EXHIBIT 10.1

GEOPHARMA, INC.

SECURED CONVERTIBLE NOTE

PURCHASE AGREEMENT

April 5, 2007

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SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT

THIS SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT (the “Agreement”) is made
effective as of April 5, 2007, by and between GeoPharma, Inc., a Florida
corporation (the “Company”), and Whitebox Pharmaceutical Growth Fund, Ltd., a
British Virgin Islands business company (the “Investor”), with respect to the
following recitals.

RECITALS

A. The Company desires to issue and sell and the Investor desires to purchase
secured convertible promissory notes in substantially the form attached to this
Agreement as Exhibit A (collectively, the “Notes”), which shall be convertible
on the terms stated therein into common stock, par value $.01 per share (the
“Common Stock”), of the Company; and

B. As a further inducement for Investor to purchase the Notes, the Company
desires to provide a security interest in all assets of the Company as
collateral to further secure the performance of the Company’s obligations under
the Notes, as set forth in that certain Security Agreement in the form attached
hereto as Exhibit B (the “Security Agreement”).

AGREEMENT

NOW, THEREFORE, in consideration of the respective representations, warranties,
covenants and agreements contained herein, and for other valuable consideration,
the receipt and adequacy of which is hereby acknowledged, the parties hereto
agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Specific Definitions. As used in this Agreement, the following terms
shall have the meanings set forth or as referenced below:

“Action” shall have the meaning ascribed to such term in Section 4.10.

“Additional Notes” shall have the meaning ascribed to such term in Section 2.2.

“Affiliate” of a specified person (natural or juridical) means a person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, that person, as such terms are
used in and construed under Rule 405 under the Securities Act. With respect to
the Investor, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as the Investor will be
deemed to be an Affiliate of the Investor.

“Agreement” means this Agreement and all Exhibits and Schedules hereto.

“Bank of America Loan Agreement” shall have the meaning ascribed to such term in
Section 2.2.

“Code” shall have the meaning ascribed to such term in Section 4.38.

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“Common Stock” means the Company’s common stock, par value $0.01 per share.

“Conversion Price” means the conversion price in effect on any given date, which
initially shall be equal to $4.36 but which shall be subject to adjustment as
described herein and in the Note.

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

“Control” shall mean ownership of more than 50% of the shares of stock entitled
to vote for the election of directors in the case of a corporation, and more
than 50% of the voting power in the case of a business entity other than a
corporation.

“Conversion Shares” or “Shares” means the shares of Common Stock issued or
issuable upon conversion of any of the Convertible Notes.

“Convertible Note” or “Note” means each of the promissory notes, in the form
attached hereto as Exhibit A, to be issued by the Company to the Investor,
including the Initial Note, the Additional Note and any Subsequent Note that may
be issued to the Investor.

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

“Effective Date” means the date that the initial Registration Statement filed by
the Company pursuant to the Registration Rights Agreement is first declared
effective by the Commission.

“Environmental Laws or Regulations” means any federal, state or local statute,
law, ordinance or regulation that relates to or deals with hazardous substances,
human health or the environment, and all regulations promulgated by a regulatory
body pursuant to any of the foregoing statutes, laws, regulations, or
ordinances.

“ERISA” shall have the meaning ascribed to such term in Section 4.38.

“Evaluation Date” shall have the meaning ascribed to such term in Section 4.18.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended to
date.

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to
employees, officers, consultants or directors of the Company pursuant to the
Company’s 1999 Employee Stock Option Plan, 1999 Non-Employee Director Stock
Option Plan, Treasury Stock Repurchase Plan and Annual Performance Incentive
Plan (provided that any such issuances shall not exceed 10% of the Company’s
outstanding shares and/or options, in the aggregate, in any twelve-month
period), (b) securities upon the exercise or exchange of or conversion of any
securities issued pursuant to the Purchase Agreement and/or other securities
exercisable or

 

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exchangeable for or convertible into shares of Common Stock issued and
outstanding on the date of this Agreement, provided that such securities have
not been amended since the date of this Agreement to increase the number of such
securities or to decrease the exercise, exchange or conversion price of such
securities, and (c) securities issued pursuant to acquisitions or strategic
transactions approved by a majority of the disinterested directors of the
Company, provided any such issuance shall only be to a person which is, itself
or through its subsidiaries, an operating company in a business synergistic with
or complementary to the business of the Company and in which the Company
receives benefits in addition to the investment of funds, but shall not include
a transaction in which the Company is issuing securities primarily for the
purpose of raising capital or to an entity whose primary business is investing
in securities.

“FDA” shall have the meaning ascribed to such term in Section 4.36.

“FDCA” shall have the meaning ascribed to such term in Section 4.36.

“Financial Statements” means the Company’s audited financial statements as of
and for the year ended March 31, 2006 and any unaudited quarterly financial
statements of the Company for the quarters ended June 30, 2006, September 30,
2006 and December 31, 2006.

“GAAP” shall have the meaning ascribed to such term in Section 4.8.

“Guaranty” means that certain Guaranty, dated as of the date hereof, by the
Company and certain of its Affiliates in favor of the Investor in the form
attached hereto as Exhibit E.

“Hazardous Substances” means any and all substances (whether solid, liquid or
gas) defined, listed, or otherwise classified as hazardous wastes, hazardous
substances, hazardous materials, extremely hazardous wastes, toxic substances,
toxic pollutants, contaminants, pollutants or words of similar meaning or
regulatory effect under any Environmental Laws or Regulations or that may have a
negative impact on human health or the environment or the presence of which on,
in or under any property, is prohibited under Environmental Law, including
petroleum and petroleum products, asbestos and asbestos-containing materials,
polychlorinated biphenyls, lead and radon, and compounds containing them
(including gasoline, diesel fuel, oil and lead-based paint), and radioactive
materials, flammables and explosives and compounds containing them.

“Indebtedness” shall have the meaning ascribed to such term in Section 4.27.

“Indemnifiable Losses” shall have the meaning ascribed to such term in
Section 9.1.

“Initial Closing” shall have the meaning ascribed to such term in Section 3.1.

“Initial Closing Date” shall have the meaning ascribed to such term in
Section 3.1.

“Initial Note” shall have the meaning ascribed to such term in Section 2.1.

“Initial Purchase Price” shall have the meaning ascribed to such term in
Section 2.1.

 

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“Intellectual Property” means (i) all proprietary rights, privileges and
priorities provided under U.S., state and foreign law relating to U.S. and
foreign patents and patent applications, trademarks, service marks and
registrations thereof and applications therefor, copyrights and copyright
registrations and applications, mask works and registrations thereof, know-how,
and trade secrets; (ii) proprietary inventions, discoveries, ideas, technology,
data, information, and processes; (iii) proprietary drawings, designs, licenses,
computer programs and software, and technical information including but not
limited to proprietary information embodied in material specifications,
processing instructions, equipment specifications, product specifications,
confidential data, electronic files, research notebooks, invention disclosures,
research and development reports and the like related thereto; and (iv) all
amendments, modifications, and improvements to any of the foregoing.

“Intellectual Property Rights” shall have the meaning ascribed to such term in
Section 4.15.

“Knowledge” means actual knowledge of a fact or the knowledge which such person
could reasonably be expected to have based on reasonable inquiry. The knowledge
of an entity shall include the knowledge of the individuals who are executive
officers of such entity at the time in question.

“Legend Removal Date” shall have the meaning ascribed to such term in
Section 6.13(c).

“Liens” means liens, mortgages, charges, security interests, claims, voting
trusts, pledges, encumbrances, options, assessments, restrictions, or
third-party or spousal interests of any nature.

“Material Adverse Effect” means any effect that may be materially adverse to
(a) the business, operations, results of operations, prospects, assets
(including intangible assets), liabilities or condition (financial or otherwise)
of the Company and its Affiliates, taken as a whole, or (b) the ability of the
Company to perform its obligations under this Agreement or any of the
Transaction Documents or any other agreement or instrument to be entered into in
connection with this Agreement.

“Material Permits” shall have the meaning ascribed to such term in Section 4.13.

“Midsummer Purchase Agreement” shall have the meaning ascribed to such term in
Section 6.11(a).

“Mortgage” shall have the meaning ascribed to such term in Section 6.19.

“Notice of Acceptance” shall have the meaning ascribed to such term in
Section 6.11(b).

“Offer” shall have the meaning ascribed to such term in Section 6.11(b).

“Offered Securities” shall have the meaning ascribed to such term in
Section 6.11(b).

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

 

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“Plan” or “Plans” shall have the meaning ascribed to such term in Section 4.38.

“Pledge Agreement” means the Pledge Agreement between the parties hereto in the
form attached hereto as Exhibit D.

“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an informal investigation or partial proceeding,
such as a deposition), whether commenced or threatened.

“Product Liability” means any liability, claim or expense, including but not
limited to attorneys’ fees and medical expenses, arising in whole or in part out
of a breach of any express or implied product warranty by the Company, strict
liability in tort, negligent manufacture of product, negligent provision of
services, product recall, or any other allegation of liability arising from the
design, testing, manufacture, packaging, labeling (including instructions for
use), or sale of products.

“Purchased Securities” means the Convertible Notes and the Conversion Shares.

“Real Property” shall have the meaning ascribed to such term in Section 6.19.

“Refused Securities” shall have the meaning ascribed to such term in
Section 6.11(b).

“Registration Rights Agreement” means the Registration Rights Agreement among
the Company and the Investor in the form attached hereto as Exhibit C.

“Registration Statement” means a registration statement meeting the requirements
set forth in the Registration Rights Agreement and covering the resale by the
Investor of the Conversion Shares.

“Required Approvals” shall have the meaning ascribed to such term in
Section 4.5.

“Required Minimum” means, as of any date, the maximum aggregate number of shares
of Common Stock then issued or potentially issuable in the future pursuant to
the Transaction Documents, including any Conversion Shares issuable upon
exercise or conversion in full of all Notes, ignoring any conversion or exercise
limits set forth therein.

“Required Shareholder Approval Date” shall have the meaning ascribed to such
term in Section 6.16.

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

“Schedule of Exceptions” shall have the meaning ascribed to such term in Article
4.

“SEC” means the United States Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.

 

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“SEC Reports” shall have the meaning ascribed to such term in Section 4.8.

“Securities Act” means the United States Securities Act of 1933, as amended, and
all regulations promulgated thereunder.

“Security Agreement” means the security agreement among the Company and the
Investor in the form attached hereto as Exhibit B, to be executed and delivered
at the Closing.

“Shareholder Approval” means such approval as may be required by the applicable
rules and regulations of the Nasdaq Capital Market (or any successor) from the
shareholders of the Company with respect to the transactions contemplated by the
Transaction Documents, including the issuance of all of the Conversion Shares in
excess of 19.99% of the issued and outstanding Common Stock on the Closing Date.

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

“Subsequent Notes” shall have the meaning ascribed to such term in Section 2.3.

“Subsequent Placement” shall have the meaning ascribed to such term in
Section 6.11(a).

“Subsequent Placement Agreement” shall have the meaning ascribed to such term in
Section 6.11(b).

“Subsequent Placement Documents” shall have the meaning ascribed to such term in
Section 6.11(b).

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 4.1
and shall, where applicable, include any subsidiary of the Company formed or
acquired after the date hereof.

“Trading Day” means a day on which the Nasdaq Stock Market (or such other
Trading Market on which the Company’s Common Stock is then traded) is open for
trading.

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

“Transaction Documents” means the Notes, the Security Agreement, the Pledge
Agreement, the Registration Rights Agreement, the Guaranty, the Security
Agreement, the Intercreditor Agreement and such other documents, instruments and
agreements executed in connection with the consummation of the transactions
contemplated hereby.

“Variable Rate Transaction” shall have the meaning ascribed to such term in
Section 6.12(b).

 

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“VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted for trading as reported by Bloomberg L.P.
(based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New
York City time); (b) if the OTC Bulletin Board is not a Trading Market, the
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
quoted for trading on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported; or (d) in
all other cases, the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Holder and reasonably
acceptable to the Company.

Section 1.2 Definitional Provisions.

(a) The words “hereof,” “herein,” and “hereunder” and words of similar import,
when used in this Agreement, shall refer to this Agreement as a whole and not to
any particular provisions of this Agreement.

(b) The terms defined in the singular shall have a comparable meaning when used
in the plural, and vice versa. Terms referring to a masculine gender shall be
deemed to refer to the feminine or neuter genders, as applicable.

(c) References to an “Exhibit” or to a “Schedule” are, unless otherwise
specified, to one of the Exhibits or Schedules attached to or referenced in this
Agreement, and references to an “Article” or a “Section” are, unless otherwise
specified, to one of the Articles or Sections of this Agreement.

(d) The term “person” includes any individual, partnership, joint venture,
corporation, limited liability company, trust, entity, unincorporated
organization or government or any department or agency thereof.

(e) The term “dollars” or “$” shall refer to the currency of the United States
of America.

(f) All references to time shall refer to Minneapolis, Minnesota time.

ARTICLE II

PURCHASE AND SALE OF CONVERTIBLE NOTES

Section 2.1 Purchase and Sale of Initial Notes. Subject to the terms and
conditions of this Agreement, the Investor agrees to purchase at the Closing,
and the Company agrees to sell and issue to the Investor at the Closing, a Note,
in substantially the form attached hereto as Exhibit A, in the original
principal amount of $10,000,000 (the “Initial Note”), at a purchase price equal
to 100% of the principal amount thereof (the “Initial Purchase Price”). The
Initial Note will be secured pursuant to the Security Agreement.

 

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Section 2.2 Purchase and Sale of Additional Notes. Between the Closing Date and
September 30, 2007, the Investor will have the option, in its sole discretion,
to purchase an additional $5,000,000 of Notes (the “Additional Notes”) on the
same terms and conditions specified in this Agreement with respect to the
Initial Note; provided, however, that the foregoing issuance of Subsequent Notes
may be extended until December 31, 2007 if the issuance of such Additional Notes
would cause the Company to violate the debt-to-equity ratios set forth in that
certain loan and credit facility with Bank of America entered into on
February 27, 2007 (as the same may be amended, modified or supplemented from
time to time, the “Bank of America Loan Agreement”). The Additional Notes will
be issued to the Investor in the original principal amount of $5,000,000, at a
purchase price equal to 100% of the principal amount thereof. The Additional
Notes will be secured pursuant to the Security Agreement.

Section 2.3 Purchase and Sale of Subsequent Notes. Subject to the terms and
conditions of this Agreement, on and after September 30, 2007, if (a) the
Company’s generic pharmaceutical drug revenues exceed $3,000,000 in any
quarterly period (as reflected in the Company’s Quarterly Report on Form 10-Q or
Annual Report on Form 10-K, as applicable) and (b) the Company has received
Shareholder Approval, Investor agrees to invest an additional $5,000,000 in
Notes (the “Subsequent Notes”) on the same terms and conditions specified in
this Agreement with respect to the Initial Note and the Additional Notes;
provided, however, that the foregoing issuance of Subsequent Notes may be
extended until December 31, 2007 if the issuance of such Subsequent Notes would
cause the Company to violate the debt-to-equity ratios set forth in the Bank of
America Loan Agreement. The Subsequent Notes will be issued to the Investor in
the original principal amount of $5,000,000, at a purchase price equal to 100%
of the principal amount thereof. The Subsequent Notes will also be secured
pursuant to the Security Agreement.

Section 2.4 Note Conversion. The Investor may, at its option, purchase shares of
the Company’s Common Stock by converting amounts outstanding under the Initial
Note or, if applicable, the Additional Note and the Subsequent Note, at the
applicable Conversion Price as provided therein (in each case, a “Note
Conversion Closing”). At each Note Conversion Closing, the Company shall issue
certificates representing any shares purchased under this Section 2.4 in a form
acceptable to the Investor and Investor’s counsel, and the Investor shall pay
the Conversion Price of $4.36 per share (subject to adjustment as provided
therein) for such shares by surrendering the applicable Note(s) to the Company.

Section 2.5 Use of Proceeds. The Company shall use the cash proceeds of the sale
of the Initial Notes (a) for the Company’s working capital needs, (b) to pay any
legal fees and expenses incurred in connection with the drafting, negotiation,
due diligence and execution of this Agreement and the other Transaction
Documents (including those documents delivered in connection with the issuance
of the Note and the Conversion Shares to the Investor on the Closing Date) and
(c) to pay any commissions owed to the placement agent as a result of the
issuance of the Notes.

 

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ARTICLE III

THE CLOSING

Section 3.1 Closing.

(a) Initial Closing. The purchase and sale of the Initial Notes shall take place
at the offices of the Company, at 10:00 a.m., on April 5, 2007, or such other
time as may be designated by the Company in writing (the “Initial Closing”). At
the Initial Closing, the Company shall deliver to the Investor the Initial Note
that the Investor is purchasing against delivery to the Company by the Investor
of a check or wire transfer in the amount of $10,000,000.00 payable to the
Company’s order (or by wire of funds in such amount to the Company’s designated
bank account).

(b) Subsequent Closings. The purchase and sale of the Additional Notes shall
occur within five (5) business days of the Investor’s notice to the Company of
the exercise of its option to purchase the Additional Notes. The purchase and
sale of the Subsequent Notes shall occur within five (5) business days of the
satisfaction of the conditions set forth in Section 2.3 of this Agreement.

Section 3.2 Closing Deliveries.

(a) Company Deliveries. On the Initial Closing Date, the Company shall deliver
or cause to be delivered to the Investor the following:

(i) this Agreement duly executed by the Company;

(ii) a Note registered in the name of the Investor in the principal amount of
$10,000,000;

(iii) the Security Agreement, in substantially the form attached hereto as
Exhibit B (the “Security Agreement”), duly executed by the Company;

(iv) the Registration Rights Agreement, in substantially the form attached
hereto as Exhibit C (the “Registration Rights Agreement”), duly executed by the
Company;

(v) the Pledge Agreement, in substantially the form attached hereto as Exhibit D
(the “Pledge Agreement”), duly executed by the Company and certain of its
Affiliates;

(vi) the Guaranty, in substantially the form attached hereto as Exhibit E (the
“Guaranty”), executed by the Company and certain of its Affiliates in favor of
the Investor;

(vii) the Intercreditor Agreement, in substantially the form attached hereto as
Exhibit F, executed by Bank of America, N.A. (the “Intercreditor Agreement”);
and

 

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(viii) the written voting agreements, in the form attached hereto as Exhibit G
(the “Voting Agreements”), on the date hereof, of certain shareholders of the
Company listed on Exhibit H attached hereto, whereby such shareholders have
agreed to vote all Common Stock over which such shareholders have voting control
as of the record date for the 2007 Annual Meeting of Shareholders of the Company
in favor of Shareholder Approval, amounting to, in the aggregate, in excess of
25% of the issued and outstanding shares of the Company’s Common Stock.

(b) Investor Deliveries. On the Initial Closing Date, the Investor shall deliver
or cause to be delivered to the Company the following:

(i) this Agreement duly executed by the Investor;

(ii) the Registration Rights Agreement duly executed by the Investor;

(iii) the Intercreditor Agreement, in substantially the form attached hereto as
Exhibit F, duly executed by the Investor; and

(iv) the payment of the Initial Purchase Price by the Investor, in the manner
specified in Section 3.1 above.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Attached hereto as Schedule A is the Schedule of Exceptions containing sections
numbered to correspond to the sections of this Article 4 (the “Schedule of
Exceptions”). Except as specifically set forth in the corresponding section of
such Schedule of Exceptions (or in any other section of the Schedule of
Exceptions so long as the applicability of such disclosure to the particular
representation and warranty which such disclosure is intended to modify is
reasonably apparent), the Company and its Affiliates hereby represents and
warrants to the Investor as follows as of the date hereof and as of the Closing
Date:

Section 4.1 Subsidiaries. All of the direct and indirect subsidiaries (the
“Subsidiaries”) of the Company are set forth on Schedule 4.1. The Company owns,
directly or indirectly, all of the capital stock or other equity interests of
each Subsidiary free and clear of any Liens, and all of the issued and
outstanding shares of capital stock of each Subsidiary are validly issued and
are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities. If the Company has no subsidiaries, then
all other references to the Subsidiaries or any of them in the Transaction
Documents shall be disregarded.

Section 4.2 Organization and Qualification. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Neither the Company nor any Subsidiary is in violation
or default of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified

 

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to conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not
have or reasonably be expected to result in a Material Adverse Effect, and no
Proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail such power and authority or
qualification.

Section 4.3 Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required by
the Company, its board of directors or its shareholders in connection therewith
other than in connection with the Required Approvals (as defined in Section 4.5
below). Each Transaction Document has been (or upon delivery will have been)
duly executed by the Company and, when delivered in accordance with the terms
hereof and thereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms except
(i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.

Section 4.4 No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the issuance and sale of the Purchased
Securities and the consummation by the Company of the other transactions
contemplated hereby and thereby do not and will not (i) conflict with or violate
any provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents, or
(ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, result in the creation of
any Lien upon any of the properties or assets of the Company or any Subsidiary,
or give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any agreement,
credit facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any Subsidiary
is a party or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) subject to the Required Approvals (as defined in
Section 4.5 below), conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company or any Subsidiary is
subject (including federal and state securities laws and regulations), or by
which any property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as could not have or
reasonably be expected to result in a Material Adverse Effect.

Section 4.5 Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction

 

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Documents, other than (i) filings required pursuant to Section 6.14 of this
Agreement, (ii) the filing with the Commission of the Registration Statement,
(iii) application(s) to each applicable Trading Market for the listing of the
Securities for trading thereon in the time and manner required thereby, and
(iv) the filing of Form D with the Commission and such filings as are required
to be made under applicable state securities laws (collectively, the “Required
Approvals”).

Section 4.6 Issuance of the Securities. The Purchased Securities are duly
authorized and, when issued and paid for in accordance with the applicable
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction Documents. The
Conversion Shares, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable, free and clear
of all Liens imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents. The Company has reserved from its duly
authorized capital stock the maximum number of shares of Common Stock issuable
pursuant to this Agreement and the other Transaction Documents.

Section 4.7 Capitalization. The capitalization of the Company is as set forth on
the Schedule of Exceptions, which Schedule of Exceptions shall also include the
number of shares of Common Stock owned of record, and, to the knowledge of the
Company, beneficially, by Affiliates of the Company as of the date hereof. The
Company has not issued any capital stock since its most recently filed periodic
report under the Exchange Act, other than pursuant to the exercise of employee
stock options under the Company’s stock option plans, the issuance of shares of
Common Stock to employees pursuant to the Company’s employee stock purchase
plans and pursuant to the conversion or exercise of Common Stock Equivalents
outstanding as of the date of the most recently filed periodic report under the
Exchange Act. No Person has any right of first refusal, preemptive right, right
of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as set forth on the Schedule
of Exceptions or as a result of the purchase and sale of the Purchased
Securities, there are no outstanding options, warrants, scrip rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock or Common Stock Equivalents. The
issuance and sale of the Purchased Securities will not obligate the Company to
issue shares of Common Stock or other securities to any Person (other than the
Investor) and will not result in a right of any holder of Company securities to
adjust the exercise, conversion, exchange or reset price under any of such
securities. All of the outstanding shares of capital stock of the Company are
validly issued, fully paid and nonassessable, have been issued in compliance
with all federal and state securities laws, and none of such outstanding shares
was issued in violation of any preemptive rights or similar rights to subscribe
for or purchase securities. No further approval or authorization of any
shareholder, the Board of Directors of the Company or others is required for the
issuance and sale of the Purchased Securities. There are no stockholder
agreements, voting agreements or other similar agreements with respect to the
Company’s capital stock to which the Company is a party (other than those
contemplated in connection with the Transaction Documents) or, to the knowledge
of the Company, between or among any of the Company’s shareholders.

 

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Section 4.8 SEC Reports; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by the Company under the Securities Act and the Exchange Act, including pursuant
to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof
(or such shorter period as the Company was required by law or regulation to file
such material) (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred to
herein as the “SEC Reports”) on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act, as applicable, and none of the SEC Reports, when filed,
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. The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved (“GAAP”), except as may be otherwise specified
in such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its
consolidated subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.

Section 4.9 Material Changes; Undisclosed Events, Liabilities or Developments.
Since the date of the latest audited financial statements included within the
SEC Reports, except as specifically disclosed in a subsequent SEC Report filed
prior to the date hereof, (i) there has been no event, occurrence or development
that has had or that could reasonably be expected to result in a Material
Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B) liabilities
not required to be reflected in the Company’s financial statements pursuant to
GAAP or disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its shareholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company stock
option plans. The Company does not have pending before the Commission any
request for confidential treatment of information. Except for the issuance of
the Purchased Securities contemplated by this Agreement or as set forth on
Schedule 4.9, no event, liability or development has occurred or exists with
respect to the Company or its Subsidiaries or their respective business,
properties, operations or financial condition, that would be required to be
disclosed by the Company under applicable securities laws at the time this
representation is made or deemed made that has not been publicly disclosed at
least 1 Trading Day prior to the date that this representation is made.

Section 4.10 Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the

 

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Company, any Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which
(i) adversely affects or challenges the legality, validity or enforceability of
any of the Transaction Documents or the Purchased Securities or (ii) could, if
there were an unfavorable decision, have or reasonably be expected to result in
a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any Action which has
resulted in a final judgment involving a claim of violation of or liability
under federal or state securities laws or a claim of breach of fiduciary duty.
There has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act.

Section 4.11 Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company which could reasonably be expected to result in a Material Adverse
Effect. None of the Company’s or its Subsidiaries’ employees is a member of a
union that relates to such employee’s relationship with the Company or such
Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a
collective bargaining agreement, and the Company and its Subsidiaries believe
that their relationships with their employees are good. No executive officer, to
the knowledge of the Company, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement or non-competition agreement, or any other
contract or agreement or any restrictive covenant in favor of any third party,
and the continued employment of each such executive officer does not subject the
Company or any of its Subsidiaries to any liability with respect to any of the
foregoing matters. The Company and its Subsidiaries are in compliance with all
U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

Section 4.12 Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or
(iii) is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws applicable to its business and all such laws that affect the
environment, except in each case as could not have or reasonably be expected to
result in a Material Adverse Effect.

Section 4.13 Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC

 

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Reports, except where the failure to possess such permits could not reasonably
be expected to result in a Material Adverse Effect (“Material Permits”), and
neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.

Section 4.14 Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens that do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties. Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases with which the Company and the Subsidiaries are in compliance
in all material respects.

Section 4.15 Patents and Trademarks. The Company and the Subsidiaries have, or
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights necessary or
material for use in connection with their respective businesses as described in
the SEC Reports and which the failure to so have could have a Material Adverse
Effect (collectively, the “Intellectual Property Rights”). Neither the Company
nor any Subsidiary has received a notice (written or otherwise) that any of the
Intellectual Property Rights used by the Company or any Subsidiary violates or
infringes upon the rights of any Person. To the knowledge of the Company, all
such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights. The
Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual properties,
except where failure to do so could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

Section 4.16 Insurance. The Company and the Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged, including, but not limited to, directors and
officers insurance coverage at least equal to the aggregate Subscription Amount.
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 without a significant increase in cost.

Section 4.17 Transactions With Affiliates and Employees. Except as set forth in
the SEC Reports, none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently a
party to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), 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 officer, director or such employee or, to the
knowledge of the

 

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Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner, in each
case in excess of $100,000 other than for (i) payment of salary or consulting
fees for services rendered, (ii) reimbursement for expenses incurred on behalf
of the Company and (iii) other employee benefits, including stock option
agreements under any stock option plan of the Company.

Section 4.18 Sarbanes-Oxley; Internal Accounting Controls. The Company is in
material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which
are applicable to it as of the Closing Date. The Company and the 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
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management’s general or specific authorization, and
(iv) the recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission’s rules and forms. The Company’s
certifying officers have evaluated the effectiveness of the Company’s disclosure
controls and procedures as of the end of the period covered by the Company’s
most recently filed periodic report under the Exchange Act (such date, the
“Evaluation Date”). The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no changes in the Company’s internal control over financial reporting (as
such term is defined in the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.

Section 4.19 Certain Fees. Except for fees payable to Rodman & Renshaw, LLC, no
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents. The Investor shall have no obligation
with respect to any fees or with respect to any claims made by or on behalf of
other Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by the Transaction Documents.

Section 4.20 Private Placement. Assuming the accuracy of the Investor
representations and warranties set forth in Article 5, no registration under the
Securities Act is required for the offer and sale of the Purchased Securities by
the Company to the Investor as contemplated hereby. The issuance and sale of the
Purchased Securities hereunder does not contravene the rules and regulations of
the Trading Market.

Section 4.21 Investment Company. The Company is not, and is not an Affiliate of,
and immediately after receipt of payment for the Securities, will not be or be
an Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended. The Company shall conduct its business in a
manner so that it will not become subject to the Investment Company Act of 1940,
as amended.

 

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Section 4.22 Registration Rights. Other than each of the Investor, no Person has
any right to cause the Company to effect the registration under the Securities
Act of any securities of the Company, other than registration statements which
have already been filed and declared effective.

Section 4.23 Listing and Maintenance Requirements. The Company’s Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is likely to
have the effect of, terminating the registration of the Common Stock under the
Exchange Act nor has the Company received any notification that the Commission
is contemplating terminating such registration. The Company has not, in the 12
months preceding the date hereof, received notice from any Trading Market on
which the Common Stock is or has been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance requirements of
such Trading Market. The Company is, and has no reason to believe that it will
not in the foreseeable future continue to be, in compliance with all such
listing and maintenance requirements.

Section 4.24 Application of Takeover Protections. 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 Company’s articles of incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Investor as a result of the Investor and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company’s
issuance of the Purchased Securities and the Investor’s ownership of the
Purchased Securities.

Section 4.25 Disclosure. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company confirms that neither it nor any other Person acting on its behalf has
provided the Investor or its agents or counsel with any information that it
believes constitutes or might constitute material, non-public information. The
Company understands and confirms that the Investor will rely on the foregoing
representation in effecting transactions in securities of the Company. All
disclosure furnished by or on behalf of the Company to the Investor regarding
the Company, its business and the transactions contemplated hereby, including
the SEC Reports and the Disclosure Schedules to this Agreement, is true and
correct and does 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 light of the circumstances under which they were made, not misleading. The
press releases and the SEC Reports filed or disseminated by the Company during
the twelve months preceding the date of this Agreement taken as a whole do not
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 light of the circumstances under which they were made and when made,
not misleading. The Company acknowledges and agrees that the Investor is not
making and has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
Article 5 below.

 

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Section 4.26 No Integrated Offering. Assuming the accuracy of the Investor’s
representations and warranties set forth in Article 5, neither the Company, nor
any of its Affiliates, nor any Person acting on its or 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 cause this
offering of the Purchased Securities to be integrated with prior offerings by
the Company for purposes of (i) the Securities Act which would require the
registration of any such securities under the Securities Act, or (ii) any
applicable shareholder approval provisions of any Trading Market on which any of
the securities of the Company are listed or designated.

Section 4.27 Solvency. Based on the consolidated financial condition of the
Company as of the Closing Date, after giving effect to the receipt by the
Company of the proceeds from the sale of the Purchased Securities hereunder,
(i) the fair saleable value of the Company’s 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 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 liabilities 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). The
Company has no knowledge of any facts or circumstances which lead it to believe
that it will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the Closing Date.
Schedule 4.27 sets forth as of the date thereof all outstanding secured and
unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments. For the purposes of this Agreement,
“Indebtedness” means (a) any liabilities for borrowed money or amounts owed in
excess of $50,000 (other than trade accounts payable incurred in the ordinary
course of business), (b) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not the same are or
should be reflected in the Company’s balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and
(c) the present value of any lease payments in excess of $50,000 due under
leases required to be capitalized in accordance with GAAP. Neither the Company
nor any Subsidiary is in default with respect to any Indebtedness.

Section 4.28 Tax Status. Except for matters that would not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company or any Subsidiary.

Section 4.29 No General Solicitation. Neither the Company nor any person acting
on behalf of the Company has offered or sold any of the Purchased Securities by
any form of general solicitation or general advertising. The Company has offered
the Securities for sale only to the Investor and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act.

 

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Section 4.30 Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Company (or made by any person
acting on its behalf of which the Company is aware) which is in violation of
law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.

Section 4.31 Accountants. The Company’s accounting firm is set forth on Schedule
4.31 of the Disclosure Schedule. To the knowledge and belief of the Company,
such accounting firm (i) is a registered public accounting firm as required by
the Exchange Act and (ii) shall express its opinion with respect to the
financial statements to be included in the Company’s Annual Report on Form
10-KSB for the year ending March 31, 2007.

Section 4.32 No Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company which could affect the Company’s ability to
perform any of its obligations under any of the Transaction Documents, and the
Company is current with respect to any fees owed to its accountants and lawyers.

Section 4.33 Acknowledgment Regarding Investor’s Purchase of Securities. The
Company acknowledges and agrees that the Investor is acting solely in the
capacity of an arm’s-length purchaser with respect to the Transaction Documents
and the transactions contemplated thereby. The Company further acknowledges that
the Investor is not acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by the Investor or any of
its representatives or agents in connection with the Transaction Documents and
the transactions contemplated thereby is merely incidental to the Investor’s
purchase of the Purchased Securities. The Company further represents to the
Investor that the Company’s decision to enter into this Agreement and the other
Transaction Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.

Section 4.34 Acknowledgement Regarding Investor’s Trading Activity. Anything in
this Agreement or elsewhere herein to the contrary notwithstanding, it is
understood and acknowledged by the Company (i) that the Investor has not been
asked by the Company to agree, nor has the Investor agreed, to desist from
purchasing or selling, long and/or short, securities of the Company, or
“derivative” securities based on securities issued by the Company or to hold the
Purchased Securities for any specified term; (ii) that past or future open
market or other transactions by the Investor, including Short Sales, and
specifically including, without limitation, Short Sales or “derivative”
transactions, before or after the closing of this or future private

 

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placement transactions, may negatively impact the market price of the Company’s
publicly traded securities; (iii) that the Investor, and counter-parties in
“derivative” transactions to which the Investor is a party, directly or
indirectly, presently may have a “short” position in the Common Stock, and
(iv) that the Investor shall not be deemed to have any affiliation with or
control over any arm’s-length counter-party in any “derivative” transaction. The
Company further understands and acknowledges that (a) the Investor may engage in
hedging activities at various times during the period that the Purchased
Securities are outstanding, including, without limitation, during the periods
that the value of the Conversion Shares deliverable with respect to the Notes
are being determined and (b) such hedging activities (if any) could reduce the
value of the existing shareholders’ equity interests in the Company at and after
the time that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not constitute a
breach of any of the Transaction Documents.

Section 4.35 Regulation M Compliance. 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
Purchased Securities, (ii) sold, bid for, purchased, or, paid any compensation
for soliciting purchases of, any of the Purchased Securities, or (iii) paid or
agreed to pay to any Person any compensation for soliciting another to purchase
any other securities of the Company, other than, in the case of clauses (ii) and
(iii), compensation paid to the Company’s placement agent in connection with the
placement of the Purchased Securities.

Section 4.36 FDA. As to each product subject to the jurisdiction of the U.S.
Food and Drug Administration (“FDA”) under the Federal Food, Drug and Cosmetic
Act, as amended, and the regulations thereunder (“FDCA”) that is manufactured,
packaged, labeled, tested, distributed, sold, and/or marketed by the Company or
any of its Subsidiaries, such product is being manufactured, packaged, labeled,
tested, distributed, sold and/or marketed by the Company in compliance with all
applicable requirements under FDCA and similar laws, rules and regulations
relating to registration, investigational use, premarket clearance, licensure,
or application approval, good manufacturing practices, good laboratory
practices, good clinical practices, product listing, quotas, labeling,
advertising, record keeping and filing of reports, except where the failure to
be in compliance would not have a Material Adverse Effect. There is no pending,
completed or, to the Company’s knowledge, threatened, action (including any
lawsuit, arbitration, or legal or administrative or regulatory proceeding,
charge, complaint, or investigation) against the Company or any of its
Subsidiaries, and none of the Company or any of its Subsidiaries has received
any notice, warning letter or other communication from the FDA or any other
governmental entity, which (i) contests the premarket clearance, licensure,
registration, or approval of, the uses of, the distribution of, the
manufacturing or packaging of, the testing of, the sale of, or the labeling and
promotion of any product, (ii) withdraws its approval of, requests the recall,
suspension, or seizure of, or withdraws or orders the withdrawal of advertising
or sales promotional materials relating to, any product, (iii) imposes a
clinical hold on any clinical investigation by the Company or any of its
Subsidiaries, (iv) enjoins production at any facility of the Company or any of
its Subsidiaries, (v) enters or proposes to enter into a consent decree of
permanent injunction with the Company or any of its Subsidiaries, or
(vi) otherwise alleges any violation of any laws, rules or regulations by the
Company or any of its Subsidiaries, and which, either individually or in the
aggregate, would have a Material Adverse Effect. The properties, business and
operations of the Company have been and are being

 

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conducted in all material respects in accordance with all applicable laws, rules
and regulations of the FDA. The Company has not been informed by the FDA that
the FDA will prohibit the marketing, sale, license or use in the United States
of any product proposed to be developed, produced or marketed by the Company nor
has the FDA expressed any concern as to approving or clearing for marketing any
product being developed or proposed to be developed by the Company.

Section 4.37 Form S-3 Eligibility. The Company is eligible to register the
resale of the Securities for resale by the Investor on Form S-3 promulgated
under the Securities Act.

Section 4.38 Employee Benefit Plans.

(a) Except as set forth in the Schedule of Exceptions, (i) the Company does not
maintain or contribute to or have any obligation to contribute to, or have any
direct or indirect liability, whether contingent or otherwise, with respect to
any plan, program, agreement, arrangement or commitment which is an employment,
consulting or deferred compensation agreement, or an executive compensation,
incentive bonus or other bonus, employee pension, profit-sharing, savings,
retirement, stock option, stock purchase, severance pay, life, health,
disability or accident insurance plan, or vacation, or other employee benefit
plan, program, arrangement, agreement or commitment, whether or not subject to
ERISA (as defined below) (including any funding mechanism now in effect or
required in the future as a result of the transaction contemplated by this
Agreement or otherwise), whether oral or written (individually a “Plan,” and
collectively, the “Plans”); and (ii) neither the Company nor any person who
would be considered a single employer with the Company pursuant to
Section 414(b), (c), (m) or (o) of the Code (as defined below) maintains or
contributes to, or has had during the preceding six years maintained or
contributed to, or has had during such period the obligation to maintain or
contribute, or may have any liability with respect to, any Plan subject to Title
IV of ERISA or Section 412 of the Code or any “multiple employer plan” within
the meaning of the Code or ERISA. No Plan is (i) a nonqualified deferred
compensation retirement plan, contract or arrangement; (ii) a qualified defined
contribution plan (as defined in Section 3(34) of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), or Section 414(i) of the Internal
Revenue Code of 1986, as amended (the “Code”)); (iii) a qualified defined
benefit plan (as defined in Section 3(35) of ERISA or Section 414(j) of the
Code); or (iv) an employee welfare benefit plan (as defined in Section 3(1) of
ERISA).

(b) To the extent required (either as a matter of law or to obtain the intended
tax treatment and tax benefits), all employee benefit plans (as defined in
Section 3(3) of ERISA), which the Company maintains or to which it contributes,
comply in all material respects with the requirements of ERISA and the Code.
With respect to the Plans, (i) all required contributions which are due have
been made and a proper accrual has been made for all contributions due in the
current fiscal year; (ii) there have been no prohibited transactions (as defined
in Section 406 of ERISA or Section 4975 of the Code) and (iii) no event has
occurred in connection with which the Company or any Plan could be subject to
any material liability under ERISA, the Code or otherwise.

 

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(c) The Company does not contribute (and has not ever contributed or had any
obligation to contribute) to any multi-employer plan, as defined in
Section 3(37) of ERISA. The Company has no actual or potential liabilities under
Section 4201 of ERISA for any complete or partial withdrawal from a
multi-employer plan. The Company has no actual or potential liability for death
or medical benefits after separation from employment, other than (i) death
benefits under the employee benefit plans or programs (whether or not subject to
ERISA) set forth in the Schedule of Exceptions and (ii) health care continuation
benefits described in Section 4980B of the Code.

(d) To the Company’s knowledge, neither the Company nor any of its directors,
officers, employees or other “fiduciaries,” as such term is defined in
Section 3(21) of ERISA, has committed any breach of fiduciary responsibility
imposed by ERISA or any other applicable law with respect to the Plans which
would subject the Company or any of its directors, officers or employees to any
liability under ERISA or any applicable law.

(e) The Company has not incurred any liability for any tax or civil penalty or
any disqualification of any employee benefit plan (as defined in Section 3(3) of
ERISA) imposed by Sections 4980B and 4975 of the Code and Part 6 of Title I and
Section 502(i) of ERISA.

Section 4.39 Product Liability Claims. All products manufactured, distributed or
sold by or on behalf of the Company were merchantable, free from defects in
design, specifications, processing, manufacture, material or workmanship, and
suitable for the purpose for which they were intended. The Company has not
incurred any uninsured or insured Product Liability, or received a claim based
upon alleged Product Liability, and no basis for any such claim exists. The
Company has no liability or obligation with respect to any Product Liability,
whether or not heretofore asserted, or product recall. The Company has
maintained complete and accurate complaint histories regarding the Company’s
products.

Section 4.40 Outstanding Borrowing. The Schedule of Exceptions sets forth the
amount of all indebtedness of the Company as of the date hereof, the liens that
relate to such indebtedness and that encumber the Company’s assets and the name
of each lender thereof. No holder of indebtedness of the Company is entitled to
any voting rights in any matters voted upon by the holders of the Common Stock.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE INVESTOR

The Investor represents and warrants to the Company for itself as follows:

Section 5.1 Authorization. The Investor has full power and authority to enter
into and perform under this Agreement in accordance with its terms. This
Agreement has been duly authorized by all necessary action on the part of the
Investor, has been duly executed and delivered by each the Investor, and is the
valid and binding agreement of each the Investor and is enforceable against each
the Investor in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, moratorium, reorganization or other similar
laws affecting the enforcement of creditors’ rights generally and to judicial
limitations on the remedy of specific enforcement and other equitable remedies.

 

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Section 5.2 Purchase Entirely for Own Account. This Agreement is made with the
Investor in reliance upon the Investor’s representation to the Company, which by
the Investor’s execution of this Agreement the Investor hereby confirms, that
the Purchased Securities will be acquired for investment for the Investor’s own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that the Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same.
By executing this Agreement, the Investor further represents that the Investor
does not have any contract, undertaking, agreement or arrangement with any
third-party to sell, transfer or grant participations to such third-party or to
any third-person, with respect to any of the Purchased Securities.

Section 5.3 Reliance Upon Investor’s Representations; Restrictions on Resale.
The Investor understands that none of the Notes or Conversion Shares have been
registered under the Securities Act or any state securities laws by reason of
their contemplated issuance in transactions exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 505
or 506 promulgated under the Securities Act and applicable state securities
laws, and that the reliance of the Company and others upon these exemptions is
predicated in part upon this representation by the Investor. The Investor
further understands that the Notes and the Conversion Shares may not be
transferred or resold without (i) registration under the Securities Act and any
applicable state securities laws, or (ii) an exemption from the requirements of
the Securities Act and applicable state securities laws. The Investor also
understands that any Conversion Shares will be issued without prior registration
thereof under the Securities Act or applicable state securities laws in reliance
upon Section 4(2) of the Securities Act and transactional exemptions from
registration under applicable state securities laws based upon appropriate
representations of the Investor. As such, the Conversion Shares will be subject
to transfer restrictions similar to restrictions applicable to the Convertible
Notes. The Investor understands (i) that an exemption from such registration is
not presently available pursuant to Rule 144 promulgated under the Securities
Act by the SEC and (ii) that in any event the Investor may not sell any
securities acquired hereunder pursuant to Rule 144 prior to the expiration of a
one-year period (or such shorter period as the Commission may hereafter adopt)
after the Investor has acquired such securities. The Investor understands that
any sales pursuant to Rule 144 can be made only in full compliance with the
provisions of Rule 144.

Section 5.4 Receipt of Information. The Investor represents that the Company has
provided the Investor at a reasonable time prior to the execution of this
Agreement sufficient opportunity to ask questions and receive answers from the
Company’s management concerning the Company’s business, management and financial
affairs and the terms and conditions of the offering of the Purchased Securities
and the Conversion Shares and to obtain any additional information (which the
Company possesses or can acquire without unreasonable effort or expense) as may
be necessary to verify the accuracy of information furnished to the Investor.
The Investor has reviewed the representations concerning the Company contained
in this Agreement. The foregoing, however, does not limit or modify the
representations and warranties of the Company in this Agreement or the right of
the Investor to rely thereon.

 

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Section 5.5 Investment Experience. The Investor represents that it is
experienced in evaluating and investing in securities of companies in the
development stage and acknowledges that it is able to fend for itself, can bear
the economic risk of its investment, and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Notes and the Conversion Shares. If other than an
individual, Investor also represents it has not been organized for the purpose
of acquiring the Notes and Conversion Shares.

Section 5.6 Accredited Investor. The Investor is an “accredited investor” within
the meaning of SEC Rule 501 of Regulation D promulgated under the Act, as
presently in effect.

Section 5.7 Legends. To the extent applicable, each certificate or other
document evidencing any of the Purchased Securities shall be endorsed with the
legends set forth below, and the Investor covenants that, except to the extent
such restrictions are waived by the Company, the Investor shall not transfer the
shares represented by any such certificate without complying with the
restrictions on transfer described in the legends endorsed on such certificate:

“THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY
HAS RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED.”

The Company shall make a notation regarding the restrictions on transfer of the
Conversion Shares or other Purchased Securities in its books and the Conversion
Shares and other Purchased Securities shall be transferred on the books of the
Company only if transferred or sold pursuant to an effective registration
statement under the Securities Act covering the securities to be transferred or
an opinion of counsel reasonably satisfactory to the Company that such
registration is not required; provided, however, that (i) the Company will not
require opinions of counsel for transactions made pursuant to Rule 144 except in
unusual circumstances and (ii) the Company will not require opinions of counsel
for transfers to affiliated entities managed by the same manager or managing
partner or management company, or managed by an entity controlling, controlled
by or under common control with such manager, managing partner or management
company so long as the transferor certifies in writing to the Company that the
transferor is not receiving any consideration in connection with the transfer
and so long as the transferee will be subject to the terms of these restrictions
to the same extent as if such transferee were an original Investor hereunder.

 

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ARTICLE VI

COVENANTS

The Company covenants that for so long as any Notes remain outstanding:

Section 6.1 Financial Statements, Reports, Etc. The Company shall furnish to the
Investor:

(a) within ninety (90) days (or such shorter period of time as shall be required
by the SEC in connection with the filing of the Company’s quarterly reports with
the SEC under the Exchange Act) after the end of each fiscal year of the Company
ending on or after December 31, 2006, a balance sheet of the Company as of the
end of such fiscal year and the related statements of income, stockholders’
equity and cash flows for the fiscal year then ended, prepared in accordance
with GAAP and certified by a firm of independent public accountants;

(b) within forty-five (45) days (or such shorter period of time as shall be
required by the SEC in connection with the filing of the Company’s annual
reports with the SEC under the Exchange Act) after the end of each fiscal
quarter in each fiscal year (other than the last fiscal quarter in each fiscal
year) an unaudited balance sheet of the Company and the related unaudited
statements of income, stockholders’ equity and cash flows, and certified by the
Chief Financial Officer of the Company, such balance sheet to be as of the end
of such fiscal quarter and such statements of income, stockholders’ equity and
cash flows to be for such fiscal quarter and for the period from the beginning
of the fiscal year to the end of such fiscal quarter, in each case with
comparative statements for the corresponding period in the prior fiscal year;

(c) promptly after receipt by the Company of notice thereof, notice of all
actions, suits, claims, proceedings, investigations and inquiries that could
have a Material Adverse Effect; and

(d) promptly, from time to time, such other information regarding the business,
financial condition, operations, property or affairs of the Company and its
subsidiaries as the Investor may reasonably request.

Section 6.2 Inspection, Consultation and Advice. The Company shall permit the
Investor and such persons as the Investor may designate, at the Investor’s
expense, upon reasonable notice and at such times as the Investor may reasonably
request to visit and inspect any of the properties of the Company, examine its
books and records (including without limitation product complaint histories and
related information) and take copies and extracts therefrom, discuss the affairs
(including, without limitation, operations and relations with suppliers),
finances and accounts of the Company with its officers, employees and public
accountants (and the Company hereby authorizes said accountants to discuss with
the Investor and any such designees such affairs, finances and accounts), and
consult with the management of the Company as to such affairs, finances and
accounts of the Company and its subsidiaries, all at reasonable times and upon
reasonable notice.

 

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Section 6.3 Transactions with Affiliates. Except for transactions contemplated
by this Agreement or as otherwise approved by a majority of the disinterested
directors on the Company’s Board of Directors, the Company shall not enter into
any transaction with any director, officer, employee or holder of more than 5%
of the outstanding capital stock of the Company, any member of the family of any
such person, or any corporation, partnership, trust or other entity in which any
such person, or member of the family of any such person, is a director, officer,
trustee, partner or holder of more than 5% of the outstanding capital stock
thereof, except for transactions on customary terms related to such person’s
employment or service as a director of the Company. Except as specifically
disclosed on Schedule 6.3 attached hereto, the Company shall not use any
proceeds of Purchased Securities to make distributions or loans to any
shareholders of the Company or repay existing indebtedness for borrowed money
obligations.

Section 6.4 Conditions to Closing. The Company shall use best efforts to cause
the conditions set forth in Article 8 to be satisfied with respect to the
Closing as soon as practicable.

Section 6.5 Reserve for Shares. The Company shall at all times reserve and keep
available such number of its duly authorized but unissued shares of Common Stock
as is necessary to comply with the terms of this Agreement and the Convertible
Notes and Conversion Shares. The Company shall at all times reserve and keep
available out of its duly authorized but unissued shares of Common Stock such
number of its duly authorized shares of Common Stock as is necessary to comply
with the terms of this Agreement, the Articles of Incorporation, as amended, and
the Conversion Shares. If at any time the number of shares of authorized but
unissued Common Stock are not sufficient to comply with the terms of this
Agreement, the Convertible Notes, and the Conversion Shares, the Company will
promptly take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares of
Common Stock as are sufficient for such purpose. The Company will obtain any
authorization, consent, approval or other action by or make any filing with any
court or administrative body that may be required under applicable securities
laws in connection with the issuance of any shares issued by it in order to
comply with the terms of this Agreement, the Convertible Notes, and the
Conversion Shares.

Section 6.6 Compliance with Law. The Company will conduct its business in
compliance with all applicable laws, rules and regulations of the jurisdictions
in which it is conducting business, including, without limitation, all
applicable local, state and federal environmental laws and regulations, the
failure to comply with which would have a Material Adverse Effect.

Section 6.7 Board of Directors Meetings. The Company shall use its best efforts
to ensure that meetings of its Board of Directors are held at least four
(4) times each year and at least once each quarter.

Section 6.8 Use of Proceeds. The Company shall use the cash proceeds of the
Purchased Securities for the Company’s working capital needs and shall not use
such proceeds for the satisfaction of any portion of the Company’s debt (other
than payment of trade payables in the ordinary course of the Company’s business
and prior practices), or to redeem any Common Stock or Common Stock Equivalents
or to settle any outstanding litigation.

 

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Section 6.9 Certain Actions Requiring Investor Approval. The Company shall not,
without a vote or the written consent of the Investor:

(a) other than in the ordinary course of business, issue any debt securities
that are senior or pari passu in right of payment to or with the Convertible
Notes;

(b) apply any of the Company’s assets to the redemption, retirement, purchase or
acquisition of, or dividends on, any shares of any class of equity or preferred
security of the Company; or

(c) issue any equity securities of any subsidiary of the Company.

Section 6.10 Subsidiaries. The Company will not, nor will permit any Affiliate
to, form or acquire any person which would thereby become a subsidiary except to
the extent such person is or, in the case of a formed person, will be, engaged
in the businesses engaged in by the Company and immediately after such formation
or acquisition (i) the equity interests of the acquired or formed person are
pledged to the Investor, and (ii) such person enters into documents requested by
the Investor to provide that such person shall be obligated to repay the Notes
and other amounts payable under the Transaction Documents, and to grant to the
Investor a first priority security interest (and to perfect such interest)
subject to no other Liens, in the assets of such person.

Section 6.11 Participation in Future Financings.

(a) From the date hereof until the date that the Notes are no longer
outstanding, and subject to the rights granted to the purchasers pursuant to
Section 4.13 of that certain Securities Purchase Agreement, dated as of March 5,
2004 (the “Midsummer Purchase Agreement”), the Company will not, directly or
indirectly, offer, sell, grant any option to purchase, or otherwise dispose of
(or announce any offer, sale, grant or any option to purchase or other
disposition of) any of its or its Subsidiaries’ Common Stock or Common Stock
Equivalents, including without limitation any debt, preferred stock or other
instrument or security that is, at any time during its life and under any
circumstances, convertible into or exchangeable or exercisable for Common Stock
or Common Stock Equivalents (any such offer, sale, grant, disposition or
announcement being referred to as a “Subsequent Placement”).

(b) From the date hereof until the date that the Notes are no longer
outstanding, the Company will not, directly or indirectly, effect any Subsequent
Placement, unless the Company shall have first complied with Section 4.13 of the
Midsummer Purchase Agreement and the requirements of this Section 6.11(b):

(i) The Company shall deliver to each Investor a written notice (the “Offer”) of
any proposed or intended issuance or sale or exchange of the securities being
offered (the “Offered Securities”) in a Subsequent Placement, which Offer shall
(w) identify and describe the Offered Securities, (x) describe the price and
other terms upon which they are to be issued, sold or exchanged, and the number
or amount of the Offered Securities to be issued, sold or

 

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exchanged, (y) identify the Persons or entities to which or with which the
Offered Securities are to be offered, issued, sold or exchanged and (z) offer to
issue and sell to or exchange with each Investor the full amount of such Offered
Securities upon the same price and other terms and conditions upon which they
are to be issued, sold or exchanged.

(ii) To accept an Offer, the Investor must deliver a written notice to the
Company prior to the end of the five (5) Business Day period of the Offer,
setting forth the Investor’s election to purchase the Offered Securities (the
“Notice of Acceptance”). If the Investor does not deliver such a written notice
by the end of such five (5) Business Day period, then Investor shall be deemed
to have rejected the Offer.

(iii) The Company shall have at least ten (10) Business Days from the expiration
of the period set forth in Section 6.11(b)(ii) above to issue, sell or exchange
all or any part of such Offered Securities as to which a Notice of Acceptance
has not been given by the Investor (the “Refused Securities”), but only to the
offerees described in the Offer and only upon terms and conditions (including,
without limitation, number and price of shares, unit prices and interest rates,
as applicable), taken as a whole, that are not more favorable to the acquiring
Person or Persons or less favorable to the Company than those set forth in the
Offer.

(iv) Upon the closing of the issuance, sale or exchange of the Offered
Securities, the Investor shall acquire from the Company, and the Company shall
issue to the Investor, the number or amount of Offered Securities specified in
the Notice of Acceptance upon the terms and conditions specified in the Offer.
The purchase by the Investor of any Offered Securities is subject in all cases
to the preparation, execution and delivery by the Company and the Investor of a
purchase agreement relating to such Offered Securities reasonably satisfactory
in form and substance to the Investor, the Company and their respective counsel.
Notwithstanding anything to the contrary contained in this Agreement, if the
Company does not consummate the closing of the issuance, sale or exchange of the
Refused Securities within ten (10) Business Days of the expiration of the period
set forth in Section 6.11(b)(ii) or if the terms of the Offer or the amount of
the Offered Securities shall change prior to such closing, the Company shall
provide the Investor with a second Offer setting forth the new terms of the
Offered Securities, and the Investor shall have the same rights of participation
with respect to such revised Offer as set forth in this Section 6.11(b).

(v) The Company and the Investor agree that if the Investor elects to
participate in the Offer, (x) neither the agreement regarding the Subsequent
Placement (the “Subsequent Placement Agreement”) with respect to such Offer nor
any other transaction documents related thereto (collectively, the “Subsequent
Placement Documents”) shall include any term or provision whereby the Investor
shall be required to agree to any restrictions in trading as to any securities
of the Company owned by the Investor prior to such Subsequent Placement, and
(y) any

 

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registration rights set forth in such Subsequent Placement Documents shall be
similar in all material respects to the registration rights contained in the
Registration Rights Agreement entered into in connection herewith.

(vi) Notwithstanding anything to the contrary in this Section 6.11 and unless
otherwise agreed to by Investor, the Company shall either confirm in writing to
the Investor that the transaction with respect to the Subsequent Placement has
been abandoned or shall publicly disclose its intention to issue the Offered
Securities, in either case in such a manner such that the Investor will not be
in possession of material non-public information, by the 19th Business Day
following delivery of the Offer. If by the 19th Business Day following delivery
of the Offer no public disclosure regarding a transaction with respect to the
Offered Securities has been made, and no notice regarding the abandonment of
such transaction has been received by the Investor, such transaction shall be
deemed to have been abandoned and the Investor shall not be deemed to be in
possession of any material, non-public information with respect to the Company.
Should the Company decide to pursue such transaction with respect to the Offered
Securities, the Company shall provide the Investor with another Offer and the
Investor will again have the right of participation set forth in this
Section 6.11. The Company shall not be permitted to deliver more than one such
Offer to the Investor in any sixty (60) day period.

(vii) Any Offered Securities not acquired by the Investor or other Persons in
accordance with this Section 6.11(b) above may not be issued, sold or exchanged
until they are again offered to the Investor under the procedures specified in
this Agreement.

(c) Notwithstanding anything in this Agreement to the contrary, the restrictions
contained in paragraph (b) of this Section 6.11 shall not apply to the issuance
of Common Stock (A) pursuant to any Exempt Issuance (provided that such exercise
or conversion occurs in accordance with the terms thereof, without amendment or
modification, and that the applicable exercise or conversion price or ratio is
described in such schedule) or otherwise pursuant to any employee benefit plan
described in Section 4.38 above or hereafter adopted by the Company and approved
by its shareholders, (B) pursuant to a bona fide firm commitment underwritten
public offering with a nationally recognized underwriter (excluding any equity
lines) in an aggregate offering amount greater than $15,000,000, or (C) in
connection with a bona fide joint venture, acquisition, merger, strategic
partnership, or strategic alliance the primary purpose of which is not to raise
cash.

Section 6.12 Dividends; Subsequent Equity Sales.

(a) From the date hereof until 90 days after the Effective Date, other than as
contemplated by this Agreement, neither the Company nor any Affiliate shall
issue or sell shares of Common Stock or Common Stock Equivalents entitling any
person to acquire shares of Common Stock; provided, however, the 90 day period
set forth in this Section 4.14 shall be extended for the number of Trading Days
during such period in which

 

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(i) trading in the Common Stock is suspended by any Trading Market, or
(ii) following the Effective Date, the Registration Statement is not effective
or the prospectus included in the Registration Statement may not be used by the
Investor for the resale of the Underlying Shares.

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

(c) Unless Shareholder Approval has been obtained and deemed effective, neither
the Company nor any Affiliate shall make any issuance whatsoever of Common Stock
or Common Stock Equivalents which would cause any adjustment of the Conversion
Price to the extent the holder(s) of the Notes and Conversion Shares would not
be permitted to convert the outstanding Notes in full, ignoring for such
purposes the conversion or exercise limitations therein. The Investor shall be
entitled to obtain injunctive relief against the Company to preclude any such
issuance, which remedy shall be in addition to any right to collect damages. In
addition, prior to the receipt of Shareholder Approval, the Company shall not
pay any cash dividend on its Common Stock while any of the Notes remain
outstanding.

(d) Notwithstanding the foregoing, this Section 6.12 shall not apply with
respect to an Exempt Issuance, except that no Variable Rate Transaction shall be
an Exempt Issuance.

 

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Section 6.13 Transfer Restrictions.

(a) The Conversion Shares may only be disposed of in compliance with state and
federal securities laws. In connection with any transfer of Conversion Shares
other than pursuant to an effective registration statement or Rule 144, to the
Company or to an Affiliate of a Investor or in connection with a pledge as
contemplated in Section 6.13(b), the Company may require the transferor thereof
to provide to the Company an opinion of counsel selected by the transferor and
reasonably acceptable to the Company, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Conversion Shares
under the Securities Act. As a condition of transfer of Conversion Shares other
than pursuant to an effective registration statement or Rule 144, any such
transferee shall agree in writing to be bound by the terms of this Agreement and
shall have the rights of an Investor under this Agreement and the Registration
Rights Agreement.

(b) The Investor agrees to the imprinting, so long as is required by this
Section 6.13, of a legend on any of the Conversion Shares in the following form:

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS
[EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON
[EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

The Company acknowledges and agrees that the Investor may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Conversion Shares to a
financial institution that is an “accredited investor” as defined in Rule 501(a)
under the Securities Act and who agrees to be bound by the provisions of this
Agreement and the Registration Rights Agreement and, if required under the terms
of such arrangement, the Investor may transfer pledged or secured Conversion
Shares to the pledgees or secured parties. Such a pledge or transfer would not
be subject to approval of the Company, and no legal opinion of legal counsel of
the pledgee, secured party or pledgor shall be required in connection therewith.
Further, no notice shall be required of such pledge. At the Investor’s expense,
the Company will execute and deliver such reasonable documentation as a pledgee
or

 

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secured party of Conversion Shares may reasonably request in connection with a
pledge or transfer of the Conversion Shares , including, if the Conversion
Shares are subject to registration pursuant to the Registration Rights
Agreement, the preparation and filing of any required prospectus supplement
under Rule 424(b)(3) under the Securities Act or other applicable provision of
the Securities Act to appropriately amend the list of Selling Shareholders
thereunder.

(c) Certificates evidencing the Conversion Shares shall not contain any legend
(including the legend set forth in Section 6.13(b) hereof): (i) while a
registration statement (including the Registration Statement) covering the
resale of such security is effective under the Securities Act, or (ii) following
any sale of such Conversion Shares pursuant to Rule 144, or (iii) if such
Underlying Shares are eligible for sale under Rule 144(k), or (iv) if such
legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission). The Company shall cause its counsel to issue a legal opinion to
its transfer agent promptly after the Effective Date if required by the transfer
agent to effect the removal of the legend hereunder. If all or any portion of a
Note is converted or exercised (as applicable) at a time when there is an
effective registration statement to cover the resale of the Conversion Shares,
or if such Conversion Shares may be sold under Rule 144(k) or if such legend is
not otherwise required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission) then such Conversion Shares shall be issued free of all legends.
The Company agrees that following the Effective Date or at such time as such
legend is no longer required under this Section 6.13(c), it will, no later than
seven Trading Days following the delivery by the Investor to the Company or the
Transfer Agent of a certificate representing Conversion Shares, as applicable,
issued with a restrictive legend (such third Trading Day, the “Legend Removal
Date”), deliver or cause to be delivered to the Investor a certificate
representing such shares that is free from all restrictive and other legends.
The Company may not make any notation on its records or give instructions to the
transfer agent that enlarge the restrictions on transfer set forth in this
Section. Certificates for Conversion Shares subject to legend removal hereunder
shall be transmitted by the transfer agent to the Investor by crediting the
account of the Investor’s prime broker with the Depository Trust Company System.

(d) In addition to the Investor’s other available remedies, the Company shall
pay to the Investor, in cash, as liquidated damages and not as a penalty, for
each $1,000 of Conversion Shares (based on the VWAP of the Common Stock on the
date such Conversion Shares are submitted to the transfer agent) delivered for
removal of the restrictive legend and subject to Section 6.13(c), $10 per
Trading Day (increasing to $20 per Trading Day 5 Trading Days after such damages
have begun to accrue) for each Trading Day after the second Trading Day
following the Legend Removal Date until such certificate is delivered without a
legend. Nothing herein shall limit the Investor’s right to pursue actual damages
for the Company’s failure to deliver certificates representing any Conversion
Shares as required by the Transaction Documents, and the Investor shall have the
right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief.

 

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(e) The Investor agrees that the removal of the restrictive legend from
certificates representing Conversion Shares as set forth in this Section 6.13 is
predicated upon the Company’s reliance that the Investor will sell any
Conversion Shares pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery requirements, or an
exemption therefrom, and that if Conversion Shares are sold pursuant to a
Registration Statement, they will be sold in compliance with the plan of
distribution set forth therein.

Section 6.14 Securities Law Disclosure; Publicity. The Company shall, by 12:00
p.m. (New York City time) on the fourth Trading Day following the date hereof
(or such shorter time period as shall be required by Form 8-K or otherwise
agreed to by the parties), issue a Current Report on Form 8-K disclosing the
material terms of the transactions contemplated hereby and attaching the
Transaction Documents as exhibits thereto. The Company and the Investor shall
consult with each other in issuing any other press releases with respect to the
transactions contemplated hereby, and neither the Company nor the Investor shall
issue any such press release or otherwise make any such public statement without
the prior consent of the Company, with respect to any press release of the
Investor, or without the prior consent of the Investor, with respect to any
press release of the Company, which consent shall not unreasonably be withheld
or delayed, except if such disclosure is required by law, in which case the
disclosing party shall promptly provide the other party with prior notice of
such public statement or communication. Notwithstanding the foregoing, the
Company shall not include the name of the Investor in any filing with the
Commission or any regulatory agency or Trading Market, without the prior written
consent of the Investor, except (i) as required by federal securities law in
connection with (A) any registration statement contemplated by the Registration
Rights Agreement and (B) the filing of final Transaction Documents (including
signature pages thereto) with the Commission and (ii) to the extent such
disclosure is required by law or Trading Market regulations, in which case the
Company shall provide the Investor with prior notice of such disclosure
permitted under this clause (ii).

Section 6.15 Form D; Blue Sky Filings. The Company agrees to timely file a Form
D with respect to the offering described herein as required under Regulation D
and to provide a copy thereof, promptly upon request of the Investor. The
Company shall take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for, or to qualify the Notes and
Conversion Shares for, sale to the Investor at the Closing under applicable
securities or “Blue Sky” laws of the states of the United States, and shall
provide evidence of such actions promptly upon request of the Investor.

Section 6.16 Shareholder Approval. The Company shall use its best efforts to
obtain Shareholder Approval at the Company’s 2007 Annual Meeting of
Shareholders, which shall be held no later than September 30, 2007 (such date,
the “Required Shareholder Approval Date”). The proxy for such Annual Meeting
shall contain the recommendation of the Company’s Board of Directors that such
proposal be approved. The Company shall solicit proxies from its shareholders in
connection therewith in the same manner as all other management proposals in
such proxy statement and all management-appointed proxyholders shall vote their
proxies in favor of such proposal.

 

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Section 6.17 Reservation and Listing of Shares.

(a) The Company shall maintain a reserve from its duly authorized shares of
Common Stock for issuance pursuant to the Transaction Documents in such amount
as may be required to fulfill its obligations in full under the Transaction
Documents.

(b) The Company shall, if applicable: (i) in the time and manner required by the
principal Trading Market, prepare and file with such Trading Market an
additional shares listing application covering a number of shares of Common
Stock at least equal to the Required Minimum on the date of such application,
(ii) take all steps necessary to cause such shares of Common Stock to be
approved for listing on such Trading Market as soon as possible thereafter,
(iii) provide to the Investor evidence of such listing, and (iv) maintain the
listing of such Common Stock on any date at least equal to the Required Minimum
on such date on such Trading Market or another Trading Market; provided that
such listing shall include any additional shares that may be issuable under the
Note as a result of any adjustments to the Conversion Price that would affect
the number of Conversion Shares issuable to the Investor.

Section 6.18 Limitation on Indebtedness. So long as any Purchased Securities
remain outstanding, the Company’s obligations under the Bank of America Credit
Agreement or any other bank, credit or other lending facility with any other
lender shall not exceed the greater of (i) $5,000,000 or (ii) 60% of the
Company’s accounts receivable balance (as reflected on the Company’s financial
statements contained in its most recent Quarterly Report on Form 10-Q or Annual
Report on Form 10-K, as applicable). Any failure to satisfy the foregoing test
shall result in an event of default under the Note.

Section 6.19 Mortgage on Real Property. So long as the Investor (or one of its
Affiliates) continues to hold at least 50% of the original principal amount of
the Notes, the Company hereby certifies that it will not grant a first mortgage
(the “Mortgage”) on the Company’s property located at 6950 Bryan Dairy Road,
Largo, Florida 33777, or any subsequent location that may become the Company’s
headquarters (the “Real Property”). The Company and Investor hereby agree that,
after the Closing and during any such time as at least 50% of the original
principal amount of the Notes shall remain outstanding, the Company shall, if
requested in writing by Investor, provide to Investor a Mortgage on the Real
Property on commercially reasonable terms to further secure the Company’s
obligations to the Investor under the Notes; provided, however, that Investor
shall be solely responsible for all costs and expenses of obtaining such a
Mortgage, including without limitation all appraisal fees, recording fees and
documentary stamp taxes, relating to the preparation, execution and filing of
the Mortgage on the Real Property. Investor shall reimburse, indemnify and hold
the Company harmless from all such costs and expenses.

ARTICLE VII

CONDITIONS TO OBLIGATION OF THE COMPANY

The obligation of the Company to sell Purchased Securities to the Investor at
the Closing is subject to the satisfaction, on or before the Closing, of the
conditions set forth in this Article 7.

 

34

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Section 7.1 Representations and Warranties. The representations and warranties
contained in Article 5 shall be true, complete and correct as of the date hereof
and, as of the Closing Date as though such representations and warranties had
been made on and as of such date.

Section 7.2 Performance. The Investor shall have performed and complied in all
material respects with all agreements contained herein, and in the agreements,
documents and instruments contemplated hereby which are required to be performed
or complied with by them prior to or at the date of the Closing.

Section 7.3 Required Consents. The Company shall have obtained the written
consent or approval of each person whose consent or approval is required in
connection with this Agreement.

Section 7.4 Litigation. No suit, action or other proceeding shall be pending or,
to the knowledge of Company, threatened by any third party or by or before any
court or governmental agency in which it is sought to restrain or prohibit or to
obtain damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated hereby, and no investigation that
might result in any such suit, action or other proceeding shall be pending or,
to the knowledge of the Company, threatened.

Section 7.5 Legislation. No statute, rule, regulation, order, or interpretation
shall have been enacted, entered or deemed applicable by any domestic or foreign
government or governmental or administrative agency or court which would make
the transactions contemplated by this Agreement illegal.

ARTICLE VIII

CONDITIONS TO THE OBLIGATIONS OF INVESTOR

The obligation of the Investor to purchase the Purchased Securities at the
Closing is subject to the satisfaction, on or before the Closing, of the
conditions set forth in this Article 7.

Section 8.1 Representations and Warranties. The representations and warranties
contained in Article 4 shall be true, complete and correct as of the date hereof
and, as of the Closing Date (as though such representations and warranties had
been made on and as of such date), and the Chief Executive Officer and Chief
Financial Officer of the Company shall have certified to such effect to the
Investor in writing.

Section 8.2 Performance. The Company shall have performed and complied in all
material respects with all agreements contained herein, and in the agreements,
documents and instruments contemplated hereby which are required to be performed
or complied with by it prior to or at the date of the Closing, and the Chief
Executive Officer and Chief Financial Officer of the Company shall have
certified to the Investor in writing to such effect and to the further effect
that all of the conditions set forth in this Article 8 have been satisfied.

Section 8.3 All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Investor and their counsel, and the
Investor and their counsel shall have received all such counterpart originals or
certified or other copies of such documents as they reasonably may request.

 

35

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Section 8.4 Shareholder Approval. Any required Shareholder Approval shall have
been obtained by the Company.

Section 8.5 Supporting Documents.

(a) The Company shall have delivered to the Investor an opinion of counsel in
form and content reasonably satisfactory to the Investor.

(b) The Investor and their counsel shall have received copies of the following
documents:

(i) a certificate of the Secretary of State of the state of incorporation of the
Company and each of its Affiliates dated as of a date within three days prior to
the Closing Date as to the corporate existence of the Company and each of its
Affiliates and listing all documents of the Company and each of its Affiliates
on file with such Secretary of State;

(ii) a certificate of the Secretary of the Company dated the Closing Date and
certifying: (A) the Company’s and each Affiliate’s then current Articles of
Incorporation and Bylaws; (B) that attached thereto is a true and complete copy
of all resolutions adopted by the Board of Directors of the Company authorizing
the execution, delivery and performance of this Agreement and the Transaction
Documents, and the issuance, sale and delivery of the Purchased Securities and
the Conversion Shares, and that all such resolutions are in full force and
effect and are all the resolutions adopted in connection with the transactions
contemplated by this Agreement and the Transaction Documents; and (C) to the
incumbency and specimen signature of each officer of the Company and its
Affiliates executing this Agreement, the Transaction Documents, and any
certificate or instrument furnished pursuant hereto, and a certification by
another officer of the Company as to the incumbency and signature of the officer
signing the certificate referred to in this subsection (ii); and

(iii) such additional supporting documents and other information with respect to
the operations and affairs of the Company as any Investor or the Investor’s
counsel reasonably may request.

Section 8.6 Required Consents. The Company shall have obtained the written
consent or approval, in form and substance reasonably satisfactory to the
Investor, of each person whose consent or approval is required in connection
with this Agreement.

Section 8.7 Litigation. No suit, action or other proceeding shall be pending or,
to the knowledge of the Company, threatened by any third party or by or before
any court or governmental agency in which it is sought to restrain or prohibit
or to obtain damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated hereby, and no investigation that
might result in any such suit, action or other proceeding shall be pending or,
to the knowledge of Company, threatened.

 

36

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Section 8.8 Legislation. No statute, rule, regulation, order, or interpretation
shall have been enacted, entered or deemed applicable by any domestic or foreign
government or governmental or administrative agency or court which would make
the transactions contemplated by this Agreement illegal.

Section 8.9 No Material Adverse Changes. Since the date of this Agreement, no
events shall have occurred or circumstances arisen which are reasonably
expected, individually or in the aggregate, to have or result in a Material
Adverse Effect upon the Company. The Company shall fully cooperate as reasonably
requested by the Investor to enable the Investor to determine that this
condition has been satisfied.

Section 8.10 Liens. There shall exist as of the Closing no Liens, other than
Permitted Liens, on any assets or properties of the Company.

Section 8.11 Transaction Documents.

(a) The Company and the Investor shall have executed and delivered each of the
Transaction Documents to which it is a party. Each such document or agreement
shall constitute the valid and binding obligation of such party, enforceable
against such party in accordance with its terms.

(b) The Company, the Investor and Bank of America (as the lender under the Bank
of America Loan Agreement) shall have executed and delivered an Intercreditor
Agreement, and such Intercreditor Agreement shall constitute the valid and
binding obligation of the parties thereto enforceable in accordance with its
terms.

Section 8.12 Prior Preemptive Rights. All of the Company’s obligations regarding
pre emptive or first refusal rights with respect to the issuance of its
securities shall have been terminated in their entirety or duly waived pursuant
to a written instrument in form and content satisfactory to the Investor and the
Investor’s counsel with respect to (a) the issuance of the Purchased Securities
and (b) the issuance of the Conversion Shares.

Section 8.13 No Default. Since the date hereof, no default (or event which, with
the passage of time and/or the giving of notice, would constitute a default) of
the Company shall have occurred under this Agreement or any of the Transaction
Documents.

Section 8.14 Payment of Fees. The Company shall have paid the fees and expenses
of the Investor’s legal counsel as required under Section 11.7.

ARTICLE IX

INDEMNIFICATION

Section 9.1 Indemnification of Investor. The Company shall indemnify, defend and
hold harmless the Investor and their respective subsidiaries, officers,
directors and stockholders from and against and in respect of any and all
demands, claims, actions or causes of action,

 

37

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assessments, losses, damages, liabilities, interest and penalties, costs and
expenses (including, without limitation, reasonable legal fees and disbursements
incurred in connection therewith and in seeking indemnification therefor, and
any amounts or expenses required to be paid or incurred in connection with any
action, suit, proceeding, claim, appeal, demand, assessment or judgment)
(“Indemnifiable Losses”), resulting from, arising out of, or imposed upon or
incurred by any person to be indemnified hereunder by reason of any breach of
any representation, warranty, covenant or agreement of the Company contained in
this Agreement or any agreement, certificate contemplated by this Agreement or
any agreement, certificate, or document executed and delivered by the Company
pursuant hereto or in connection with any of the transactions contemplated by
this Agreement.

Section 9.2 Indemnification of the Company. The Investor shall indemnify, defend
and hold harmless the Company and each of its subsidiaries, officers, directors
and stockholders from and against and in respect of any and all Indemnifiable
Losses resulting from, arising out of, or imposed upon or incurred by any person
to be indemnified hereunder by reason of any breach of any representation,
warranty, covenant or agreement by the Investor contained in this Agreement or
any agreement, certificate or document executed and delivered by the Investor
pursuant hereto or in connection with any of the transactions contemplated by
this Agreement.

Section 9.3 Third-Party Claims. If a claim by a third party is made against an
indemnified party and if the indemnified party intends to seek indemnity with
respect thereto under this Article 9, such indemnified party shall promptly
notify the indemnifying party of such claim; provided, however, that failure to
give timely notice shall not affect the rights of the indemnified party so long
as the failure to give timely notice does not adversely affect the indemnifying
party’s ability to defend such claim against a third party. The indemnified
party shall not settle such claim without the consent of the indemnifying party,
which consent shall not be unreasonably withheld or delayed. If the indemnifying
party acknowledges in writing its indemnity obligations for Indemnifiable Losses
resulting therefrom, the indemnifying party may participate at its own cost and
expense in the settlement or defense of any claim for which indemnification is
sought.

Section 9.4 Cooperation as to Indemnified Liability. Each party hereto shall
cooperate fully with the other parties with respect to access to books, records,
or other documentation within such party’s control, if deemed reasonably
necessary or appropriate by any party in the defense of any claim which may give
rise to indemnification hereunder.

ARTICLE X

TERMINATION AND DEFAULT

Section 10.1 Termination. The obligation of the parties hereto to consummate the
remaining transactions contemplated hereby may be terminated and abandoned at
any time at or before the Closing if any of the following events occurs:

(a) by and at the written option of the Investor or the Company if the Closing
shall not have occurred on or before April 16, 2007, provided that the
terminating party shall not have breached in any material respect its
obligations under this Agreement in any manner that shall have been the
proximate cause of or resulted in, the failure to complete the Closing by such
date; or

 

38

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(b) by Investor if there shall have occurred any event that would constitute a
Material Adverse Effect for the Company; or

(c) by the mutual written consent of each of the parties; or

(d) by and at the option of the Investor or the Company if any governmental
authority shall have issued an order, decree, or ruling or taken any other
action restraining, enjoining or otherwise prohibiting in any material respects
the transactions contemplated hereby and such order, decree, ruling or other
action shall have become final and nonappealable.

Section 10.2 Effect.

(a) Upon termination of this Agreement, the Investor’s rights and obligations to
purchase any Convertible Notes or Conversion Shares pursuant to Article 2 hereof
shall terminate.

(b) Termination of this Agreement by a party shall not relieve any other party
hereto of any liability for breach of representation, warranty, covenant or
agreement by such other parties including liability for monetary damages and/or
specific performance.

ARTICLE XI

OTHER PROVISIONS

Section 11.1 Further Assurances. At such time and from time to time on and after
the date hereof upon request by the Investor, the Company will execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged and
delivered, all such further acts, certificates and assurances that may be
reasonably required for the better conveying, transferring, assigning,
delivering, assuring and confirming to the Investor, or to the Investor’s
respective successors and assigns, all of the Conversion Shares or to otherwise
carry out the purposes of this Agreement and the agreements, documents and
instruments contemplated hereby.

Section 11.2 Complete Agreement. The Schedules and Exhibits to this Agreement
shall be construed as an integral part of this Agreement to the same extent as
if they had been set forth verbatim herein. This Agreement and the Schedules and
Exhibits hereto constitute the entire agreement between the parties hereto with
respect to the subject matters hereof and thereof and supersede all prior
agreements whether written or oral relating hereto.

Section 11.3 Survival of Representations, Warranties and Agreements. The
representations, warranties, covenants and agreements contained herein shall
survive the Closing and remain in full force and effect; provided, however, that
the representations and warranties shall expire on the second anniversary of the
date of the Closing hereunder. No independent investigation of the Company by
the Investor, its counsel, or any of its agents or employees shall in any way
limit or restrict the scope of the representations and warranties made by the
Company in this Agreement.

 

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Section 11.4 Consent, Waiver, Amendment, Etc. The failure of any party hereto to
enforce at any time any of the provisions of this Agreement shall not, absent an
express written waiver signed by the party making such waiver specifying the
provision being waived, be construed to be a waiver of any such provision, nor
in any way to affect the validity of this Agreement or any part thereof or the
right of the party thereafter to enforce each and every such provision. No
waiver of any breach of this Agreement shall be held to be a waiver of any other
or subsequent breach. Except as otherwise specifically provided herein, in each
case in which approval of the Investor is required by the terms of this
Agreement, such requirement shall be satisfied by a vote or the written consent
of the Investor. With the written consent of the Investor, the obligations of
the Company under this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), and with the
same approval the Company may amend or eliminate any of the provisions of this
Agreement; provided, however, that no such waiver or amendment shall, without
the written consent of the holders of all Purchased Securities at the time
outstanding, amend this Section 11.4. Written notice of any such waiver,
amendment, or consent shall be given to the record holders of the Purchased
Securities who have not previously consented thereto in writing. Neither this
Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, but only by a statement in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, except to the extent provided in this Section 11.4.

Section 11.5 Notices. All notices or other communications to a party required or
permitted hereunder shall be in writing and shall be delivered personally or by
facsimile (receipt confirmed electronically) to such party (or, in the case of
any entity, to an executive officer of such party) or shall be sent by a
reputable express delivery service or by certified mail, postage prepaid with
return receipt requested, addressed as follows:

if to the Investor to:

Whitebox Pharmaceutics Growth Fund, LLC

Suite 300

3033 Excelsior Boulevard

Minneapolis, MN 55416

Attn: Dale Willenbring

with a copy to:

Theodore C. Cadwell, Jr., Esq.

Dorsey & Whitney LLP

50 S. 6th Street

Suite 1500

Minneapolis, Minnesota 55402

 

40

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if to the Company to:

GeoPharma, Inc.

6950 Bryan Dairy Road

Largo, Florida 33777

Attn: Jay Taneja

with a copy to:

Julio C. Esquivel, Esq.

Shumaker, Loop & Kendrick, LLP

101 East Kennedy Boulevard

Suite 2800

Tampa, FL 33602-5151

Any party may change the above-specified recipient and/or mailing address by
notice to all other parties given in the manner herein prescribed. All notices
shall be deemed given on the day when actually delivered as provided above (if
delivered personally or by facsimile) or on the day shown on the return receipt
(if delivered by mail or delivery service).

Section 11.6 Public Announcement. In the event any party proposes to issue any
press release or public announcement concerning any provisions of this Agreement
or the transactions contemplated hereby, such party shall so advise the other
parties hereto, and the parties shall thereafter use their reasonable best
efforts to cause a mutually agreeable release or announcement to be issued. No
party will publicly disclose or divulge any provisions of this Agreement or the
transactions contemplated hereby without the other parties’ written consent,
except as may be required by applicable law (including applicable rules and
regulations of the SEC) or stock exchange regulation, and except for
communications to employees.

Section 11.7 Expenses. Subject to the following sentence, the Company and the
Investor shall each pay their own expenses incident to this Agreement and the
preparation for, and consummation of, the transactions provided for herein.
Whether or not a Closing occurs, the Company shall reimburse the Investor for
one-half of its legal fees and expenses incurred in connection with the
drafting, negotiation, due diligence and execution of this Agreement and the
Transaction Documents and the consummation of the transactions contemplated
herein and therein. The Company shall also reimburse the Investor for all legal
fees and expenses incurred in connection with the drafting, negotiation and
execution of any waivers or amendments to this Agreement or any Transaction
Document.

Section 11.8 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the other Transaction
Documents shall be governed by and construed and enforced in accordance with the
internal laws of the State of Minnesota, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement and any other Transaction Documents (whether
brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively in
the state and federal courts sitting in the State of Minnesota.

 

41

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Each party hereby irrevocably submits to the exclusive jurisdiction of the state
and federal courts sitting in the State of Minnesota for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of any of
the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is improper or is an inconvenient venue for such proceeding. If
either party shall commence an action or proceeding to enforce any provisions of
the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its reasonable attorneys’
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.

Section 11.9 Titles and Headings; Construction. The titles and headings to the
Articles and Sections herein are inserted for the convenience of reference only
and are not intended to be a part of or to affect the meaning or interpretation
of this Agreement. This Agreement shall be construed without regard to any
presumption or other rule requiring construction hereof against the party
causing this Agreement to be drafted.

Section 11.10 Benefit. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.

Section 11.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed as original and all of which
together shall constitute one instrument.

Section 11.12 Parties in Interest. All representations, covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto shall
bind and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto, whether so expressed or not, and, in
particular, shall inure to the benefit of and be enforceable by the holder or
holders at the time of any of the Purchased Securities.

Section 11.13 Severability. If any provision of this Agreement is held invalid
by a court of competent jurisdiction, the remaining provisions shall nonetheless
be enforceable according to their terms. Further, if any provision is held to be
overbroad as written, such provision shall be deemed amended to narrow its
application to the extent necessary to make the provision enforceable according
to applicable law and shall be enforced as amended.

[SIGNATURE PAGES FOLLOW]

 

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IN WITNESS WHEREOF, the undersigned have executed this Agreement to be effective
as of the date first written above.

 

GEOPHARMA, INC. a Florida corporation By:  

 

Name:   Title:  

 

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IN WITNESS WHEREOF, the undersigned has executed this Agreement to be effective
as of the date first written above.

 

INVESTOR:

WHITEBOX PHARMACEUTICAL GROWTH

FUND, LTD.

By:  

 

Name:   Title:  

 

Address:    Suite 300    3033 Excelsior Boulevard    Minneapolis, MN 55415

 

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EXHIBIT A

FORM OF CONVERTIBLE PROMISSORY NOTE

(attached hereto)

 

A-1

--------------------------------------------------------------------------------

EXHIBIT B

FORM OF SECURITY AGREEMENT

(attached hereto)

 

B-1

--------------------------------------------------------------------------------

EXHIBIT C

FORM OF REGISTRATION RIGHTS AGREEMENT

(attached hereto)

 

C-1

--------------------------------------------------------------------------------

EXHIBIT D

FORM OF PLEDGE AGREEMENT

(attached hereto)

 

D-1

--------------------------------------------------------------------------------

EXHIBIT E

FORM OF GUARANTY

(attached hereto)

 

E-1

--------------------------------------------------------------------------------

EXHIBIT F

FORM OF INTERCREDITOR AGREEMENT

(attached hereto)

 

F-1

--------------------------------------------------------------------------------

EXHIBIT G

FORM OF VOTING AGREEMENT

(attached hereto)

 

G-1

--------------------------------------------------------------------------------

EXHIBIT H

GEOPHARMA SHAREHOLDERS EXECUTING VOTING AGREEMENTS

 

Shareholder List

  

# of

Shares

First Dehli Trust

   60,856

Jugal Taneja

   558,269

Jugal Taneja & Manju Taneja

   17,098

Manju Taneja

   369,817

Mihir Taneja

   501,025

Dynamic Health Products, Inc.

Mandeep Taneja

   108,905
84,921

Carnegie Capital, Ltd.

   582,537     

Taneja Family Total

   2,283,428

Carol Dore-Falcone

   94,648

Kotha Sekharam

   236,610

Madhavi Sekharam

   23,223     

Others Total

   354,481

Grand Total (Taneja Family & Others)

   2,637,909

 

H-1