holder’s
desires to have such Registered Holder’s Registrable Securities included in a
registration statement, then the Company shall include such Registered Holder’s
Registrable Securities in such registration statement, at the Company’s sole
cost and expense, subject to the remaining terms of this Section 8(l). If a
Registered Holder fails to give such notice within such period, such Registered
Holder shall not have the right to have such Registered Holder’s Registrable
Securities registered pursuant to such registration statement.

        (3)    The Company at its expense will keep such registration effective
for a period of 180 days or until all of the selling securities holders named in
such registration statement relating thereto have completed the distribution
described in such registration statement, whichever first occurs, and will
furnish such number of prospectuses and other documents incident thereto as such
selling securities holders from time to time may reasonably request.

        (4)    The Registered Holder shall furnish in writing to the Company
such information as the Company shall reasonably require in connection with any
registration statement.

        (m)    The Company acknowledges that there is no adequate remedy at law
for failure by it to comply with the provisions of this Section 8 and that such
failure would not be adequately compensable in damages, and therefore agrees
that its obligations and agreements contained in this Section 8 may be
specifically enforced. In addition, the Company shall also reimburse the
Registered Holders for any and all reasonable legal fees, expenses and
disbursements incurred by them in enforcing their rights pursuant to this
Section 8, regardless of whether any litigation was commenced; provided,
however, that the Company shall not be liable for the fees and expenses of more
than one law firm, which firm shall be designated by the Placement Agent.

        9.    Conditions. The following obligations of the Company shall be
satisfied or fulfilled on or prior to the date of each Closing, unless otherwise
specified hereinbelow or agreed to in writing by the Placement Agent:

        (a)    The Company shall have delivered to the Placement Agent, at the
Initial Closing, (i) by-laws of the Company and each Subsidiary certified by the
secretary of the

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Company and the respective secretaries of each Subsidiary; and (ii) certified
resolutions of the Board of Directors of the Company approving this Agreement,
the sale of the Units and the Placement Agent Warrants, and the registration of
the Registrable Securities. The Company shall deliver to the Placement Agent, as
soon after the Initial Closing as feasible, (i) a currently-dated good standing
certificate or telegram from the Secretary of State where the Company and each
Subsidiary is incorporated and each other jurisdiction in which the Company and
any of the Subsidiaries is qualified to do business as a foreign corporation and
(ii) the articles of incorporation (as amended) of the Company and each
Subsidiary, as currently in effect, certified by the Secretary of State of the
state where the Company and each Subsidiary is incorporated.

        (b)    There shall have occurred no event which has a Material Adverse
Effect on the Company or the Subsidiaries or any of their respective businesses,
assets, prospects or the Company’s securities since the date of this Agreement.

        (c)    No litigation or administrative proceeding shall have been
threatened or commenced against the Company or any of its Subsidiaries which (i)
seeks to enjoin or otherwise prohibit or restrict the consummation of the
transactions contemplated by this Agreement or (ii) if adversely determined,
would have a Material Adverse Effect on the Company or the Company’s securities.

        (d)    The Company shall have delivered to the Placement Agent a
certificate of its principal executive and financial officers as to the matters
set forth in Sections 9(a), (b) and (c) of this Agreement and to the further
effect that (i) neither the Company nor any Subsidiary is in default, in any
respect, under any note, loan agreement, security agreement, mortgage, deed of
trust, indenture, contract, alliance agreement, lease, license, joint venture
agreement, other agreement or other instrument to which it is a party, except as
disclosed in the Financial Statements or the Memorandum and except where such
default has not and will not have a Material Adverse Effect; (ii) the Company’s
representations and warranties contained in this Agreement are true and correct
in all respects on such date with the same force and effect as if made on such
date, (iii) there has been no amendment or changes to the Company’s or the
Subsidiaries’articles of incorporation or by-laws or authorizing resolutions
from those to be delivered pursuant to Section 9(a) of this Agreement; and (iv)
no event has occurred which, with or without the lapse of time or giving of
notice, or both, would constitute a breach of default thereof by the Company or
any Subsidiary, or would cause acceleration of any obligation of the Company or
any Subsidiary, or could adversely affect the business, operations, financial
condition or prospects of the Company or any Subsidiary.

        (e)    The Placement Agent shall have received the opinion of Hedger &
Hedger, counsel for the Company, dated as of the Closing Date in form and
substance reasonably satisfactory to the Placement Agent and its counsel.

        (f)    The Company shall timely prepare and file or deliver to counsel
for filing with the SEC and any states in which such filing is required, a Form
D relating to the sale of the Units and such other documents and certificates as
are required.

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        (g)    Subscriptions for at least the Minimum Amount of Units shall have
been accepted by the Company.

        (h)    In addition to the right of the Placement Agent to terminate this
Agreement and not consummate the transactions contemplated by this Agreement as
a result of the failure of the Company to comply with any of its obligations set
forth in this Agreement, this Agreement may be terminated by the Placement Agent
by written notice to the Company at any time prior to the Initial Closing if, in
the Placement Agent’s sole judgment, (i) the Company and/or any of the
Subsidiaries shall have sustained a loss that is material to the Company or the
Subsidiaries, taken as a whole, whether or not insured, by reason of fire,
earthquake, flood, accident or other calamity, or from any labor dispute or
court or government action, order or decree; (ii) trading in securities on any
exchange or system shall have been suspended or limited either generally or
specifically with respect to the Common Stock; (iii) material governmental
restrictions have been imposed on trading in securities generally or
specifically with respect to the Common Stock (not in force and effect on the
date of this Agreement); (iv) a banking moratorium shall have been declared by
Federal or New York State authorities; (v) an outbreak of major international
hostilities or other national or international calamity shall have occurred;
(vi) the Congress of the United States or any state legislative body shall have
passed or taken any action or measure, or such bodies or any governmental body
or any authoritative accounting institute, or board, or any governmental
executive shall have adopted any orders, rules or regulations, which the
Placement Agent reasonably believes is likely to have a Material Adverse Effect
on the business, financial condition or financial statements of the Company or
the market for the Common Stock; (vii) the Common Stock shall have been delisted
from the exchange(s) on which it currently listed, or the Company shall have
received notice from such exchange(s) advising the Company of its intention to
have the Common Stock delisted from such exchange(s), whether conditional or
otherwise, or the Company shall fail to meet the requirements for continued
listing on such exchange(s); or (viii) there shall have been, in the Placement
Agent’s judgment, a material decline in the Dow Jones Industrial Index or the
market price of the Common Stock at any time subsequent to the date of this
Agreement.

        10.    Covenants of the Company. The Company agrees at all times as long
as the Investor Warrants or the Placement Agent Warrants may be exercised, to
keep reserved from the authorized and unissued Common Stock, such number of
shares of Common Stock as may be, from time to time, issuable upon exercise of
the Investor Warrants and the Placement Agent Warrants.

        11.    Indemnification.

        (a)    Indemnification by Company. The Company agrees to indemnify and
hold harmless the Placement Agent, its officers, directors and agents from and
against any and all loss, liability, claim, damage and expense whatsoever
arising out of (1) a breach or alleged breach by the Company of any warranty set
forth in Section 3 of this Agreement, (2) failure or alleged failure by the
Company to comply with the provisions of Section 3 of this Agreement, (3) claims
for finder’s fees or brokerage commissions payable with respect to the Taglich
Investors, except as provided in Section 12 of this Agreement, or (4) any untrue
statement or alleged untrue statement of a material fact contained in the
Offering Materials or the omission or alleged

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omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission contained in the material furnished to
the Company by the Placement Agent on the Placement Agent’s behalf, specifically
for inclusion therein, which relates to the Placement Agent’s activities
pursuant to this Agreement.

        (b)    Indemnification by Placement Agent. The Placement Agent agrees to
indemnify and hold harmless the Company (its officers, directors and agents) and
each person, if any, who controls any of the foregoing within the meaning of the
1933 Act to the same extent as the indemnity from the Company described above
against any and all loss, liability, claim, damage and expense whatsoever (or
actions in respect thereto) arising out of or based upon any misrepresentation
or alleged misrepresentation, failure or alleged failure by the Placement Agent
to comply with the covenants and agreements set forth in Section 4 of this
Agreement.

        12.    Fees.

        (a)    As disclosed in the Offering Materials, a fee (the “Success Fee”)
equal to eight percent (8%) of the gross proceeds through the sale of the Units
shall be payable to the Placement Agent.

        (b)    In addition to the sums payable to the Placement Agent as
provided elsewhere herein, the Placement Agent shall be entitled to receive at
the Closing, as additional compensation for its services, warrants (as amended,
or supplemented from time to time, the “Placement Agent Warrants”) with a five
(5) year term for the purchase of an amount of Common Stock equal to ten percent
(10%) of the Shares sold to Taglich Investors in this offering. The initial
exercise price of the Placement Agent Warrants shall be equal to $.72 per share
of Common Stock, subject to adjustment as provided in the Placement Agent
Warrants.

        (c)    Upon closing, the Company will reimburse the Placement Agent for
up to $35,000 of its actual and reasonable out-of-pocket expenses incurred in
connection with the offering of the Units, including fees and expenses of its
counsel.

        (d)    The Company shall pay any fees required in connection with the
qualification of the sale of the Units under the state securities or blue sky
laws of any state which the Placement Agent reasonably deems necessary.

        (e)    All payments in connection with the sale of the Units shall be
made pursuant to the terms and conditions of the escrow agreement among the
Company, the Placement Agent and CSC Trust Company of Delaware.

        13.    Notices. All notices provided for in this Agreement shall be in
writing signed by the party giving such notice, and delivered personally or sent
by overnight courier or messenger against receipt thereof or sent by registered
or certified mail, return receipt requested, or by facsimile transmission, if
confirmed by mail as provided in this Section 13. Notices shall be deemed to
have been received on the date of personal delivery or facsimile or, if sent by
certified or registered mail, return receipt requested, shall

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be deemed to be delivered on the third business day after the date of mailing.
Notices shall be sent to the following addresses:

  To the Company:
    DERMA SCIENCES, INC.
214 Carnegie Center, Suite 100
Princeton, NJ 08540
Facsimile: (609) 514-8554
Attention: Edward J. Quilty, President and CEO
    With a copy to:
    HEDGER & HEDGER
2 Fox Chase Drive
P.O. Box 915
Hershey, PA 17033
Facsimile: (717) 534-9813
Attention: Ray Hedger, Esq.
    To Placement Agent:
    TAGLICH BROTHERS, INC.
405 Lexington Avenue, 51st Floor
New York, NY 10174
Facsimile: (212) 661-6824
Attention: Richard Oh
    With a copy to:
    BINGHAM MCCUTCHEN LLP
399 Park Avenue
New York, NY 10022
Facsimile: (212) 702-3629
Attention: Robert G. Leonard, Esq.

or to such other address as any party shall designate in the manner provided in
this Section 13.

        14.    Miscellaneous.

        (a)    This Agreement constitutes the entire agreement between the
parties relating to the subject matter hereof and supercedes any and all prior
or contemporaneous oral and prior written agreements and understandings. This
Agreement may not be modified or amended nor may any right be waived except by a
writing which expressly refers to this Agreement, states that it is a
modification, amendment or waiver and is signed by all parties with respect to a
modification or amendment or the party granting the waiver with respect to a
waiver.

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No course of conduct or dealing and no trade custom or usage shall modify any
provisions of this Agreement.

        (b)    This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to be
performed entirely within such state. Each party hereby consents to the
exclusive jurisdiction of the Federal and state courts situated in New York
County, New York in connection with any action arising out of or based upon this
Agreement and the transactions contemplated by this Agreement.

        (c)    This Agreement shall be binding upon and inure to the benefit of
the parties hereto, and their respective personal representatives, successors
and permitted assigns.

        (d)    In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.

        (e)    Each party shall, without payment of any additional consideration
by any other party, at any time on or after the date of any Closings take such
further action and execute such other and further documents and instruments as
the other party may request in order to provide the other party with the
benefits of this Agreement.

        (f)    The captions and headings contained herein are solely for
convenience and reference and do not constitute a part of this Agreement.

        (g)    All references to any gender shall be deemed to include the
masculine, feminine or neuter gender, the singular shall include the plural and
the plural shall include the singular.

        (h)    This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same document.

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        IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.

DERMA SCIENCES, INC.
 
    TAGLICH BROTHERS, INC.
 
    By:     By:       Name: Edward J. Quilty
Title: President and Chief Executive Officer     Name:
Title:  

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EXHIBIT A

Names, Addresses and Social Security
or Employer Identification Number
of Investors   Number of Units

25