Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of May 15, 2006,
is made by and among Accentia Biopharmaceuticals, Inc., a Florida corporation,
with headquarters located at 324 South Hyde Park Avenue, Suite 350, Tampa,
Florida, 33606 (the “Company”), and the purchasers listed on the Schedule of
Buyers attached hereto (individually, a “Buyer” and collectively, the “Buyers”).

WHEREAS:

A. The Company and each Buyer are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by
Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”), and
Rule 506 of Regulation D (“Regulation D”) as promulgated by the United States
Securities and Exchange Commission (the “SEC”) under the 1933 Act.

B. Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms
and conditions stated in this Agreement, (i) that aggregate number of shares of
the Common Stock, par value $0.001 per share, of the Company (the “Common
Stock”), set forth opposite such Buyer’s name in column (3) on the Schedule of
Buyers (which aggregate amount for all Buyers together shall not exceed
2.9 million shares of Common Stock (including any securities into which or for
which such shares may be exchanged for, or converted into, pursuant to any stock
dividend, stock split, stock combination, recapitalization, reclassification or
other similar event) and shall collectively be referred to herein as the “Common
Shares”) and (ii) a warrant to acquire up to 50% of that number of Common Shares
set forth opposite such Buyer’s name in column (4) on the Schedule of Buyers
(which aggregate amount of all Buyer’s together shall entitle the purchase of up
to 1.45 million Warrant Shares and shall collectively be referred to herein as
the “Warrants”), in substantially the form attached hereto as Exhibit A (as
exercised, collectively, the “Warrant Shares”) at an exercise price of the
average closing price per share for the 10-day period leading up to the purchase
of the Common Stock.

C. Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement,
substantially in the form attached hereto as Exhibit B (the “Registration Rights
Agreement”) pursuant to which the Company has agreed to provide certain
registration rights with respect to the Common Shares, and the Warrant Shares
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.

D. The Common Shares, the Warrants and the Warrant Shares collectively are
referred to herein as the “Securities”.

 

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NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Buyers, intending to be
legally bound, hereby agree as follows:

1. PURCHASE AND SALE OF COMMON SHARES AND WARRANTS.

(a) Purchase of Common Shares and Warrants. Subject to the satisfaction (or
waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall
issue and sell to each Buyer, and each Buyer severally, but not jointly, agrees
to purchase from the Company on the Closing Date (as defined below), the number
of Common Shares as is set forth opposite such Buyer’s name in column (3) on the
Schedule of Buyers, along with the Warrants to acquire up to that number of
Warrant Shares as is set forth opposite such Buyer’s name in column (4) on the
Schedule of Buyers (the “Closing”). The Closing shall occur on the Closing Date
at the offices of the Company.

(b) Purchase Price. The purchase price for the Common Shares and related
Warrants to be purchased by each Buyer at the Closing shall be the amount set
forth opposite such Buyer’s name in column (5) of the Schedule of Buyers (the
“Purchase Price”) which shall be equal to the amount of $5.00 per Common Share
(the “Purchase Price Per Common Share”).

(c) Closing Date. The date of the Closing (the “Closing Date”) shall be May 15,
2006, (or such other date and time as is mutually agreed to by the Company and
each Buyer).

(d) Form of Payment. On the Closing Date, (i) each Buyer shall pay its
respective Purchase Price to the Company for the Common Shares and Warrants to
be issued and sold to such Buyer at the Closing, by wire transfer of immediately
available funds in accordance with the Company’s written wire instructions, and
(ii) the Company shall deliver to each Buyer (A) one or more stock certificates,
free and clear of all restrictive and other legends (except as expressly pro
vided in Section 2(g) hereof), evidencing the number of Common Shares such Buyer
is purchasing as is set forth opposite such Buyer’s name in column (3) of the
Schedule of Buyers and (B) a Warrant pursuant to which such Buyer shall have the
right to acquire such number of Warrant Shares as is set forth opposite such
Buyer’s name in column (4) of the Schedule of Buyers, in all cases duly executed
on behalf of the Company and registered in the name of such Buyer.

 

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2. BUYER’S REPRESENTATIONS AND WARRANTIES.

Each Buyer represents and warrants with respect to only itself that:

(a) No Public Sale or Distribution. Such Buyer is (i) acquiring the Common
Shares and the Warrants and (ii) upon exercise of the Warrants will acquire the
Warrant Shares issuable upon exercise thereof, in the ordinary course of
business for its own account and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act and such Buyer does not have a
present arrangement to effect any distribution of the Securities to or through
any person or entity; provided, however, that by making the representations
herein, such Buyer does not agree to hold any of the Securities for any minimum
or other specific term and reserves the right to dispose of the Securities at
any time in accordance with or pursuant to a registration statement or an
exemption under the 1933 Act. Such Buyer is acquiring the Securities hereunder
in the ordinary course of its business. Such Buyer does not presently have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.

(b) Accredited Investor Status. Such Buyer is an “accredited investor” as that
term is defined in Rule 501(a) of Regulation D.

(c) Reliance on Exemptions. Such Buyer understands that the Securities are being
offered and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying in part upon the truth and accuracy of, and such Buyer’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of such Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of such Buyer to acquire the
Securities.

(d) Information. Such Buyer and its advisors, if any, have been furnished with
all materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Securities which have been
requested by such Buyer. Such Buyer and its advisors, if any, have been afforded
the opportunity to ask questions of the Company. Neither such inquiries nor any
other due diligence investigations conducted by such Buyer or its advisors, if
any, or its representatives shall modify, amend or affect such Buyer’s right to
rely on the Company’s representations and warranties contained herein. Such
Buyer understands that its investment in the Securities involves a high degree
of risk and is able to afford a complete loss of such investment. Such Buyer has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Securities.

(e) No Governmental Review. Such Buyer understands that no United States federal
or state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities or the fairness or
suitability of the investment in the Securities nor have such authorities passed
upon or endorsed the merits of the offering of the Securities.

 

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(f) Transfer or Resale. Such Buyer understands that except as provided in the
Registration Rights Agreement: (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a form reasonably acceptable to the Company, to the
effect that such Securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, or
(C) such Buyer provides the Company with reasonable assurance that such
Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule
144A promulgated under the 1933 Act, as amended, (or a successor rule thereto)
(collectively, “Rule 144”); (ii) any sale of the Securities made in reliance on
Rule 144 may be made only in accordance with the terms of Rule 144 and further,
if Rule 144 is not applicable, any resale of the Securities under circumstances
in which the seller (or the Person (as defined in Section 3(r)) through whom the
sale is made) may be deemed to be an underwriter (as that term is defined in the
1933 Act) may require compliance with some other exemption under the 1933 Act or
the rules and regulations of the SEC thereunder; and (iii) neither the Company
nor any other Person is under any obligation to register the Securities under
the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder. Notwithstanding the foregoing, the
Securities may be pledged in connection with a bona fide margin account or other
loan secured by the Securities and such pledge of Securities shall not be deemed
to be a transfer, sale or assignment of the Securities hereunder, and no Buyer
effecting a pledge of Securities shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement or any other Transaction Document, including, without limitation,
this Section 2(f); provided, that in order to make any sale, transfer or
assignment of Securities, such Buyer and its pledgee makes such disposition in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act.

(g) Legends. Such Buyer understands that the certificates or other instruments
representing the Common Shares and the Warrants and, until such time as the
resale of the Common Shares and the Warrant Shares have been registered under
the 1933 Act as contemplated by the Registration Rights Agreement, the stock
certificates representing the Warrant Shares, except as set forth below, shall
bear any legend as required by the “blue sky” laws of any state and a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT

 

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REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A
UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.

The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped or issue to such holder by electronic delivery at the applicable balance
account at DTC, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale, assignment or other transfer, such holder provides the Company with an
opinion of counsel reasonably satisfactory to the Company, in a generally
acceptable form, to the effect that such sale, assignment or transfer of the
Securities may be made without registration under the applicable requirements of
the 1933 Act and that such legend is no longer required, or (iii) such holder
provides the Company with reasonable assurance that the Securities can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A. If the Company shall
fail for any reason or for no reason to issue to the holder of the Securities
within three (3) Trading Days after the occurrence of any of (i) through
(iii) above, a certificate without such legend to the holder or to issue such
Securities to such holder by electronic delivery at the applicable balance
account at DTC, and if on or after such Trading Day the holder purchases (in an
open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the holder of such Securities that the holder
anticipated receiving without legend from the Company (a “Buy-In”), then the
Company shall, within three (3) Business Days after the holder’s request and in
the holder’s discretion, either (i) pay cash to the holder in an amount equal to
the holder’s total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased (the “Buy-In Price”), at which point the
Company’s obligation to deliver such unlegended Securities shall terminate, or
(ii) promptly honor its obligation to deliver to the holder such unlegended
Securities as provided above and pay cash to the holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price on the date of the sale
which resulted in the buy-in.

(h) Validity; Enforcement. This Agreement and the Registration Rights Agreement
have been duly and validly authorized, executed and delivered on behalf of such
Buyer and shall constitute the legal, valid and binding obligations of such
Buyer enforceable against such Buyer in accordance with their respective terms,
except as such enforceability may be limited by general principles of equity or
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors’ rights and remedies.

(i) No Conflicts. The execution, delivery and performance by such Buyer of this
Agreement and the Registration Rights Agreement and the consummation by such
Buyer of the transactions contemplated hereby and thereby will not (i) result in
a violation of the organizational documents of such Buyer or (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or

 

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instrument to which such Buyer is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws) applicable to such Buyer, except in the case of clauses
(ii) and (iii) above, for such conflicts, defaults, rights or violations which
would not, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the ability of such Buyer to perform its obligations
hereunder.

(j) Residency. Such Buyer is a resident of that jurisdiction specified below its
address on the Schedule of Buyers.

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The Company represents and warrants to each of the Buyers that:

(a) Organization and Qualification. Each of the Company and its “Subsidiaries”
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns capital stock or holds an equity or similar
interest) are corporations duly organized and validly existing in good standing
under the laws of the jurisdiction in which they are incorporated, and have the
requisite corporate power and authorization to own their properties and to carry
on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. As used in this Agreement, “Material
Adverse Effect” means any material adverse effect on the business, properties,
assets, operations, results of operations, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries, taken as a whole, or on the
transactions contemplated hereby and the other Transaction Documents or by the
agreements and instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below). Except as set
forth on Schedule 3(a), the Company has no Subsidiaries and does not otherwise
own or control, directly or indirectly, any other Person. The Company is not a
participant in any joint venture partnership or similar arrangement material to
the business of the Company.

(b) Authorization; Enforcement; Validity. The Company has the requisite
corporate power and authority to enter into, deliver and perform its obligations
under this Agreement, the Registration Rights Agreement, the Irrevocable
Transfer Agent Instructions (as defined in Section 5), the Warrants and each of
the other agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the “Transaction
Documents”) and to issue the Securities in accordance with the terms hereof and
thereof. The execution and delivery of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby, including, without limitation, the issuance of the Common Shares and
the Warrants and the reservation for issuance and the issuance of the Warrant
Shares issuable upon exercise of the Warrant have been duly authorized by the
Company’s Board of Directors and no further consent or authorization is required
by the Company, its Board of Directors or its shareholders. This

 

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Agreement and the other Transaction Documents have been duly executed and
delivered by the Company, and constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies.

(c) Issuance of Securities. The Common Shares and the Warrants are duly
authorized and, upon issuance in accordance with the terms hereof, shall be
validly issued and free from all taxes, liens and charges with respect to the
issue thereof, will not be subject to encumbrances, preemptive rights, rights of
first refusal or other similar rights of shareholders of the Company or any
other person, will not impose personal liability on the holder thereof, will not
result in the right of any holder of the Company securities to adjust the
exercise, conversion, exchange or reset price under such securities, and the
Common Shares shall be fully paid and nonassessable with the holders being
entitled to all rights accorded to a holder of Common Stock. As of the Closing
Date, the Company shall have duly authorized and reserved for issuance a number
of shares of Common Stock which equals the number of Warrant Shares. The Company
shall, so long as any of the Warrants are outstanding, take all action necessary
to reserve and keep available out of its authorized and unissued Capital Stock,
solely for the purpose of effecting the exercise of the Warrants, the number of
shares of Common Stock issuable upon exercise of the Warrants. Upon exercise in
accordance with the Warrants, the Warrant Shares will be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof, will not be subject to preemptive rights, rights of first
refusal or other similar rights of shareholders of the Company or any other
person, will not impose personal liability on the holder thereof with the
holders being entitled to all rights accorded to a holder of Common Stock. The
issuance by the Company of the Securities is exempt from registration under the
1933 Act.

(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of
the Common Shares and Warrants and reservation for issuance and issuance of the
Warrant Shares) will not (i) result in a violation of the Certificate of
Incorporation (as defined below) or Bylaws (as defined below) of the Company or
any of its Subsidiaries or (ii) breach, conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment (including,
without limitation, the triggering of any anti-dilution provisions),
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its Subsidiaries is a party, or (iii) result in a
violation of any statute, law, rule, regulation, order, ordinance, judgment or
decree (including federal and state securities laws and regulations and the
rules and regulations of The Nasdaq National Market (the “Principal Market”)
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected).

 

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(e) Consents. Except as disclosed on Schedule 3(r) the Company is not required
to obtain any consent, authorization, approval or order of, or make any filing
or registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or thereof. All
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the Closing Date. The execution and delivery by the
Company of this Agreement and the Transaction Documents, the consummation of the
transactions contemplated herein and therein, and the issuance of the Common
Shares, the Warrants and the Warrant Shares, do not require the consent or
approval of the stockholders of, or any lender to, the Company. The Company and
its Subsidiaries are unaware of any facts or circumstances that might prevent
the Company from obtaining or effecting any of the registration, application or
filings pursuant to the preceding sentence. The Company is not in violation of
the listing requirements of the Principal Market and has no knowledge of any
facts that would reasonably lead to delisting or suspension of the Common Stock
in the foreseeable future.

(f) Acknowledgment Regarding Buyer’s Purchase of Securities. The Company
acknowledges and agrees that each Buyer is acting solely in the capacity of
arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company, (ii) an “affiliate” of the Company (as defined in
Rule 144) or (iii) to the knowledge of the Company, a “beneficial owner” of more
than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of
the Securities Exchange Act of 1934, as amended (the “1934 Act”)). The Company
further acknowledges that no Buyer 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 hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer’s purchase of the Securities. The Company
further represents to each Buyer that the Company’s decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.

(g) No General Solicitation; Placement Agent’s Fees. Neither the Company, nor
any of its affiliates, nor any Person acting on its or their behalf, has engaged
in any form of general solicitation or general advertising (within the meaning
of Regulation D) in connection with the offer or sale of the Securities. The
Company shall be responsible for the payment of any placement agent’s fees,
financial advisory fees, or brokers’ commissions (other than for persons engaged
by any Buyer or its investment advisor) relating to or arising out of the
transactions contemplated hereby. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
attorney’s fees and out-of-pocket expenses) arising in connection with any such
claim. The Company has engaged Susquehanna Financial Group, LLLP as placement
agent and may name additional placement agents in connection with the sale of
the Securities.

 

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(h) No Integrated Offering. None of the Company, its Subsidiaries, any of their
affiliates, and any Person acting on their 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 require registration of any of the
Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable shareholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated. None of the
Company, its Subsidiaries, their affiliates and any Person acting on their
behalf will take any action or steps referred to in the preceding sentence that
would require registration of any of the Securities under the 1933 Act or cause
the offering of the Securities to be integrated with other offerings.

(i) Dilutive Effect. The Company understands and acknowledges that the number of
Warrant Shares issuable upon exercise of the Warrants will increase the number
of common shares outstanding. The Company’s directors and executive officers
have studied and fully understand the nature of the Securities being sold
hereunder. The Company further acknowledges that its obligation to issue the
Warrant Shares upon exercise of the Warrants in accordance with this Agreement
and the Warrants, in each case, is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
shareholders of the Company. Taking the foregoing into account, the Company’s
Board of Directors has determined in its good faith business judgment that the
issuance of the Securities hereunder and the consummation of the other
transactions contemplated hereby are in the best interests of the Company and
its shareholders.

(j) Application of Takeover Protections; Rights Agreement. The Company and its
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 Certificate of Incorporation or the laws of
the State of Florida which is or could become applicable to any Buyer as a
result of the transactions contemplated by this Agreement, including, without
limitation, the Company’s issuance of the Securities and any Buyer’s ownership
of the Securities. The Company has not adopted a shareholder rights plan or
similar arrangement relating to accumulations of beneficial ownership of
Ordinary Shares or a change in control of the Company.

(k) SEC Documents; Financial Statements. Since its initial public offering
(IPO), the Company has timely filed all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the 1934 Act (all of the foregoing filed prior to the
date hereof or prior to the date of the Closing, and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the “SEC
Documents”). The Company has delivered to the Buyers or their respective
representatives true, correct and complete copies of any SEC Documents requested
by Buyers not available on the EDGAR system. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
1933 Act and the 1934 Act, as the case may be, and the rules and

 

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regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Except as disclosed on Schedule M, none of the statements made in
any such SEC Documents is, or has been, required to be amended or updated under
applicable law (except for such statements as have been amended or updated in
subsequent filings made prior to the date hereof). Except as disclosed on
Schedule M, as of their respective dates, the financial statements of the
Company included in the SEC Documents complied in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments or (iii) as disclosed
on Schedule M). Except as set forth in the financial statements of the Company
included in the SEC Documents and except as disclosed in Schedules 3(m) and
3(s), the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to the
date of such financial statements and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
GAAP to be reflected in such financial statements, which liabilities and
obligations referred to in clauses (i) and (ii), individually or in the
aggregate, are not material to the financial condition or operating results of
the Company. To the extent required by the rules and regulations of the SEC
applicable thereto, the SEC Documents contain a complete and accurate list of
all material undischarged written or oral contracts, agreements, leases or other
instruments to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary is bound or to which any of the properties or assets
of the Company or and Subsidiary is subject (each, a “Material Contract”).
Except as set forth in the SEC Documents, none of the Company, its Subsidiaries
or, to the best knowledge of the Company, any of the other parties thereto is in
breach or violation of any Material Contract, which breach or violation would
have a Material Adverse Effect.

(l) Absence of Certain Changes. Except as disclosed in Schedule 3(l) or as
disclosed in the filings with the SEC (including the exhibits thereto), since
September 30, 2005, the Company has conducted its business only in the ordinary
course, consistent with past practices and since that date there has been no
material adverse change and no material adverse development in the business,
properties, operations, condition (financial or otherwise), results of
operations or prospects of the Company or its Subsidiaries. Except as disclosed
in Schedule 3(l), since September 30, 2005, the Company has not (i) declared or
paid any dividends, (ii) sold any assets, individually or in the aggregate, in
excess of $25,000 outside of the ordinary course of business, (iii) had capital
expenditures, individually or in the aggregate, in excess of $100,000 outside of
the ordinary course of business, (iv) amended or changed the Articles of
Incorporation or Bylaws of the Company or its Subsidiaries, (v) delivered a
waiver of substantial value whether or not in the ordinary course, (vi) made a
material change in officer

 

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compensation except in the ordinary course of business consistent with past
practice, (vii) amended or terminated or not renewed any material contract,
license, lease, commitment or obligation (other than in the ordinary course),
(viii) transferred or granted rights with respect to intellectual property owned
or licensed by the Company or its Subsidiaries, or (ix) made some other
commitment to do any of the foregoing. The Company has not taken any steps, and
does not currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company have any knowledge or reason to believe that
its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact which would reasonably lead a creditor to do so.
The Company is not as of the date hereof, and after giving effect to the
transactions contemplated hereby to occur at the Closing, will not be Insolvent
(as defined below). For purposes of this Section 3(l), “Insolvent” means (i) the
present fair saleable value of the Company’s assets is less than the amount
required to pay the Company’s total Indebtedness (as defined in Section 3(r)),
(ii) the Company is unable to pay its debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and
matured, (iii) the Company intends to incur or believes that it will incur debts
that would be beyond its ability to pay as such debts mature, or (iv) the
Company has unreasonably small capital with which to conduct the business in
which it is engaged as such business is now conducted or is about to be
conducted.

(m) No Undisclosed Events, Liabilities, Developments or Circumstances. Except as
disclosed in Schedule 3(m), no event has occurred or exists with respect to the
Company or its Subsidiaries or their respective business, properties, prospects,
operations or financial condition, that would be required to be disclosed by the
Company under applicable securities laws on a registration statement on Form S-1
filed with the SEC relating to an issuance and sale by the Company of its Common
Stock and which has not been publicly announced. Except as disclosed in Schedule
3(m) or the Company’s filings with the SEC (including the exhibits thereto), the
Company and the Subsidiaries have incurred no liabilities or obligations,
whether known or unknown, asserted or unasserted, matured on unmatured,
liquidated or unliquidated, or otherwise, except for liabilities or obligations
material, individually or in the aggregate, that do not or would not have a
Material Adverse Effect.

(n) Conduct of Business; Regulatory Permits. Neither the Company nor its
Subsidiaries is in violation of any term of or in default under the Certificate
of Incorporation or Bylaws or their organizational charter or bylaws,
respectively. Neither the Company nor any Subsidiary is in violation of any
judgment, decree or order or any statute, ordinance, rule or regulation
applicable to the Company or its Subsidiaries, and neither the Company nor any
of its Subsidiaries will conduct its business in violation of any of the
foregoing, except for possible violations which would not, individually or in
the aggregate, have a Material Adverse Effect. Without limiting the generality
of the foregoing, the Company is not in violation of any of the rules,
regulations or requirements of the Principal Market and has no knowledge of any
facts or circumstances that would reasonably lead to delisting or suspension of
the Common Stock by the Principal Market in the foreseeable future. Since
September 30, 2005, (i) the Common Stock has been designated for quotation or
listed on the Principal Market, (ii) trading in the Common Stock has not been
suspended by the SEC or the Principal Market, and (iii) the Company has received
no communication, written or oral, from the SEC or the Principal Market

 

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regarding the suspension or delisting of the Common Stock from the Principal
Market. The Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, except
where the failure to possess such certificates, authorizations or permits would
not have, individually or in the aggregate, a Material Adverse Effect, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.

(o) Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries,
nor any director, officer, agent, employee or other Person acting on behalf of
the Company or any of its Subsidiaries has, in the course of its actions for, or
on behalf of, the Company (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
(iii) violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.

(p) Sarbanes-Oxley Act. The Company is in compliance with any and all applicable
requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date
hereof, and any and all applicable rules and regulations promulgated by the SEC
thereunder that are effective as of the date hereof, except where such
noncompliance would not have, individually or in the aggregate, a Material
Adverse Effect.

(q) Transactions With Affiliates. Except as set forth in the Company’s Annual
Report on Form 10-K for the year ended September 30, 2005, or any filing with
the SEC subsequent thereto (including the Company’s definitive proxy statement
filed with the SEC for the Company’s 2006 Annual Shareholders’ Meeting) none of
the officers, directors or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for ordinary
course services as employees, officers or directors), exceeding $60,000.00
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any such
officer, director or employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any such officer,
director, or employee has a an ownership interest of five percent or more or is
an officer, director, trustee or partner.

(r) Equity Capitalization. As of the date hereof, the authorized capital stock
of the Company consists of (x) 300 million shares of Common Stock, of which as
of the date hereof, 29,156,751 (which is subject to increase as outstanding
options, warrants, or rights, described herein are exercised) shares are issued
and outstanding, 3,585,889 shares are reserved for issuance pursuant to the
Company’s employee incentive plan and other options and warrants outstanding
(y) 150 million shares of preferred stock, of which as of the date hereof, no
shares are issued and outstanding and (z) $12,177,419 in principal amount of
convertible

 

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notes are outstanding which are convertible into Common Shares in accordance
with their terms. All of such outstanding shares have been, or upon issuance
will be, duly authorized, validly issued and are fully paid and nonassessable.
Except as set forth above in this Section 3(r), in the Company’s Form 10-K for
the fiscal year ended September 30, 2005 or filings made with the SEC subsequent
thereto, or on Schedule 3(r): (i) no shares of the Company’s capital stock are
subject to preemptive rights; (ii) there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any shares of capital stock of the Company, or contracts,
commitments, understandings or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, or
exercisable or exchangeable for, any shares of capital stock of the Company or
any of its Subsidiaries; (iii) there are no outstanding debt securities, notes,
credit agreements, credit facilities or other agreements, documents or
instruments evidencing Indebtedness (as defined in Section 3(s)) of the Company
or any which are not disclosed in the Company’s financial statements or filings
with the SEC of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement); (v) there are no outstanding securities or
instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (vii) the Company does not have any stock appreciation rights or
“phantom stock” plans or agreements or any similar plan or agreement; and
(viii) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents (as defined herein) but not so
disclosed in the SEC Documents, other than those incurred in the ordinary course
of the Company’s or any Subsidiary’s respective businesses and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect and as disclosed in Schedule 3(m). The Company has furnished or made
available to the Buyer upon such Buyer’s request, true, correct and complete
copies of the Company’s Certificate of Incorporation, as amended and as in
effect on the date hereof (the “Certificate of Incorporation”), and the
Company’s Bylaws, as amended and as in effect on the date hereof (the “Bylaws”),
and the terms of all securities convertible into, or exercisable or exchangeable
for, shares of Common Stock and the material rights of the holders thereof in
respect thereto.

(s) Indebtedness and Other Contracts. Except as disclosed in Schedule 3(s), or
otherwise described in filings made by the Company with the SEC neither the
Company nor any of its Subsidiaries (i) has any outstanding Indebtedness (as
defined below), (ii) is a party to any contract, agreement or instrument, the
violation of which, or default under which, by the other party(ies) to such
contract, agreement or instrument would result in a Material Adverse Effect,
(iii) is in default under any contract, agreement or instrument relating to any
Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iv) is a
party to any contract, agreement or instrument relating to

 

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any Indebtedness, the performance of which, in the judgment of the Company’s
officers, has or is expected to have a Material Adverse Effect. All contracts,
agreements, instruments and other documents required to be filed as exhibits to
any periodic reports required to be filed by the 1934 Act are legal, valid and
binding, in full force and effect and are enforceable by the Company in
accordance with their respective terms, except as may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies. For purposes of this
Agreement: (x) “Indebtedness” of any Person means, without duplication (A) all
indebtedness for borrowed money, (B) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through
(G) above; (y) “Contingent Obligation” means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; and
(z) “Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.

(t) Absence of Litigation. Except as set forth on Schedule 3(t) or disclosed in
the Company’s filings with the SEC, there is no action, suit, proceeding,
inquiry or investigation before or by the Principal Market, any court, public
board, government agency, self-regulatory organization or body (including,
without limitation, the SEC) pending or, to the knowledge of the Company,
threatened against or affecting the Common Stock, the Company or any of its
Subsidiaries or any of the Company’s or the Company’s Subsidiary’s officers or
directors, whether of a civil or criminal nature or otherwise which would
prevent this transaction or the issuance of Common Shares, Warrants or Warrant
Shares hereunder nor which would have a Material Adverse Effect. There are no
facts which, if known by a potential claimant or

 

14

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governmental authority, could give rise to a claim or proceeding which, if
asserted or conducted would have a result unfavorable to the Company of any of
its Subsidiaries, could reasonably be expected to have a Material Adverse
Effect.

(u) 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 management of the Company believes to be prudent and customary in the
businesses in which the Company and its Subsidiaries are engaged. Except as set
forth on Schedule 3(u), neither the Company nor any Subsidiary has been refused
any insurance coverage sought or applied for. Neither the Company nor any
Subsidiary has any 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 at a cost that would not have a Material Adverse Effect.

(v) Employee Relations. (i) Neither the Company nor any of its Subsidiaries is a
party to any collective bargaining agreement or employs any member of a union.
The Company and its Subsidiaries believe that their relations with their
employees are good. No executive officer of the Company (as defined in Rule
501(f) of the 1933 Act) has notified the Company that such officer intends to
leave the Company or otherwise terminate such officer’s employment with the
Company. No executive officer of the Company has, to the knowledge of the
Company and its Subsidiaries, any intention to terminate or limit his employment
with, or services to, the Company or any of its Subsidiaries, nor is any such
executive officer of the Company subject to any constraints which would cause
such employee to be unable to devote his full time and attention to such
employment or services. No executive officer of the Company, 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, non-competition agreement, or any other contract or agreement or any
restrictive covenant, 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 does not intend to
terminate or limit the employment of any executive officer of the Company with,
or services to, the Company or any of its Subsidiaries,

(ii) The Company and its Subsidiaries are in compliance with all federal, state,
local and foreign laws and regulations respecting labor, employment and
employment practices and benefits, terms and conditions of employment and wages
and hours, except where failure to be in compliance would not, either
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.

(iii) No labor or employment dispute exists, or to the knowledge of the Company,
is imminent or threatened with respect to any of the employees or consultants of
the Company that has, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.

(w) Title. The Company and its Subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned by

 

15

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them which is material to the business of the Company and its Subsidiaries, in
each case free and clear of all liens, encumbrances and defects except such as
do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and any of
its Subsidiaries. Any real property and facilities held under lease by the
Company and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.

(x) Intellectual Property Rights. Except as disclosed in the Company’s filings
with the SEC (including the exhibits thereto), the Company and each of its
Subsidiaries is the sole and exclusive owner of, or has the exclusive right or
license to use, all trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and other
intellectual property rights (“Intellectual Property Rights”) necessary to
conduct their respective businesses as now conducted. Except as set forth on
Schedule 3(x), none of the Company’s Intellectual Property Rights have expired
or terminated, or are expected to expire or terminate within three years from
the date of this Agreement. The Company does not have any knowledge of any
infringement by the Company or its Subsidiaries of Intellectual Property Rights
of others. There is no claim, action or proceeding being made or brought, or to
the knowledge of the Company, being threatened, against the Company or any of
its Subsidiaries regarding its Intellectual Property Rights. The Company is
unaware of any facts or circumstances which might give rise to any of the
foregoing infringements or claims, actions or proceedings. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their Intellectual Property Rights.

(y) Environmental Laws. The Company and its Subsidiaries (i) are in compliance
with any and all Environmental Laws (as hereinafter defined), (ii) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses, and (iii) are in
compliance with all terms and conditions of any such permit, license or approval
where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so
comply could be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect. The term “Environmental Laws” means all federal, state,
local or foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, “Hazardous Materials”) into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.

 

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(z) Subsidiary Rights. The Company or one of its Subsidiaries has the
unrestricted right to vote, and subject to limitations imposed by applicable
law, to receive dividends and distributions on all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.

(aa) Tax Status. The Company and each of its Subsidiaries (i) has made or filed
all federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject, (ii) has paid all taxes and
other governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith, (iii) withheld from each payment made to any of
its past or present employees, officers and directors, and any other person, the
amount of the material taxes and other deductions required to be withheld
therefrom, and (iv) has set aside on its books in accordance with generally
accepted accounting principles provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. There are no claims or assessments
pending against the Company or any of its Subsidiaries for any material alleged
deficiency in any tax payment, and neither the Company nor any of its
Subsidiaries has been notified in writing of any proposed tax claims against the
Company or any of its Subsidiaries. The Company has not executed a waiver with
respect to any statute of limitations relating to the assessment or collection
of any foreign, federal, state, provincial or local tax. None of the Company’s
or any of its Subsidiaries tax returns has been or is presently being audited by
any taxing authority.

(bb) Internal Accounting and Disclosure Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
and liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management’s general or
specific authorization and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference. The
Company maintains disclosure controls and procedures (as such term is defined in
Rule 13a-14 under the 1934 Act) that are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
1934 Act is accumulated and communicated to the Company’s management, including
its principal executive officer or officers and its principal financial officer
or officers, as appropriate, to allow timely decisions regarding required
disclosure.

 

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(cc) Solvency. Based on the financial condition of the Company as of the Closing
Date, (i) the Company’s fair saleable value of its assets exceeds the amount
that will be required to be paid on or in respect of the Company’s existing
debts and other liabilities (including known contingent liabilities) as they
mature; (ii) the Company’s assets do not constitute unreasonably small capital
to carry on its business for the current fiscal year as now conducted and as
proposed to be conducted including its capital needs taking into account the
particular capital requirements of the business conducted by the Company, and
projected capital requirements and capital availability thereof; and (iii) the
current cash flow of the Company, together with the proceeds the Company would
receive, were it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its debt when such amounts are required to be paid. 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).

(dd) Listing. The Common Stock is currently listed for trading on the Principal
Market. The Company is not in violation of the listing requirements of the
Principal Market, does not reasonably anticipate that the Common Stock will be
delisted by the Principal Market for the foreseeable future, and has not
received any notice regarding the possible delisting of the Common Stock from
the Principal Market. The Company has secured the listing of the Warrant Shares
on the Principal Market and on each other national securities exchange,
automated quotation system or over-the-counter market upon which shares of
Common Stock are currently listed (subject to official notice of issuance).

(ee) Off Balance Sheet Arrangements. There is no transaction, arrangement, or
other relationship between the Company and an unconsolidated or other off
balance sheet entity that is required to be disclosed by the Company in its
Exchange Act filings and is not so disclosed or that otherwise would be
reasonably likely to have a Material Adverse Effect.

(ff) Manipulation of Price. The Company has 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.

(gg) Transfer Taxes. On the Closing Date, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in connection
with the sale and transfer of the Securities to be sold to each Buyer hereunder
will be, or will have been, fully paid or provided for by the Company, and all
laws imposing such taxes will be or will have been complied with.

(hh) Disclosure. Except where the Buyer or its agent has executed a
Non-Disclosure Agreement with the Company and except as disclosed on Schedule M,
the Company

 

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confirms that neither it nor any other Person acting on its behalf has provided
any of the Buyers or their respective agents or counsel with any information
that constitutes or could reasonably be expected to constitute material,
nonpublic information. The Company understands and confirms that each of the
Buyers will rely on the foregoing representations in effecting transactions in
securities of the Company. All disclosure provided to the Buyers regarding the
Company and its Subsidiaries, each of their respective businesses and the
transactions contemplated hereby, including the Schedules to this Agreement,
furnished by or on behalf of the Company are true and correct 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. Each press release
issued by the Company during the twelve (12) months preceding the date of this
Agreement did not at the time of release contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. No event or
circumstance has occurred or information exists with respect to the Company or
any Subsidiary or either of its or their respective business, properties,
prospects, 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 (assuming for this purpose
that the Company’s reports filed under the Exchange Act of 1934, as amended, are
being incorporated into an effective registration statement filed by the Company
under the 1933 Act). The Company acknowledges and agrees that no Buyer makes or
has made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 2.

(ii) No Brokers. Except with respect to Susquehanna Financial Group, LLLP,
neither the Company nor any Subsidiary of the Company has taken action that
would give rise to any claim by any person for brokerage commissions, finder’s
fees or similar payments in connection with the transactions contemplated by
this Agreement and neither the Company nor any of the Subsidiaries has incurred,
or shall incur, directly or indirectly, any liability for any claim for
brokerage commissions, finder’s fees or similar payments in connection with this
Agreement or the Transaction Documents or any transaction contemplated hereby or
thereby.

(jj) Registration Rights. Except as set forth on Schedule 3(jj), the Company has
not granted or agreed to grant to any person any right (including “piggy-back”
and demand registration rights) to have any capital stock or other security to
the Company registered with the SEC or other government authority.

4. COVENANTS.

(a) Best Efforts. Each party shall use its best efforts timely to satisfy each
of the covenants and the conditions to be satisfied by it as provided in
Sections 5, 6 and 7 of this Agreement.

 

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(b) Form D and Blue Sky. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to each
Buyer promptly after such filing. The Company, on or before the Closing Date,
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
Buyers at the Closing pursuant to this Agreement under applicable securities or
“Blue Sky” laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to the Buyers on or prior to the Closing Date. The Company shall make all
filings and reports relating to the offer and sale of the Securities required
under applicable securities or “Blue Sky” laws of the states of the United
States following the Closing Date.

(c) Reporting Status. Until the date on which the Investors (as defined in the
Registration Rights Agreement) shall have sold all the Common Shares and Warrant
Shares and none of the Warrants is outstanding (the “Reporting Period”), the
Company shall timely file all reports required to be filed with the SEC pursuant
to the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would otherwise permit such termination.

(d) Use of Proceeds. The Company will use the proceeds from the sale of the
Securities for general corporate purposes, including general and administrative
expenses. Such proceeds shall not be used to pay down any Indebtedness of the
Company outstanding on the date hereof (except to make principal and interest
payments required pursuant to the terms thereof).

(e) Financial Information. The Company agrees to send the following to each
Investor (as defined in the Registration Rights Agreement) during the Reporting
Period (i) unless the following are filed with the SEC through EDGAR and are
available to the public through the EDGAR system, within one (1) Business Day
after the filing thereof with the SEC, a copy of its Annual Reports on Form
10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and
any registration statements (other than on Form S-8) or amendments filed
pursuant to the 1933 Act, (ii) on the same day as the release thereof, facsimile
copies of all press releases issued by the Company or any of its Subsidiaries,
and (iii) copies of any notices and other information made available or given to
the shareholders of the Company generally, contemporaneously with the making
available or giving thereof to the shareholders. As used herein, “Business Day”
means any day other than Saturday, Sunday or other day on which commercial banks
in The City of New York are authorized or required by law to remain closed.

(f) Listing. The Company shall promptly secure the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
each national securities exchange and automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain, so long as any other shares of Common Stock shall
be so listed, such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents. The Company shall
maintain the Common Stock’s authorization for listing on the Principal Market.
Neither the

 

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Company nor any of its Subsidiaries shall take any action which would be
reasonably expected to result in the delisting or suspension of the Common Stock
on the Principal Market. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 4(f). The Company
shall promptly provide to each Buyer copies of any notices it receives regarding
the continued eligibility of the Common Stock for trading on any securities
exchange or automated quotation system on which securities of the same class or
series issued by the Company are then listed or quoted, if any.

(g) Fees. The Company shall reimburse Buyers in the aggregate in addition to any
other expense amounts paid to any Buyer prior to the date of this Agreement for
all reasonable costs and expenses, not to exceed $25,000, incurred in connection
with the transactions contemplated by the Transaction Documents (including all
reasonable legal fees and disbursements in connection therewith, documentation
and implementation of the transactions contemplated by the Transaction Documents
and due diligence in connection therewith), which amount shall be
non-accountable and withheld by the Buyers from its Purchase Price at the
Closing. The Company shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, or broker’s commissions (other than for
Persons engaged by any Buyer) relating to or arising out of the transactions
contemplated hereby. The Company shall pay, and hold each Buyer harmless
against, any liability, loss or expense (including, without limitation,
reasonable attorney’s fees and out-of-pocket expenses) arising in connection
with any claim relating to any such payment.

(h) Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged by an Investor (as defined in the Registration Rights
Agreement) in connection with a bona fide margin agreement or other loan or
financing arrangement that is secured by the Securities. The pledge of
Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and no Investor effecting a pledge of Securities shall be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document, including, without limitation, Section 2(f) of this Agreement;
provided that an Investor and its pledgee shall be required to comply with the
provisions of Section 2(f) of this Agreement in order to effect a sale, transfer
or assignment of Securities to such pledgee. The Company hereby agrees to
execute and deliver such documentation as a pledgee of the Securities may
reasonably request in connection with a pledge of the Securities to such pledgee
by an Investor.

(i) Disclosure of Transactions and Other Material Information. The Company
shall, on or before 8:30 a.m., New York City Time, on the first Business Day
after the date of this Agreement, issue a press release (the “Press Release”)
reasonably acceptable to the Buyers disclosing all material terms of the
transactions contemplated hereby. On or before 8:30 a.m., New York City Time, on
the third Business Day following the Closing Date, the Company shall file a
Current Report on Form 8-K describing the terms of the transactions contemplated
by the Transaction Documents in the form required by the 1934 Act, and attaching
the material Transaction Documents (including, without limitation, this
Agreement (and all schedules to this Agreement), the form of Warrant and the
Registration Rights Agreement) as exhibits to such filing (including all
attachments, the “8-K Filing”). From and after the issuance of the Press

 

21

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Release, no Buyer shall be in possession of any material, nonpublic information
received from the Company, any of its Subsidiaries or any of its respective
officers, directors, employees or agents, that is not disclosed in the Press
Release. The Company shall not, and shall cause each of its Subsidiaries and
each of their respective officers, directors, employees and agents, not to,
provide any Buyer with any material, nonpublic information regarding the Company
or any of its Subsidiaries from and after the filing of the Press Release
without the express written consent of such Buyer. In the event of a breach of
the foregoing covenant by the Company, any Subsidiary, or each of its respective
officers, directors, employees and agents, in addition to any other remedy
provided herein or in the Transaction Documents, a Buyer shall have the right to
make a public disclosure, in the form of a press release, public advertisement
or otherwise, of such material, nonpublic information without the prior approval
by the Company, its Subsidiaries, or any of its or their respective officers,
directors, employees or agents. No Buyer shall have any liability to the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees, shareholders or agents for any such disclosure. Subject to
the foregoing, neither the Company nor any Buyer shall issue any press releases
or any other public statements with respect to the transactions contemplated
hereby; provided, however, that the Company shall be entitled, without the prior
approval of any Buyer, to make any press release or other public disclosure with
respect to such transactions (i) in substantial conformity with the 8-K Filing
and contemporaneously therewith and (ii) as is required by applicable law and
regulations, including the applicable rules and regulations of the Principal
Market (provided that in the case of clause (i) each Buyer shall be consulted by
the Company in connection with any such press release or other public disclosure
prior to its release).

(j) Corporate Existence. So long as any Buyer beneficially owns any Warrants,
the Company shall maintain its corporate existence and shall not sell all or
substantially all of the Company’s assets, except in the event of a merger or
consolidation or sale of all or substantially all of the Company’s assets, where
the surviving or successor entity in such transaction (i) assumes the Company’s
obligations hereunder and under the agreements and instruments entered into in
connection herewith and (ii) is a publicly traded corporation whose common stock
is quoted on or listed for trading on the Principal Market, The Nasdaq National
Market, the New York Stock Exchange or the American Stock Exchange.

(k) Reservation of Shares. The Company shall take all action necessary to at all
times have authorized, and reserved for the purpose of issuance no less than the
number of shares of Common Stock issuable upon execution of this Agreement and
upon exercise in full of the Warrants.

(l) No Integrated Offerings. The Company shall not make any offers or sales of
any security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the
Securities Act or cause this offering of the Securities to be integrated with
any other offering of securities by the Company for purposes of any shareholder
approval provision applicable to the Company or its securities.

 

22

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(m) Legal Compliance. The Company shall conduct its business and the business of
its Subsidiaries in compliance with all laws, ordinances or regulations of
governmental entities applicable to such businesses, except where the failure to
do so would not have a Material Adverse Effect.

(n) Redemptions, Dividends and Repayments of Indebtedness. So long as any Buyers
(or any of their respective affiliates) beneficially own any of the Securities,
the Company shall not, without first obtaining the written approval of the
holders of a majority of the Common Shares then outstanding (which approval may
be given or withheld by such holders in their sole and absolute discretion),
repurchase, redeem or declare or pay any cash dividend or distribution on any
shares of capital stock of the Company or repay or prepay any Indebtedness of
the Company other than as expressly required pursuant to the terms of such
Indebtedness as in effect on the date hereof.

(o) Shareholders Rights Plan. No claim shall be made or enforced by the Company
or any other person that any Buyer is an “Acquiring Person” under any
shareholders rights plan or similar plan or arrangement currently in effect or
hereafter adopted by the Company, or that any Buyer could be deemed to trigger
the provisions of any such plan or arrangement, by virtue of receiving
Securities under this Agreement or any other Transaction Documents or under any
other agreement between the Company and the Buyers.

(p) Variable Securities. So long as any Buyers (or any of their respective
affiliates) beneficially own any of the Securities, the Company shall not,
without first obtaining the written approval of the holders of a majority of the
Common Shares then outstanding (which approval may be given or withheld by such
holders in their sole and absolute discretion), issue or sell any rights,
warrants or options to subscribe for or purchase Common Stock, or any other
securities directly or indirectly convertible into or exchangeable or
exercisable for Common Stock, at an effective conversion, exchange or exercise
price that varies or may vary with the market price of the Common Stock,
including by way of one or more reset(s) to any fixed price.

(q) With respect to the registration statement required to be filed under the
Registration Rights Agreement, the Company will, to the extent permitted by SEC
rules, use reasonable diligence to convert such registration statement to a
registration statement on Form S-3 when and if the Company becomes eligible to
use Form S-3. .

Related Party Transaction. For purposes hereof, the term “Related Party
Transaction” shall mean, the Company licenses or sells or options, in whole or
in part, the Company’s right, title and/or interest to SinuNase to any Related
Party whether by way of co-marketing, co-promotion or co-development of such
right, title and interest during the 18 months following the sale of the
securities and while any Buyers (or any of their respective affiliates)
beneficially own any of the Securities unless the Buyers representing a majority
of the Common Shares held by the Buyers at the time of such transaction approve
the transaction in writing.

 

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For purposes hereof, the term “SinuNase” shall mean an amphotericine B
suspension being developed by the Company for the intranasal treatment of
chronic rhinosinusitis. For purposes hereof, the term “Related Party” shall mean
an officer or director of the Company or the holder of ten percent or more of
the Company’s outstanding capital stock. In the event of a Related Party
Transaction as defined above, the Company shall promptly issue to each Investor
who on the date of the Related Party Transaction is the record holder of shares
of the Company’s common stock purchased hereunder (“Investor Shares”), a new
warrant (the “Related Party Transaction Warrant”) entitling each Investor to
purchase that number of shares of the Company’s Common Stock that is equal to
fifty percent (50%) of the Investor Shares held on the date of the Related Party
Transaction. The Related Party Transaction Warrant shall have an exercise price
equal to the weighted average closing price for the ten trading days following
the announcement of the closing of the Related Party Transaction and shall have
an exercise term of five (5) years from the date of the closing of the Related
Party Transaction. The shares underlying the Related Party Transaction Warrant
shall have the same registration rights as those granted for the Investor Shares
with time periods adjusted accordingly as specified in the Registration Rights
Agreement dated as of the date hereof.

5. REGISTER; TRANSFER AGENT INSTRUCTIONS.

(a) Register. The Company shall maintain at its principal executive offices (or
such other office or agency of the Company as it may designate by notice to each
holder of Securities), a register for the Common Shares and the Warrants, in
which the Company shall record the name and address of the Person in whose name
the Common Shares and the Warrants have been issued (including the name and
address of each transferee), the face amount of Common Shares held by such
Person, the number of Warrant Shares issuable upon exercise of the Warrants held
by such Person and the number of Common Shares held by such Person. The Company
shall keep the register open and available at all times during business hours
for inspection of any Buyer or its legal representatives.

(b) Transfer Agent Instructions. Upon effectiveness of the required Registration
of the Securities, the Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates or
credit shares to the applicable balance accounts at The Depository Trust Company
(“DTC”), registered in the name of each Buyer or its respective nominee(s), for
the Common Shares, and the Warrant Shares issued at the Closing or exercise of
the Warrants in such amounts as specified from time to time by each Buyer to the
Company upon exercise of the Warrants in the form of Exhibit C attached hereto
(the “Irrevocable Transfer Agent Instructions”). The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5(b), and stop transfer instructions to give effect to
Section 2(g) hereof, will be given by the Company to its transfer agent, and
that the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
other Transaction Documents. If a Buyer effects a sale, assignment or transfer
of the Securities in accordance with Section 2(g), the Company shall permit the
transfer and shall promptly instruct

 

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its transfer agent to issue one or more certificates or credit shares to the
applicable balance accounts at DTC in such name and in such denominations as
specified by such Buyer to effect such sale, transfer or assignment. In the
event that such sale, assignment or transfer involves Common Shares or Warrant
Shares sold, assigned or transferred pursuant to an effective registration
statement or pursuant to Rule 144, the transfer agent shall issue such
Securities to the Buyer, assignee or transferee, as the case may be, without any
restrictive legend. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to a Buyer. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5(b) will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section 5(b), that
a Buyer shall be entitled, in addition to all other available remedies, to an
order and/or injunction restraining any breach and requiring immediate issuance
and transfer, without the necessity of showing economic loss and without any
bond or other security being required.

6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

The obligation of the Company hereunder to issue and sell the Common Shares and
the related Warrants to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company’s sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:

(i) Such Buyer shall have executed each of the Transaction Documents to which it
is a party and delivered the same to the Company.

(ii) Such Buyer shall have delivered to the Company the Purchase Price for the
Common Shares and the related Warrants being purchased by such Buyer at the
Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.

(iii) The representations and warranties of such Buyer shall be true and correct
in all material respects as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date), and such Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by such
Buyer at or prior to the Closing Date.

(iv) No statute, rule, regulation, executive order, decree, ruling, injunction,
action or proceeding shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which restricts or prohibits the consummation of any of the transactions
contemplated by this Agreement.

7. CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

The obligation of each Buyer hereunder to purchase the Common Shares and the
related Warrants at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer’s sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:

(i) The Company shall have executed and delivered to such Buyer (i) each of the
Transaction Documents and (ii) the original stock certificates representing the
Common Shares (in such amounts as such Buyer shall request) and the original
related Warrants (in such amounts as such Buyer shall request) being purchased
by such Buyer at the Closing pursuant to this Agreement.

 

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(ii) Such Buyer shall have received the opinion of Foley & Lardner LLP, the
Company’s outside counsel (“Company Counsel”), dated as of the Closing Date, in
substantially the form of Exhibit D attached hereto.

(iii) The Company shall have delivered to such Buyer a copy of the Irrevocable
Transfer Agent Instructions, in the form of Exhibit C attached hereto, which
instructions shall have been delivered to and acknowledged in writing by the
Company’s transfer agent.

(iv) The Company shall have delivered to such Buyer a certificate evidencing the
incorporation and good standing of the Company and each of its operating
Subsidiaries in such corporation’s state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within 10 days of
the Closing Date.

(v) The Common Stock (I) shall be listed on the Principal Market and (II) shall
not have been suspended, as of the Closing Date, by the SEC or the Principal
Market from trading on the Principal Market nor shall suspension by the SEC or
the Principal Market have been threatened, as of the Closing Date, either (A) in
writing by the SEC or the Principal Market or (B) by falling below the minimum
listing maintenance requirements of the Principal Market.

(vi) The Company shall have delivered to such Buyer a certified copy of the
Certificate of Incorporation as certified by the Secretary of State of the State
of Florida within 10 days of the Closing Date.

(vii) The Company shall have delivered to such Buyer a certificate, executed by
the Secretary of the Company and dated as of the Closing Date, as to (i) the
resolutions consistent with Section 3(b) as adopted by the Company’s Board of
Directors in a form reasonably acceptable to such Buyer, (ii) the Certificate of
Incorporation, and (iii) the Bylaws, each as in effect at the Closing, in the
form attached hereto as Exhibit E.

(viii) The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date) and the Company shall have performed, satisfied and complied in all
respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the Company
at or prior to the Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may be reasonably
requested by such Buyer in

 

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the form attached hereto as Exhibit F. There shall have been no material adverse
change (actual or threatened) in the assets, liabilities (continuing or
otherwise), affairs, business, operations, prospects or condition (financial or
otherwise) of the Company prior to the Closing Date.

(ix) No statute, rule, regulation, executive order, decree, ruling, injunction,
action or proceeding shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which restricts or prohibits the consummation of, any of the transactions
contemplated by this Agreement including, without limitation, the sale of the
Common Shares and the issuance of the Warrants and the Warrant Shares upon
exercise of the Warrants.

(x) The Company shall have delivered to such Buyer a letter from the Company’s
transfer agent certifying the number of shares of Common Stock outstanding as of
a date within five days of the Closing Date.

(xi) The Company shall have obtained all governmental, regulatory or third party
consents and approvals, if any, necessary for the sale of the Common Shares and
the Warrants.

(xii) The Company shall have delivered to such Buyer such other documents
relating to the transactions contemplated by this Agreement as such Buyer or its
counsel may reasonably request.

(xiii) No proceeding challenging this Agreement or the Transaction Documents, or
the transactions contemplated hereby or thereby, or seeking to prohibit, alter,
prevent or materially delay the Closing, shall have been instituted before any
court, arbitrator or governmental body, agency or official or shall be pending
against or involving the Company.

8. TERMINATION. In the event that the Closing shall not have occurred with
respect to a Buyer on or before five (5) days from the date hereof due to the
Company’s or such Buyer’s failure to satisfy the conditions set forth in
Sections 6 and 7 above (and the nonbreaching party’s failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party.

9. MISCELLANEOUS.

(a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State 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, and hereby irrevocably
waives, and agrees not to assert in any suit, action or

 

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proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. 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 to such party at the address for such 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 manner permitted by law.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.

(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which 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; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.

(c) Headings. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.

(d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

(e) Entire Agreement; Amendments. This Agreement and the other Transaction
Documents (including any schedules and exhibits hereto and thereto) supersedes
all other prior oral or written agreements between the Buyers, the Company,
their affiliates and Persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and other Transaction Documents (including
any schedules and exhibits hereto and thereto) and the instruments referenced
herein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and the holders of Common Shares representing at least 75% of the
amount of the Common Shares, or, if prior to the Closing Date, the Buyers listed
on the Schedule of Buyers as being obligated to purchase at least a majority of
the amount of the Common Shares. No provision hereof may be waived other than by
an instrument in writing signed by the party against whom enforcement is sought.
No such amendment shall be effective to the extent that it applies to less than
all of the holders of the Common Shares then outstanding. No consideration shall
be offered or paid to any Person to amend or consent to a

 

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waiver or modification of any provision of any of the Transaction Documents
unless the same consideration also is offered to all of the parties to the
Transaction Documents, holders of Common Shares or holders of the Warrants, as
the case may be. The Company has not, directly or indirectly, made any
agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents. Information contained in the Exhibits attached to
this Agreement are deemed disclosed for all provisions in this agreement
including but not limited to the paragraph referenced in the Exhibit.

(f) Notices. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one Business Day after deposit with an overnight
courier service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be:

 

If to the Company:

  

Accentia Biopharmaceuticals, Inc.

  

2324 South Hyde Park Avenue

  

Suite 350

  

Tampa, Florida, 33606

  

Telephone:

 

(813) 864-2554

  

Facsimile:

 

(813) 258-6912

  

Attention: James A. McNulty, CPA

  

With copy (for informational purposes only and not as notice) to:

  

Name: Foley & Lardner LLP

  

100 North Tampa Street

  

Suite 2700

  

Tampa, Florida 33602

  

Telephone:

 

(813) 225-4122

  

Facsimile:

 

(813) 221-4210

  

Attention: Curt P. Creely, Esq.

If to the Transfer Agent:

  

American Stock Transfer & Trust Company

  

59 Maiden Lane, Plaza Level

  

New York, New York 10038

  

Telephone:

 

( 718 ) 921-8521

  

Facsimile:

 

( 704 ) 590-7599

  

Attention:

 

Myron Gray

 

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If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer’s representatives as set forth on the Schedule
of Buyers,

with a copy (for informational purposes only) to:

or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender’s facsimile machine containing the time, date, and
recipient facsimile number of such transmission or (C) provided by an overnight
courier service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from an overnight courier service in accordance with clause
(i), (ii) or (iii) above, respectively.

(g) Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns,
including any purchasers of the Common Shares or the Warrants. The Company shall
not assign this Agreement or any rights or obligations hereunder without the
prior written consent of the holders of Common Shares representing at least a
majority of the number of the Common Shares, including by merger or
consolidation. A Buyer may assign some or all of its rights hereunder without
the consent of the Company, in which event such assignee shall be deemed to be a
Buyer hereunder with respect to such assigned rights.

(h) No Third Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.

(i) Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9
shall survive the Closing and the delivery and exercise of Securities, as
applicable. Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.

(j) Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as any other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

 

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(k) Indemnification. In consideration of each Buyer’s execution and delivery of
the Transaction Documents and acquiring the Securities thereunder and in
addition to all of the Company’s other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their respective
shareholders, partners, members, officers, directors, employees, subsidiaries
and direct or indirect investors and any of the foregoing Persons’ agents or
other representatives (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) (collectively,
the “Indemnitees”) from and against any and all actions, causes of action,
suits, claims, losses, costs, penalties, fees, liabilities and damages,
deficiencies and judgments, assessments, fines, settlements and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”),
incurred by any Indemnitee based upon, as a result of, or arising out of, or
relating to (a) any misrepresentation or breach of any representation or
warranty made by the Company in the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (b) any
breach of any covenant, agreement or obligation of the Company contained in the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any cause of action, suit or claim
brought or made against such Indemnitee by a third party including Susquehanna
Financial Group, LLLP or any other broker or placement agent (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 Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Securities, or (iii) the status of such Buyer or holder of the Securities
as an investor in the Company. To the extent that the foregoing undertaking by
the Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 9(k) shall be the same as those set forth in
Section 7 of the Registration Rights Agreement.

(l) No Strict Construction. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

(m) Remedies. Each Buyer and each holder of the Securities shall have all rights
and remedies set forth in the Transaction Documents and all rights and remedies
which such holders have been granted at any time under any other agreement or
contract and all of the rights which such holders have under any law. Any Person
having any rights under any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting

 

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a bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law.
Furthermore, the Company recognizes that in the event that it fails to perform,
observe, or discharge any or all of its obligations under the Transaction
Documents, any remedy at law may prove to be inadequate relief to the Buyers.
The Company therefore agrees that the Buyers shall be entitled to seek temporary
and permanent injunctive relief in any such case without the necessity of
proving actual damages and without posting a bond or other security.

(n) Knowledge. As used in this Agreement, the term “knowledge” of any person or
entity shall mean and include (i) actual knowledge and (ii) that knowledge which
a reasonably prudent business person could have obtained in the management of
his or her business affairs after making due inquiry and exercising due
diligence which a prudent business person should have made or exercised, as
applicable, with respect thereto.

(o) Independent Nature of Buyers’ Obligations and Rights. The obligations of
each Buyer under any Transaction Document are several and not joint with the
obligations of any other Buyer, and no Buyer shall be responsible in any way for
the performance of the obligations of any other Buyer under any Transaction
Document. Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents and the Company
acknowledges that the Buyers are not acting in concert or as a group with
respect to such obligations or the transactions contemplated by the Transaction
Documents. Each Buyer confirms that it has independently participated in the
negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors. Each Buyer shall be entitled to independently protect and
enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of any other Transaction Documents, and it shall not be
necessary for any other Buyer to be joined as an additional party in any
proceeding for such purpose.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, each Buyer and the Company have caused its respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

COMPANY: ACCENTIA BIOPHARMACEUTICALS, INC. By:  

 

Name:   Title:  

 

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IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

BUYERS:

By:

 

 

Name:

 

Title:

 

 

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SCHEDULE OF BUYERS

5/18/06 3:06 PM

 

Investor

   Telephone   

IOI

($mm)

   shares    note CONFIRMED Commitments            

Athena (Black Knight Ventures)

   813-892-7301    $ 2.00    400,000   

DKR/Oasis Management

   (866) 527-4683    $ 0.50    100,000   

Downsview Capital

   (847) 562-9030    $ 0.50    100,000   

Eagle Asset Management

   (727) 567-5064
727-791-1775    $ 0.01    2,000   

Enable Capital Management

   (415) 677-1578
(415) 677-1577
(415) 677-1584       —     

RA Capital

   617-778-2512
617-778-2513       —     

Soutine Resources LLC

   215-979-1921    $ 0.225    45,000   

Nite Capital Mgmt.

   847-968-2655    $ 0.40    80,000   

RAM Holdings

   314-739-5555
x1222
x1300    $ 0.50    100,000   

Sibex

   +7-495-200-2034
+7-495-200-2208
+7-495-937-4595    $ 0.30    60,000   

Third Coast Capital

   (512) 306-7277    $ 0.05    10,000                            $ 4.485   
897,000                      RODMAN Commitments            

Brio Capital

      $ 0.10    20,000   

Bristol Capital

      $ 0.30    60,000   

Crescent International/ Cantara

      $ 0.30    60,000   

Diamond Capital

      $ 0.30    60,000   

Kamunting/K Street

      $ 1.00    200,000   

Pine River

      $ 0.25    50,000   

UBS - O’Connor

      $ 1.00    200,000   

Whalehaven Capital/ Stonestreet

      $ 0.50    100,000                            $ 3.750    750,000           
                              warrants       $ 8.235    1,647,000    823,500   
                

 

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EXHIBITS

 

Exhibit A    Form of Warrants Exhibit B    Form of Registration Rights Agreement
Exhibit C    Form of Irrevocable Transfer Agent Instructions Exhibit D    Form
of Company Counsel Opinion Exhibit E    Form of Secretary’s Certificate
Exhibit F    Form of Officer’s Certificate

 

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SCHEDULES

 

Schedule 3(a) - List of Subsidiaries

Schedule 3(l) - Absence of Certain Changes

Schedule 3(m) – Undisclosed Events

Schedule 3(r) - Equity Capitalization

Schedule 3(s) - Indebtedness and Other Contracts

Schedule 3(t) - Absence of Litigation

Schedule 3(u) - Insurance

 

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