Exhibit
      10.11

    


    CONSENT
      AND WAIVER AGREEMENT 


    


    THIS
      CONSENT AND WAIVER AGREEMENT (this “Agreement”) is made as the 7th day of
      November, 2007, by and among INTERPHARM HOLDINGS, INC., a Delaware corporation
      (the “Company”), TULLIS-DICKERSON CAPITAL FOCUS III, L.P., a Delaware limited
      partnership (“Tullis”), AISLING CAPITAL II, LP, a Delaware limited partnership
      (“Aisling”),
      P&K
      HOLDINGS
      I, LLC
      (“P&K Holdings”), a New York Limited Liability Company, RAMETRA
      HOLDINGS
      I, LLC
      (“Rametra Holdings”), a New York Limited Liability Company, RAJS
      HOLDINGS I,
      LLC
      (“Rajs Holdings” and, together with P&K Holdings, Perry Sutaria, Raj Sutaria
      and Rametra Holdings, the “Sutaria Stockholders”), a New York Limited Liability
      Company, PERRY SUTARIA (“PS”), individually and as Manager of the Sutaria
      Stockholders, RAJ SUTARIA (“RS”), individually, and CAMERON REID (“Reid”),
      individually. Capitalized terms in the Recitals hereto and not defined in such
      Recitals shall have the meanings ascribed to them in the Tullis Purchase
      Agreement, Aisling Purchase Agreement and Series B-1 and Series C-1 CODs, each
      of which is defined below.

    


    RECITALS:

    


    A.
       On
      May
      15, 2006 the Company and Tullis entered into a Securities Purchase Agreement
      (the “Tullis Purchase Agreement”) and on May 26, 2006 the parties consummated
      the Tullis Purchase Agreement. In connection with the Tullis Purchase Agreement
      the Company (i) filed a Certificate of Designations, Preferences and Rights
      of
      Series B-1 Convertible Preferred Stock of the Company (the “Series B-1 COD”)
      pursuant to which it designated 15,000 shares of a series of the Company’s
      preferred stock, called Series B-1 Convertible Preferred Stock (“Series B-1
      Stock”), and issued and sold to Tullis 10,000 of such shares and (ii) issued to
      Tullis a warrant to purchase 2,281,914 shares of common stock of the Company
      at
      an exercise price of $1.60 per share (the “Tullis Warrant”).


     

     B. 
      On
      September 11, 2006 the Company and Aisling entered into and consummated a
      Securities Purchase Agreement (the “Aisling Purchase Agreement”). In connection
      with the Aisling Purchase Agreement the Company (i) filed a Certificate of
      Designations, Preferences and Rights of Series C-1 Convertible Preferred Stock
      of the Company (the “Series C-1 COD”) pursuant to which it designated 10,000
      shares of a series of the Company’s preferred stock, called Series C-1
      Convertible Preferred Stock (“Series C-1 Stock”), and issued and sold to Aisling
      all 10,000 of such shares and (ii) issued to Aisling a warrant to purchase
      2,281,914 shares of common stock of the Company at an exercise price of $1.60
      per share (the “Aisling Warrant” and, together with the Tullis Warrant, the
“Series B-1 and Series C-1 Warrants”).

     

    C.
      Section 4(o)(ii) of the Tullis and Aisling Purchase Agreements (the “Purchase
      Agreement Share Limitation”) state:

     

    “Other
      than as set forth in Section 1(c), from the date hereof until the date that
      is
      thirty (30) Trading Days (as defined in the Certificate of Designations) after
      the Effective Date (the “Trigger
      Date”),
      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’
equity or equity equivalent securities, 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 shares of Common Stock or Common Stock Equivalents (any such
      offer, sale, grant, disposition or announcement being referred to as a
“Subsequent
      Placement”).”

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    D.
       Sections
      13(d)
      and
      13(h) of each of the Series B-1 COD and the Series C-1 COD state, in relevant
      part, the following (the “COD Share Limitation”):

     

    “(13) Protective
      Provisions.
      So long
      as the Investor holds at least 25% of the Preferred Shares issued on the Initial
      Issuance Date, in addition to any other rights provided by law, except where
      the
      vote or written consent of the holders of a greater number of shares is required
      by law or by another provision of the Certificate of Incorporation, without
      first obtaining the affirmative vote at a meeting duly called for such purpose
      or the written consent without a meeting of the Required Holders, voting
      together as a single class, the Company shall not: 

     

    (d) issue
      any
      shares of Common Stock, stock appreciation rights, stock options or other equity
      securities to independent third parties (e.g., investment banks, investor
      relations firms, consultants that are not affiliates of the Company) in excess
      of 2% of the fully diluted number of shares of Common Stock on the Initial
      Issuance Date;

     

    *****

     

    (h) issue
      any
      Common Stock or any securities convertible into or exchangeable for Common
      Stock
      at a price per share of Common Stock less than the Purchase Price (as defined
      in
      the Securities Purchase Agreement) (as adjusted from time to time to reflect
      stock slits, stock dividends, subdivisions, combinations, consolidations and
      other similar transactions with respect to the Common Stock);...”

     

    E. The
      Company is seeking to effect a financing (the “Financing”) with Tullis, Aisling,
      the Sutaria Stockholders and Reid (collectively, the “STAR Note Holders”) on
      substantially the terms and conditions set forth in the term sheets annexed
      hereto as Exhibit A;

     

    F.
       The
      Company requires a waiver under the Purchase
      Agreement Share Limitation and COD Share Limitation in order to consummate
      the
      Financing; 

     

    G. As
      more
      particularly described below, the Company is in default (or a Triggering Event
      (as such term is defined in the Series B-1 COD and the Series C-1 COD) has
      occurred) under the terms of (i) the Tullis Purchase Agreement and the Aisling
      Purchase Agreement; (ii) the Series B-1 COD and the Series C-1 COD; and (iii)
      the Registration Rights Agreement, dated May 15, 2006, as amended by the
      Amendment No. 1, dated September 11, 2006, among the Company, Tullis and Aisling
      (the “Registration Rights Agreement”);

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    H.
      The
      Company has requested that Tullis and Aisling waive their rights arising out
      of
      such defaults, which are continuing;

     

    I. As
      of the
      date hereof, the Sutaria Stockholders own or have the power and authority to
      vote with respect to collectively 35,686,738 shares of Common Stock, which
      represent in the aggregate approximately 45.2% of the total issued and
      outstanding voting capital stock of the Company (“Shares”); 

     

    J. As
      a
      condition to the willingness of Tullis and Aisling to enter into this Agreement,
      to permit the consummation of the transactions contemplated by the Financing
      and
      to waive the Existing Defaults (as defined below), Tullis and Aisling have
      required that the Sutaria Stockholders enter into certain voting agreements
      as
      contemplated hereby and that the Company exchange the Series B-1 Stock and
      Series C-1 Stock for new shares of Series D-1 Convertible Preferred Stock,
      and
      exchange the Series B-1 and Series C-1 Warrants for New Warrants (as defined
      below); 

     

    K. The
      exchange of the Series B-1 and Series C-1 Warrants for New Warrants, and the
      exchange of the Series B-1 Stock and Series C-1 Stock for new shares of Series
      D-1 Convertible Preferred Stock, are being made in reliance upon the exemption
      from registration provided by Section 3(a)(9) of the Securities Act of 1933,
      as
      amended; and

     

    L.
       To
      the
      extent set forth herein, Tullis and Aisling desire to waive their rights under
      the Purchase
      Agreement Share Limitation and COD Share Limitation
      with
      respect to the Financing in exchange for agreements set forth herein.


     

    NOW,
      THEREFORE, for good and valuable consideration, the receipt and sufficiency
      of
      which are hereby acknowledged, the parties hereby agree as follows:

    


    Section
      1. Waiver.
      

    


    (a)  Notwithstanding
      the limitations set forth in the Purchase
      Agreement Share Limitation and COD Share Limitation, Tullis and
      Aisling,
      the
      owners of all of the outstanding shares of Series B-1 Stock and Series C-1
      Stock
      and constituting the “Required Holders,” as such term is defined the Series B-1
      COD and Series C-1 COD, hereby consent to the Financing and waive the
      application of the Purchase
      Agreement Share Limitation and COD Share Limitation with respect to the
      Financing, and such other limitations as may affect the Financing which are
      contained in the Series B-1 COD, the Series C-1 COD, the Tullis Purchase
      Agreement and the Aisling Purchase Agreement,
      solely
      with respect to the Financing (the “Financing Consent”).

     

    (b)  Each
      of
      Tullis and Aisling hereby waive the Existing Defaults (the “Default Waiver” and,
      together with the Financing Consent, the “Consent and Waiver”). “Existing
      Defaults” shall mean the following defaults and Triggering Events under each of
      (i) the Tullis Purchase Agreement and the Aisling Purchase Agreement; (ii)
      the
      Series B-1 COD and the Series C-1 COD; and (iii) the Registration Rights
      Agreement: (A) the failure of the Company to timely file with the Securities
      and
      Exchange Commission (and deliver to Tullis and Aisling) its Annual Report on
      Form 10-K for the year ended June 30, 2007; and (B) the failure of the Company
      to prevent the suspension of trading of its Common Stock on the American Stock
      Exchange as a result of (A). This Consent and Waiver shall be limited to those
      matters described herein, and shall not be deemed a waiver of any other breach
      or default occurring hereafter. 

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (c)  As
      a
      condition to the effectiveness of the Consent and Waiver, the Board of Directors
      of the Company shall have passed a resolution substantially in the following
      form:

     

    “RESOLVED,
      that all securities to be issued from and after the date hereof to Tullis,
      Aisling, or any other person or entity that, at the time of such issuance,
      has a
      representative on the Board of Directors of the Company, including, without
      limitation, all securities issued pursuant to the Series B-1 COD, the Series
      C-1
      COD, the Certificate of Designations, the Series B-1 and Series C-1 Warrants,
      the New Warrants, and any other securities to be issued by the Company to any
      such person or entity, shall be made in accordance with, and shall be subject
      to
      the exemptions contained in, Rule 16b-3 of the Exchange Act.”

     

    Section
      2.  Exchange
      of Series B-1 Preferred, Series C-1 Preferred and Warrants. 

     

    (a)
       Information
      Statement.
       In
      connection with this Agreement, the holders of a majority of the Company’s
      capital stock entitled to vote have executed a written consent in the form
      attached hereto as Exhibit B approving the issuance of all of the securities
      contemplated by this Agreement and the Financing in accordance with applicable
      law and the rules and regulations of the American Stock Exchange (the
“Stockholder Approval”). The Company shall, as soon as practicable, but no later
      than November 21, 2007, file with the Securities and Exchange Commission an
      Information Statement on Schedule 14C (the “Information Statement”), which has
      been previously reviewed by Tullis, Aisling and counsel of their choice, setting
      forth information regarding the Stockholder Approval. As soon as practicable
      thereafter, but no earlier than January 18, 2008 and no later than February
      28,
      2008, the Company shall provide each stockholder of the Company the Information
      Statement in accordance with applicable law and the rules and regulations of
      the
      American Stock Exchange; provided, however, that in the event of a review by
      the
      Securities and Exchange Commission (“SEC”) of the Information Statement which
      shall not be concluded by February 15, 2008, the Company shall provide each
      stockholder of the Company the Information Statement in accordance with
      applicable law and the rules and regulations of the American Stock Exchange
      within ten (10) business days of clearing comments received from the SEC. The
      Company shall use its reasonable best efforts to address any SEC comments on
      the
      Information Statement and to mail the Information Statement as soon as
      practicable. 

     

    (b) Stockholder
      Meeting.
      Notwithstanding anything to the contrary in Section 2(a), in the event that,
      under applicable law and the rules and regulations of the American Stock
      Exchange, the stockholders of the Company are unable to act by written consent,
      the Company shall, as soon as practicable, but no earlier than January 18,
      2008
      and no later than January 31, 2008, provide each stockholder entitled to vote
      at
      a special or annual meeting of stockholders of the Company (the “Stockholder
      Meeting”), which initially shall be promptly called and held not later than
      February 28, 2008 (the “Stockholder Meeting Deadline”), a proxy statement,
      soliciting each such stockholder’s affirmative vote at the Stockholder Meeting
      for approval of the resolutions set forth in the Stockholder Approval, and
      the
      Company shall solicit its stockholders’ approval of such resolutions and cause
      its Board of Directors to recommend to the stockholders that they approve such
      resolutions. The Company shall be obligated to seek to obtain the Stockholder
      Approval by the Stockholder Meeting Deadline. If, despite the Company’s
      reasonable best efforts, the Stockholder Approval is not obtained on or prior
      to
      the Stockholder Meeting Deadline, the Company shall cause an additional
      Stockholder Meeting to be held every three (3) months thereafter until such
      Stockholder Approval is obtained.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (c)
       Filing
      of Certificate of Designations; Reservation of Shares.
       The
      Board
      of Directors of the Company has authorized a new series of convertible preferred
      stock of the Company designated as Series D-1 Convertible Preferred Stock,
      the
      terms of which are set forth in the Certificate of Designations, Preferences
      and
      Rights of Series D-1 Convertible Preferred Stock of the Company (the
“Certificate of Designations”) in the form attached hereto as Exhibit C (the
“Series D-1 Stock”), which Series D-1 Stock shall be convertible into the
      Company’s common stock, par value $0.01 per share (the “Common Stock”), in
      accordance with the terms of the Certificate of Designations. Promptly upon
      obtaining the Stockholder Approval, the Company shall file the Certificate
      of
      Designations with the Secretary of State of the State of Delaware in accordance
      with applicable law. The Company shall maintain a reserve from its duly
      authorized shares of Common Stock as may be required to fulfill its obligations
      in full under the Financing and upon conversion of the D-1 Stock and exercise
      of
      the New Warrants (as defined below).

    


    (d) Exchange
      of Series B-1 Stock and Series C-1 Stock.
      As soon
      as practicable after the Stockholder Approval, in consideration of the Consent
      and Waiver, the Company shall issue the Series D-1 Stock to Aisling and Tullis
      in exchange for the shares of Series B-1 Stock and Series C-1 Stock. Each share
      of Series B-1 Stock and Series C-1 Stock shall be exchanged for 1.04125 shares
      of Series D-1 Stock. 

    


    (e) Exchange
      of Warrants.
      As soon
      as practicable, in consideration of the Consent and Waiver, the Company shall
      issue a warrant to purchase shares of Common Stock in the form attached hereto
      as Exhibit D (the “New Warrant”) to Aisling and Tullis in exchange for the
      Series B-1 and Series C-1 Warrants. Each New Warrant will provide for an
      exercise price of $0.95 per share and shall be exercisable for 2,281,914 shares
      of common stock.

    


    (f) Waiver
      of Dividends.
      In
      consideration of the agreements set forth herein, Aisling and Tullis waive
      their
      right to receive dividends on the Series B-1 Stock and Series C-1 Stock for
      the
      quarters ended September 30, 2007 and December 31, 2007. 

    


    (g) Holding
      Period.
      For the
      purposes of Rule 144, the Company acknowledges that the holding period of (i)
      the New Warrants (and the shares for which the New Warrants are exercisable)
      may
      be tacked onto the holding period of the Series B-1 and Series C-1 Warrants
      (in
      the case of a Cashless Exercise, as defined in the New Warrants)) and (ii)
      the
      Series D-1 Stock (and the shares for which the Series D-1 Stock is convertible)
      may be tacked onto the holding period of the Series B-1 Stock and Series C-1
      Stock, and the Company agrees not to take a position contrary to this Section
      2(g). The Company’s acknowledgement and agreement set forth in this Section 2(g)
      shall be subject in all respect to Rule 144 and other applicable securities
      laws, as may be in effect from time to time.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    


    Section
      3.  Effect
      on Transaction Documents. Except
      as
      expressly set forth herein, all of the terms and conditions of the agreements,
      documents and instruments signed by the Company, Tullis and Aisling in
      connection with the Tullis Purchase Agreement and Aisling Purchase Agreement
      shall continue in full force and effect after the execution of this Agreement
      and shall not be in any way changed, modified or superseded by the terms set
      forth herein. For purposes of the Tullis Purchase Agreement, the Aisling
      Purchase Agreement and the Registration Rights Agreement, the Company agrees
      that the Series D-1 Stock shall be treated as shares issued in replacement
      of
      the Series B-1 Stock and Series C-1 Stock, and the term “Preferred Shares” in
      the Tullis Purchase Agreement, Aisling Purchase Agreement and the Registration
      Rights Agreement shall mean and include the Series D-1 Stock and any shares
      issued in replacement thereof in accordance with the terms thereof.

    


    Section
      4. Proxy.
       

    


    
      	
            	 (a)	
              Each
                of PS and the Sutaria Stockholders are, simultaneously herewith,
                executing
                the Stockholder Approval. Each of PS and the Sutaria Stockholders
                hereby
                agree that at any meeting of the stockholders of the Company, however
                called, and in any action by written consent of the Company’s
                stockholders, each of PS and the Sutaria Stockholders shall vote
                their
                shares of voting capital stock of the Company: (i) in favor of the
                Stockholder Approval; (ii) in favor of the Certificate of Designations;
                (iii) in favor of the Financing; and (iv) against any proposal or
                any
                other corporate action or agreement that would result in a breach
                of any
                covenant, representation or warranty or any other obligation or agreement
                of the Company under the Tullis Purchase Agreement, the Aisling Purchase
                Agreement or this Agreement not being fulfilled. Each of PS and the
                Sutaria Stockholders acknowledges receipt and review of a copy of
                each of
                the Exhibits hereto.

            


    

    


    
      	(b)  	
              PS
                and the Sutaria Stockholders each hereby represents, warrants, covenants
                and agrees that, notwithstanding anything to the contrary herein,
                until
                the Stockholder Approval and the filing of the Certificate of
                Designations, he/it shall not offer or agree to sell, transfer, tender,
                assign, hypothecate or otherwise dispose of, grant a proxy or power
                of
                attorney with respect to (other than the Proxy or as set forth in
                this
                Agreement), or create or permit to exist any security interest, lien,
                claim, pledge, option, right of first refusal, agreement, or limitation
                on
                any shares of capital stock of the Company owned by
                him/it.

            


    

    


    
      	(c)  	
              PS
                hereby represents, warrants, covenants and agrees
                that:

            


    

    


    
      	(i)  	
              he
                is the sole managing member of each of the Sutaria
                Stockholders;

            


    

    


    
      	(ii)  	
              as
                of the date hereof, the Sutaria Stockholders are the owners of the
                Shares,
                which aggregate of 35,686,738 shares of common stock of the Company,
                entitled to vote, without restriction, on all matters brought before
                holders of capital stock of the Company; the Shares are all the voting
                securities of the Company owned, either of record or beneficially,
                by the
                Sutaria Stockholders; and, except as contemplated by this Agreement
                and
                the Exhibits hereto are owned free and clear of all security interests,
                liens, claims, pledges, options, rights of first refusal, agreements,
                limitations on such Sutaria Stockholders’ voting rights, charges and other
                encumbrances of any nature
                whatsoever;

            


    

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    
      	(iii)  	
              the
                Proxy and this Agreement have been duly authorized and approved by
                each of
                the Sutaria Stockholders; 

            


    

    


    
      	(iv)  	
              he
                has the power and authority to execute and deliver the Proxy and
                this
                Agreement; and

            


    

    


    
      	(v)  	
              by
                a date that is not more than sixty (60) days after the date of this
                Agreement, he shall take such steps that shall be necessary so as
                to
                appoint Raj Sutaria as his successor as the sole managing member
                of Rajs
                Holdings, Rametra Holdings, and P&K Holdings in the event of his death
                or incapacity.

            


    

    


    Section
      5. Certain
      Transfer Restrictions with Respect to Sutaria Stockholders; Tag Along
      Rights.

    


    (a)
       Securities
      Notice.
      If any
      Sutaria Stockholder proposes to Transfer (as defined in Section 5(d) below)
      any
      shares of capital stock of the Company (“Shares”) held by it (each a “Selling
      Stockholder” and, together with any other Selling Stockholder(s), the “Selling
      Stockholders”) to a third party purchaser (the “Third Party Purchaser”) other
      than as otherwise agreed by both Tullis and Aisling in writing prior to such
      Transfer and other than any Exempt Transfer (as defined in Section 5(d) below),
      the Selling Stockholders shall, no less than twenty (20) business days prior
      to
      the consummation of such Transfer, send written notice (an “Offering Notice”) to
      Tullis, Aisling and Reid, which shall state (a) the identity of the Third Party
      Purchaser; (b) the type and number of such securities proposed to be transferred
      (the “Offered Securities”), including detailed terms of such securities (if
      other than Common Stock); (c) the proposed purchase price per share for the
      Offered Securities (the “Offer Price”); and (d) the terms and conditions of such
      sale. The Selling Stockholders hereby agree that, notwithstanding anything
      contained in this Agreement, they shall not, at any time, sell or otherwise
      transfer in the aggregate more than 12 million of the Shares in a conveyance
      or
      conveyances that are not Exempt Transfers without the prior approval of the
      Company’s Board of Directors.

    


    (b)
       Tag-Along
      Right.
      If a
      Selling Stockholder is directly or indirectly transferring Offered Securities
      to
      a Third Party Purchaser pursuant to Section 4(a), then each of Tullis, Aisling
      and Reid shall have the right to sell to such Third Party Purchaser that number
      of shares equal to that percentage of the Offered Securities determined by
      dividing (i) the total number of outstanding shares of the Common Stock of
      the
      Company (on an as converted basis) then owned by Tullis, Aisling or Reid, as
      the
      case may be, by (ii) the sum of (x) the total number of shares of Common Stock
      (on an as-converted basis) then owned by Tullis, Aisling and Reid and (y) the
      total number of Shares then owned by the Selling Stockholders, in the aggregate,
      at a price equal to the Offer Price, with other terms set forth in the Offering
      Notice. The Selling Stockholders and Tullis, Aisling and Reid shall effect
      the
      sale of the Offered Securities and Tullis, Aisling and Reid shall sell the
      number of Offered Securities to be sold by them pursuant to this Section 5,
      and
      the number of Offered Securities to be sold to such Third Party Purchaser by
      the
      Selling Stockholder(s) shall be reduced accordingly. 

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    


    (c)
       Timing.
       The
      tag-along rights provided by this Section 5 must be exercised by Tullis, Aisling
      and Reid within fifteen (15) business days following receipt of the Offering
      Notice, by delivery of a written notice to PS indicating Tullis, Aisling or
      Reid’s election to exercise his or its rights and specifying the number of
      shares (up to the maximum number of shares owned by Tullis, Aisling or Reid
      required to be purchased by such Third Party Purchaser) each of them elects
      to
      sell (the “Tag-along Exercise Notice”), provided that Tullis, Aisling or Reid
      may waive its rights under this Section prior to the expiration of such fifteen
      (15) business day period by giving written notice to PS. The failure of Tullis,
      Aisling or Reid to respond within such fifteen (15) business day period shall
      be
      deemed to be a waiver of their rights under this Section and such proposed
      Transfer of Shares will be classified as an Exempt Transfer. 

    


    (d)
       Exempt
      Transfers.
      The
      tag-along rights set forth in this Section 5 shall not apply to (i) any transfer
      to a Permitted Holder (as defined below); provided that any such Permitted
      Holder agrees in writing to be bound by this Agreement and, if appropriate,
      the
      Proxy, in place of the relevant transferor, in an agreement in form satisfactory
      to counsel to Tullis, Aisling and Reid; or (ii) the sale in an unsolicited
      broker’s transaction pursuant to Rule 144 under the Securities Act of 1933, as
      amended (the “Exempt Transfers”). “Transfer” shall mean a sale, transfer,
      assignment, pledge, hypothecation, disposal of, mortgage, entering into any
      voting trust or other agreement, option or other arrangement or understanding
      with respect to Shares, whether directly or indirectly and whether voluntarily
      or involuntarily. “Permitted Holders” means Raj Sutaria, Mona Rametra, Perry
      Sutaria, and their respective estates, spouses, ancestors and lineal
      descendants, the legal representatives of any of the foregoing and the trustees
      of any bona fide trusts of which the foregoing are the sole beneficiaries or
      the
      grantors, or any entity of which the foregoing “beneficially owns” (as defined
      in Rule 13d-3 under the Exchange Act), individually or collectively with any
      of
      the foregoing, at least 51% of the total voting power of the voting stock of
      such entity.

    


    (e) Prohibited
      Transfers.
      Any
      Transfer of Shares not made in conformance with this Agreement shall be null
      and
      void, shall not be recorded on the books of the Company and shall not be
      recognized by the Company. 

    


    (f) Termination.
      The
      provisions of this Section 5 shall terminate as to Aisling or Tullis on such
      date that such party holds less than twenty-five percent (25%) of the number
      of
      shares of Series D-1 Stock issued to it pursuant to this Agreement (or shares
      into which such Series D-1 Stock have converted, or if such Offered Securities
      are offered prior to the exchange of the Series B-1 Stock and Series C-1 Stock
      for Series D-1 Stock, the number of shares of Series B-1 Stock and Series C-1
      Stock, respectively) (the “Minimum Percentage”). The provisions of this Section
      5 shall terminate as to Reid on such date that he holds less than twenty-five
      percent (25%) of the original principal amount of the Company’s Secured
      Convertible 12% Notes issued to him in connection with the Financing (or shares
      into which such convertible notes have converted). 

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    


    Section
      6. Board
      Representation.
       So
      long
      as Aisling holds the Minimum Percentage of Series D-1 Stock (or shares into
      which such shares of Series D-1 Stock have converted), Aisling shall have the
      right to nominate one individual to serve as a director on the Company’s Board
      of Directors. Aisling shall have the right to appoint such individual or to
      waive its right to appoint such individual at any time. Tullis, PS and the
      Sutaria Stockholders agree to vote, or cause to be voted, all Shares owned
      by
      them, or over which they have voting control, from time to time and at all
      times, in whatever manner as shall be necessary to ensure that at each annual
      or
      special meeting of stockholders at which an election of directors is held or
      pursuant to any written consent of stockholders, Aisling’s nominee, if any,
      shall be elected to the Board. 

     

    Section
      7.  Miscellaneous.
      

     

    (a)  Amendments
      and Waivers.
      The
      provisions of this Agreement, including the provisions of this sentence, may
      not
      be amended, modified or supplemented, and waivers or consents to departures
      from
      the provisions hereof may not be given, unless the same shall be in writing
      and
      signed by the parties hereto. 

     

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

     

    If
      to the
      Company:

     

    Interpharm
      Holdings, Inc. 

    75
      Adams
      Avenue

    Hauppauge,
      New York 11788

    Telephone:
       (631)
      952-0214

    Facsimile:    
      (631)
      952-9585

    Attention:   
      Peter
      Giallorenzo

    


    With
      a
      copy (for informational purposes only) to:

    


    Guzov
      Ofsink, LLC

    600
      Madison Avenue, 14th Floor

    New
      York,
      New York 10022

    Telephone:
       (212)
      371-8008, Extension 102

    Facsimile:     
      (212)
      688-7273

    Attention:   
       Darren
      L.
      Ofsink, Esq.

    


    If
      to the
      Sutaria Stockholders:

     

    Perry
      Sutaria

               
      6 Buckingham Court

               
      Morristown, NJ 07960

               
      Telephone:        (973) 895-4870

               
      Facsimile:           (973)
      538-6111

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    


               
      With a copy (for informational purposes only) to:

    


               
      Sadis & Goldberg, LLP

               
      551 Fifth Avenue - 21st
      Floor

               
      New York, New York 10176

               
      Telephone:        (212) 573-6660

               
      Facsimile:           (212)
      573-6661

               
      Attention:          Ron Geffner,
      Esq.

     

    If
      to
      Tullis, to:

    


    Tullis-Dickerson
      & Co., Inc.

    Two
      Greenwich Plaza, 4th
      Floor

    Greenwich,
      CT 06830

    Telephone: (203)
      629-8700

    Facsimile:   
      (203)
      629-9293

    Attention: Joan
      P.
      Neuscheler

    


    With
      a
      copy (for informational purposes only) to:

    


    Schulte
      Roth & Zabel LLP 

    919
      Third
      Avenue

    New
      York,
      New York 10022

    Telephone: (212)
      756-2000

    Facsimile:  
       (212)
      593-5955

    Attention: Eleazer
      N. Klein, Esq.

    


    If
      to
      Aisling, to:

    


    Aisling
      Capital II, L.P.

    888
      Seventh Avenue, 30th
      Floor

    New
      York,
      New York 10106

    Telephone: (212)
      651-6394

    Facsimile:   
      (212)
      651-6379

    Attention: 
       Andrew
      Schiff

    


    With
      a
      copy (for informational purposes only) to:

    


    Feldman
      Weinstein & Smith LLP

    420
      Lexington Avenue, Suite 2620

    New
      York,
      NY 10170

    Telephone:
       (212)
      869-7000

    Facsimile:    
      (212)
      997-4242

    Attention:   
      Joseph
      A.
      Smith

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    


    If
      to
      Reid:

     

    Interpharm
      Holdings, Inc. 

    75
      Adams
      Avenue

    Hauppauge,
      New York 11788

    Telephone:
       (631)
      952-0214

    Facsimile:    
      (631)
      952-9585

    Attention:    
      Cameron
      Reid

    


    (c)  Recapitalization.
      This
      Agreement is intended to apply to all shares of the capital stock of the Company
      now or hereafter held by the PS and the Sutaria Stockholders. In the event
      that
      the PS or any of the Sutaria Stockholders acquire any additional shares of
      the
      capital stock of the Company hereafter, or in the event of any capital
      reorganization of the Company or if any Shares shall be reclassified,
      classified, split, exchanged, or changed in any manner, this Agreement shall
      be
      deemed to apply to all the shares of capital stock received and owned by PS
      and
      the Sutaria Stockholders.

     

    (d)  Benefit
      and Burden.
      This
      Agreement shall inure to the benefit of, and shall be binding upon, the parties
      hereto and their legatees, distributees, estates, executors, administrators,
      personal representatives, successors assigns and legal representatives. Each
      transferee or assignee of any Shares subject to this Agreement shall continue
      to
      be subject to the terms hereof and, as a condition precedent to the Company’s
      recognizing such transfer, each transferee or assignee shall agree in writing
      to
      be subject to the terms of this Agreement. The Company shall not permit the
      transfer of the Shares subject to this Agreement on its books or issue a new
      certificate representing any such Shares unless and until such transferee shall
      have complied with the terms of this Agreement. Each certificate representing
      the Shares subject to this Agreement shall be endorsed with the legend set
      forth
      in Section 7(f) below.

     

    (e)  Remedies.
      The
      undersigned acknowledges and agrees that Aisling and Tullis will be irreparably
      damaged in the event any of the provisions of this Agreement are not performed
      by the undersigned in accordance with their specific terms or are otherwise
      breached. Accordingly, it is agreed that each of Aisling and Tullis shall be
      entitled to an injunction to prevent breaches of this Agreement, and to specific
      performance of this Agreement and its terms and provisions in any action
      instituted in any court of the United States or any state having subject matter
      jurisdiction. All remedies, either under this Agreement or by law or otherwise
      afforded to any party, shall be cumulative and not alternative.

     

    (f)  Legend
      on Shares.
      Each
      certificate representing any Shares shall be endorsed by the Company with a
      legend reading substantially as follows:

     

    


    “THE
      SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING PROXY AND WAIVER AGREEMENT,
      AS
      MAY BE AMENDED FROM TIME TO TIME (COPIES OF WHICH MAY BE OBTAINED UPON WRITTEN
      REQUEST FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE
      PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME
      BOUND BY ALL THE PROVISIONS OF THAT VOTING PROXY AND THAT WAIVER AGREEMENT,
      INCLUDING CERTAIN RESTRICTIONS ON TRANSFER AND OWNERSHIP SET FORTH THEREIN.”


     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    


    The
      Company agrees that it will cause the certificates evidencing the Shares to
      bear
      the legend required by this Section 7(f), and it shall supply, free of charge,
      a
      copy of the Proxy and this Agreement to any holder of a certificate evidencing
      Shares upon written request from such holder to the Company at its principal
      office. The parties to this Agreement agree that the failure to cause the
      certificates evidencing the Shares to bear the legend required by this Section
      7(f) and/or the failure by the Company to supply, free of charge, a copy of
      the
      Proxy and this Agreement, shall not affect the validity or enforcement of the
      Proxy or this Agreement. Notwithstanding the foregoing, the Company shall cause
      the legend set forth in this Section 7(f) to be removed promptly upon request
      (and in any event within five business days of such request) in the event such
      Shares are Transferred in an Exempt Transfer under Section 5(d), other than
      an
      Exempt Transfer to a Permitted Holder. 

    


    (g)  Expenses.
      The
      Corporation shall bear its own expenses and legal fees with respect to the
      transactions contemplated by this Agreement and the Proxy and shall pay, and
      save Aisling and Tullis harmless against all liability for the payment of all
      costs and other expenses incurred in connection with the preparation of this
      Agreement, the Proxy and the Financing, including the fees and disbursements
      of
      counsel to each of Aisling and Tullis for services rendered in connection
      therewith, not to exceed $130,000 in the aggregate. 

     

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

     

    (i)  Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be determined in accordance with the laws of the State
      of Delaware.

     

    (j)  Severability.
      If any
      term, provision, covenant or restriction of this Agreement is held by a court
      of
      competent jurisdiction to be invalid, illegal, void or unenforceable, the
      remainder of the terms, provisions, covenants and restrictions set forth herein
      shall remain in full force and effect and shall in no way be affected, impaired
      or invalidated, and the parties hereto shall use their commercially reasonable
      efforts to find and employ an alternative means to achieve the same or
      substantially the same result as that contemplated by such term, provision,
      covenant or restriction. It is hereby stipulated and declared to be the
      intention of the parties that they would have executed the remaining terms,
      provisions, covenants and restrictions without including any of such that may
      be
      hereafter declared invalid, illegal, void or unenforceable.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (k)  Headings.
      The
      headings in this Agreement are for convenience only, do not constitute a part
      of
      this Agreement and shall not be deemed to limit or affect any of the provisions
      hereof.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF, the parties have executed and delivered this Agreement as
      of
      the date first written above.

     

    
      	 	 	 
	 	
              INTERPHARM
                HOLDINGS, INC. 

            
	 
 	 
 	 
 
	
            	By:  	/s/
              Peter Giallorenzo 
	 	
              
Name:
              Peter Giallorenzo
	 	
              Title:
                CFO

            


    

    
      	 	 	 
	 	 	 
	 	
              TULLIS-DICKERSON
                CAPITAL FOCUS III, L.P.

            
	 
 	By:	Tullis-Dickerson
              Partners III, L.L.C., its general partner
	 	 	 
	
            	By:  	/s/
              Joan
              P. Neuscheler 
	 	
              

              Name:
                Joan P. Neuscheler 

            
	 	
              Title:
                Principal

            


      	 	 	 
	 	 	 
	 	
              AISLING
                CAPITAL II, L.P.

            
	 
 	 
 	 
 
	 	By:  	
              AISLING CAPITAL PARTNERS, LP 

              Its General Partner

            
	 	 	 
	 	By:  	
              AISLING CAPITAL PARTNERS, LLC

               Its General Partner

            
	 	 	 
	
            	By:  	/s/
              Dennis Purcell 
	 	
              

              Name:
                Dennis Purcell 

            
	 	
              Title:    SMD  

            



      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      


      	 	 	 
	 	
              P&K
                HOLDINGS
                I,
                LLC 

            
	 
 	 
 	 
 
	
            	By:  	/s/
              Perry Sutaria 
	 	
              

              Perry
                Sutaria, Managing Member

            
	 	
            


    

    
      	 	 	 
	 	RAMETRA
              HOLDINGS
              I,
              LLC
	 
 	 
 	 
 
	
            	By:  	/s/
              Perry Sutaria 
	 	
              

              Perry
                Sutaria, Managing Member

            
	 	
            


    

    
      	 	 	 
	 	
              RAJS
                HOLDINGS I,
                LLC

            
	 
 	 
 	 
 
	
            	By:  	/s/
              Perry Sutaria 
	 	
              

              Perry
                Sutaria, Managing Member

            


    

    
      	 	 	 
	
            	
            	
              /s/
                Perry Sutaria 

            
	 	
              

              PERRY
                SUTARIA

            
	 	
            
	 	/s/ Raj Sutaria 
              

              RAJ
                SUTARIA

            
	 	 
	 	
              /s/
                Cameron Reid

              
                
 CAMERON
                REID

            




    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A

    


    FINANCING

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    Confidential

    TERM
      SHEET

    November
      6, 2007

    


    INTERPHARM
      HOLDINGS INC.

    Junior
      Subordinate Secured 12% Promissory Note due 2010

    


    This
      Term
      Sheet is to set forth the indicative terms pursuant to which, subject to certain
      conditions set forth herein, the Sutaria family and/or their affiliates (the
      “Sutaria Parties” and/or the “Purchasers”) would purchase certain securities of
      Interpharm Holdings Inc. (the “Company”) and Interpharm Inc. (“Subsidiary” and
      together with the Company, the “Borrowers”) and consummate the other
      transactions contemplated herein (the “Transactions”). 

    


    
      	
              Exchange
                and Symbol:

            	 	
              AMEX:
                IPA

            
	 	 	 
	
              Purchasers:

            	 	
              The
                Sutaria family and/or their affiliates (the
                “Purchasers”).

            
	 	 	 
	
              Securities:

            	 	
              The
                Borrowers’ Junior Subordinate Secured 12% Promissory Notes due 2010 (the
                “Notes”) in the original principal amount of
                $3,000,000.

            
	 	 	 
	
              Purchase
                Price:

            	 	
              $3,000,000.

            
	 	 	 
	
              Use
                of Proceeds:

            	 	
              The
                net proceeds of the offering shall be used by the Borrowers for their
                general working capital and other corporate purposes, but not for
                the
                purposes of redeeming any capital stock.

            
	 	 	 
	
              Closings:

            	 	
              The
                closing of the Transactions for the purchase of the Notes shall take
                place
                on November 7, 2007 (the “Closing”). 

            
	 	 	 
	
              Terms
                of the Notes:

            	 	
              Interest:
                The Notes shall bear interest at a rate of 12% per annum, payable
                quarterly. For the first 12 months, interest shall be payable in
                cash or
                in additional promissory notes (the “PIK Notes”), at the option of the
                Company. Thereafter, unless the Holder otherwise consents, 8% of
                such
                interest shall be paid in cash, with the remaining 4% payable in
                cash or
                PIK Notes (as described above) at the Company’s option. The PIK Notes
                shall accrue interest at the same rate as the Note and be the same
                in all
                manner and respects as the Note.

               

              Maturity
                Date:
                October 1, 2010.

               

              Wells
                Default.
                The Note shall contain a provision that a default under the Wells
                Fargo
                (“Wells Fargo” or the “Senior Lender”) senior credit facility shall be a
                default under the Note.

               

              Prepayment:
                The Borrowers may prepay the Notes at a price equal to the then
                outstanding principal, plus all accrued but unpaid interest, at any
                time
                upon 30 days prior notice to the Holder.

            
	 	 	 
	
              Intercreditor
                Agreement:

            	 	
              The
                Purchasers will enter into an Intercreditor Agreement with the Senior
                Lender in form reasonably satisfactory to the Senior Lender (expected
                to
                be substantially in the form last proffered by the Senior Lender
                to the
                Purchasers).

            


    

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    
      	
              Security
                Interest:

            	 	
              The
                obligations under the Notes shall be secured by a third priority
                security
                interest in substantially all of the assets of the Company and the
                Subsidiary, subordinate to the Senior Lender and the STAR
                financing.

            
	 	 	 
	
              Definitive
                Agreements:

            	 	
              Each
                of the parties’ obligations to consummate the Transactions shall be
                conditioned upon, among other customary items the entry into definitive
                Notes and other definitive documents, containing the terms set forth
                herein and mutually acceptable to each party.

            
	 	 	 
	
              Conditions
                to Closing:

            	 	
              The
                Purchasers obligation to consummate the Transactions at each of the
                closings are also contingent upon, among other customary closing
                conditions, the following:

               

              (a)
                Receipt of a consent from Wells Fargo acceptable to the Purchasers
                waiving
                any existing defaults under the senior credit facility and consenting
                to
                the Transactions; and

               

              (b)
                Receipt of consent from the holders of the Series A-1 Convertible
                Cumulative Preferred Stock, Series B-1 Convertible Preferred Stock
                and the
                Series C-1 Convertible Stock acceptable to the Purchasers waiving
                any
                existing defaults thereunder and consenting to the
                Transactions.

            
	 	 	 
	
              Costs
                and Expenses:

            	 	
              Each
                of the Borrowers and the Purchasers will be responsible for and will
                bear
                all of its own costs and expenses incurred at any time in connection
                with
                pursuing or consummating the Transactions; provided,
                (a) the Purchasers shall be entitled to receive as reimbursement
                of its
                legal and due diligence expenses in the amount of $15,000 which amount
                shall be paid at the Closing and (b) in the event the Transactions
                are not
                consummated, other than due to the wrongful actions of the Purchasers,
                the
                Purchasers shall be entitled to receive as reimbursement of its legal
                and
                due diligence expenses in the amount of $10,000.

            
	 
	
              Neither
                this Term Sheet nor any discussion or negotiation of the proposed
                transaction constitutes an agreement or obligation on the part of
                any
                person to purchase securities of the Borrowers or enter into any
                agreement
                to purchase securities of the Borrowers. Except as to the section
                entitled
                Costs and Expenses, this Term Sheet creates no binding right in favor
                of
                any party.

            


    

     


    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF, the parties hereto have caused this Term Sheet to be duly
      executed on the day and year first above written.

     

    
      	 	 	 
	 	
              SUTARIA
                FAMILY

            
	 
 	 
 	 
 
	
            	By:  	/s/
              Perry Sutaria
	 	
              

              Name:
                Perry Sutaria

              On
                Behalf of the Family

            


    

    
      	 	 	 
	 	 	 
	 	
              INTERPHARM
                HOLDINGS INC.

            
	 
 	 
 	 
 
	
            	By:  	/s/
              Peter Giallorenzo
	 	
              

              Name:
                Peter Giallorenzo

              Title:
                CFO

            


    

    
      	 	 	 
	 	
              INTERPHARM
                INC.

            
	 
 	 
 	 
 
	
            	By:  	/s/
               PeterGiallorenzo
	 	
              

              Name:
                Peter Giallorenzo

              Title:
                CFO

            


    

     

    


    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    

      TERM
        SHEET

      November
        6, 2007

      


      INTERPHARM
        HOLDINGS INC.

      Secured
        12% Promissory Note due 2009

      


      This
        Term
        Sheet is to set forth the indicative terms pursuant to which, subject to
        certain
        conditions set forth herein, Tullis-Dickerson Capital Focus III, L.P. (“TD
        III”), Aisling Capital II, L.P. (“Aisling”), Cameron Reid (“Reid”), and Sutaria
        Family Realty, LLC (“SFR”; together with TD III, Aisling, and Reid, the
“Purchasers”) would purchase certain securities of Interpharm Holdings Inc. (the
“Company”) and Interpharm Inc. (“Subsidiary” and together with the Company, the
“Borrowers”) and consummate the other transactions contemplated herein (the
“Transactions”). 

      


      
        	
                Exchange
                  and Symbol:

              	 	
                AMEX:
                  IPA

              
	 	 	 	 
	
                Purchasers:

              	 	
                TD
                  III

                Aisling

                Reid

                SFR

                TOTAL

              	
                $
                  833,333

                833,333

                833,333

                2,500,000

                $5,000,000

              
	 	 	 
	
                Securities:

              	 	
                The
                  Borrowers’ Secured 12% Promissory Notes due 2009 (the “STAR Notes”) in the
                  original principal amount of $5,000,000; as well as additional
                  notes (the
                  “Sutaria Notes”) to be issued to members of the Sutaria family and/or
                  their affiliates (the “Sutaria Parties”) in an amount of no less than
                  $3,000,000. All decisions with respect to the STAR Notes and the
                  Convertible Notes (as defined below) shall be made as determined
                  by two
                  out of three of TD III, Aisling and Reid.

              
	 	 	 
	
                Purchase
                  Price:

              	 	
                $5,000,000
                  for the STAR Notes, plus not less than $3,000,000 for the Sutaria
                  Notes.

              
	 	 	 
	
                Use
                  of Proceeds:

              	 	
                The
                  net proceeds of the offering shall be used by the Borrowers for
                  their
                  general working capital and other corporate purposes, but not for
                  the
                  purposes of redeeming any capital stock.

              
	 	 	 
	
                Closings:

              	 	
                The
                  closing of the $3,000,000 of Sutaria Notes shall take place on
                  or about
                  the date hereof. The closing of the Transactions for the purchase
                  of
                  $5,000,000 of the STAR Notes is expected to be completed on or
                  before
                  November 15, 2008. The closing of the Transactions for the exchange
                  of the
                  STAR Notes for Convertible Notes and Warrants (as defined below)
                  shall
                  take place no earlier than January 18, 2008 and no later than February
                  28,
                  2008.

              
	 	 	 
	
                Exchange
                  of STAR Notes and Issuance of Warrants:

              	 	
                No
                  earlier than January 18, 2008 and no later than February 28, 2008,
                  the
                  Company shall obtain stockholder approval for the exchange of the
                  STAR
                  Notes for (i) Secured Convertible 12% Promissory Notes due 2009
                  (the
                  “Convertible Notes”) in the original principal amount equal to the
                  principal and accrued interest on the STAR Notes through the date
                  of such
                  exchange and (ii) five year Warrants (the “Warrants”) to acquire 1,842,103
                  shares of Common Stock with an exercise price of $0.95 per share,
                  as
                  further described below.

              


      

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

      
        	
                Terms
                  of the 

                STAR
                  Notes:

              	 	
                Interest:
                  The STAR Notes shall bear interest at a rate of 12% per annum,
                  payable
                  quarterly in cash or, at the Company’s option, accrued and added to
                  principal.

                 

                Maturity
                  Date:
                  October 1, 2009, provided in the event the Wells Fargo senior credit
                  facility is amended, refinanced or extended such that the maturity
                  date of
                  the senior credit facility is later than February 1, 2011, the
                  Maturity
                  Date of the STAR Notes shall be extended to October 1, 2010.

                 

                Financial
                  Covenants.
                  The STAR Notes shall contain financial covenants substantially
                  similar to
                  the financial covenants contained in the Wells Fargo senior credit
                  facility.

                 

                Prepayment:
                  The Borrowers may not prepay the STAR Notes.

              
	 	 	 
	
                Terms
                  of the Convertible Notes:

              	 	
                Interest:
                  The Convertible Notes shall bear interest at a rate of 12% per
                  annum,
                  payable quarterly, in cash or in additional promissory notes (the
“PIK
                  Notes”), at the option of the Company.

                 

                Maturity
                  Date:
                  October 1, 2009, provided in the event the Wells Fargo senior credit
                  facility is amended, refinanced or extended such that the maturity
                  date of
                  the senior credit facility is later than February 1, 2011, the
                  Maturity
                  Date of the Convertible Notes shall be extended to October 1,
                  2010.

                 

                Financial
                  Covenants.
                  The Convertible Notes shall contain financial covenants substantially
                  similar to the financial covenants contained in the Wells Fargo
                  senior
                  credit facility.

                 

                Prepayment:
                  The Borrowers may prepay the Convertible Notes at a price equal
                  to the
                  then outstanding principal, plus all accrued but unpaid interest,
                  at any
                  time upon 30 days prior notice to the Purchasers.

                 

                Conversion:
                  The Convertible Notes (including any accrued interest thereon)
                  shall be
                  convertible at the option of the holder into shares of the Company’s
                  Common Stock at a Conversion Price of $0.95.

                 

                Anti-Dilution:
                  In the event the Company is deemed to have issued Common Stock
                  (other than
                  certain excluded issuances) at a purchase price less than the Conversion
                  Price, the Conversion Price shall be reset to a price equal to
                  90% of the
                  price at which such shares of Common Stock are deemed to have been
                  issued.
                  

              
	 	 	 
	
                Warrants:

              	 	
                The
                  Warrants shall be five year warrants to acquire 1,842,103 shares
                  of Common
                  Stock with an exercise price of $0.95 per share. The Warrants shall
                  contain full ratchet anti-dilution provisions reducing the warrant
                  exercise price to 90% of the price at which Common Stock is deemed
                  to have
                  been issued and accordingly increasing the number of warrant shares,
                  and
                  shall provide for cashless exercise in the event that a registration
                  statement is not effective. 

              


      

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

      
        	
                Intercreditor
                  Agreement:

              	 	
                The
                  Purchasers will enter into an Intercreditor Agreement with Wells
                  Fargo
                  Bank (the “Senior Lender”) in form reasonably satisfactory to the Senior
                  Lender (expected to be substantially in the form last proffered
                  by the
                  Senior Lender to Vicis).

              
	 	 	 
	
                Registration
                  Rights:

              	 	
                The
                  Purchasers shall have customary “piggy-back” registration rights in the
                  event the Company files a registration statement other than on
                  a Form
                  S-8.

              
	 	 	 
	
                Security
                  Interest

              	 	
                The
                  obligations under the STAR Notes (and the Convertible Notes which
                  are
                  issued in exchange for the STAR Notes) shall be secured by a second
                  priority security interest in substantially all of the assets of
                  the
                  Company and the Subsidiary, subordinate only to the lien of the
                  Senior
                  Lender.

              
	 	 	 
	
                Agreements
                  with Affiliates

              	 	
                Sutaria
                  Notes.
                  Prior to the Closing, the Sutaria Parties shall purchase and the
                  Company
                  shall issue to the Sutaria Parties the Sutaria Notes in the aggregate
                  amount of not less than $3,000,000.

                 

                The
                  Sutaria Notes shall be on substantially the same terms as the STAR
                  Notes,
                  except (a) the Sutaria Notes shall not be exchangeable for Convertible
                  Notes and Warrants and (b) the Sutaria Notes shall be subordinate
                  to the
                  Notes.

                 

                Tag-Along
                  Right.
                  The Purchasers shall have Tag-Along rights as previously negotiated
                  in the
                  Consent and Waiver Agreement.

              
	 	 	 
	
                Exchange
                  of Series B-1 and C-1 Convertible Preferred Stocks and Amendment
                  of
                  Certain Warrants:

              	 	
                The
                  Series B-1 and Series C-1 Convertible Preferred Stocks will be
                  exchangeable for shares of Series D-1 Convertible Preferred Stock
                  with a
                  conversion price of $0.95, and the exercise price of the warrants
                  issued
                  with the Series B-1 and Series C-1 Convertible Preferred Stocks
                  will be
                  reset at $0.95.

              
	 	 	 
	
                Additional
                  Covenant:

              	 	
                Variable
                  Price Equity Issuance.
                  The definitive agreements will contain provisions prohibiting the
                  Company
                  from issuing variable priced equity, variable priced equity linked
                  securities or equity lines of credit for so long as the Purchasers
                  hold
                  any securities of the Company.

                 

                MFN.
                  In the event the Borrowers issues any security, the Purchasers
                  shall have
                  the right to exchange all or a portion of the STAR Notes and Convertible
                  Notes (including the accrued interest thereon) for such other
                  security.

              
	 	 	 
	
                Definitive
                  Agreements:

              	 	
                Each
                  of the parties’ obligations to consummate the Transactions shall be
                  conditioned upon, among other customary items the entry into definitive
                  Purchase Agreement, Notes, Warrants, Registration Rights Agreement,
                  Mortgage and other definitive documents, containing the terms set
                  forth
                  herein and mutually acceptable to each
                  party.

              


      

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

       

      
        	 	 	
                The
                  definitive agreements shall contain customary terms and conditions,
                  including representations and warranties, covenants and indemnities
                  and
                  such other terms and conditions as the parties shall
                  agree.

              
	 	 	 
	
                Conditions
                  to Closing:

              	 	
                The
                  Purchasers obligation to consummate the Transactions at the closing
                  are
                  also contingent upon, among other customary closing conditions,
                  the
                  following:

                 

                (a)
                  Receipt of a consent from Wells Fargo acceptable to the Purchasers
                  waiving
                  any existing defaults under the senior credit facility and consenting
                  to
                  the Transactions; and

                 

                (b)
                  Receipt of consent from the holders of the Series A-1 Convertible
                  Cumulative Preferred Stock, Series B-1 Convertible Preferred Stock
                  and the
                  Series C-1 Convertible Stock acceptable to the Purchasers waiving
                  any
                  existing defaults thereunder and consenting to the
                  Transactions.

              
	 	 	 
	
                Costs
                  and Expenses:

              	 	
                Each
                  of the Borrowers and the Purchasers will be responsible for and
                  will bear
                  all of its own costs and expenses incurred at any time in connection
                  with
                  pursuing or consummating the Transactions; provided,
                  (a) TD III and Aisling shall be entitled to receive reimbursement
                  of their
                  legal expenses with respect to the Transactions, up to $130,000,
                  which
                  amount shall be paid at the STAR Note closing, and (b) SFR and
                  the
                  Sutarias shall be entitled to receive reimbursement of their legal
                  expenses with respect to the Transactions, up to [$50,000], which
                  amount
                  shall be paid at the STAR Note closing.

              
	 
	
                Neither
                  this Term Sheet nor any discussion or negotiation of the proposed
                  transaction constitutes an agreement or obligation on the part
                  of any
                  person to purchase securities of the Borrowers or enter into any
                  agreement
                  to purchase securities of the
                  Borrowers.

              


      

      


      Signatures
        Appear on Next Page


      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      


      IN
        WITNESS WHEREOF, the parties hereto have caused this Term Sheet to be duly
        executed on the day and year first above written.

       

       

      
        	 	 	 
	 	
                AISLING
                  CAPITAL II, L.P.

              
	 
 	 
 	 
 
	 	By:  	
                AISLING
                  CAPITAL PARTNERS, L.P., its 

                general
                  partner

              
	 	 	 
	 	By:  	
                AISLING
                  CAPITAL PARTNERS, LLC., its 

                general
                  partner

              
	 	 	 
	
              	By:  	/s/
                Dennis Purcell
	 	
                

                Name:
                  Dennis
                  Purcell

                Title:
                  SMD

              


      

      
        	 	 	 
	 	
                TULLIS-DICKERSON
                  CAPITAL FOCUS III, L.P.

              
	 	 	 
	 	By:  	
                TULLIS-DICKERSON  PARTNERS, III,

                LLC, its general partner

              
	 	 	 
	
              	By:  	/s/
                Joan
                P. Neuscheler 
	 	
                

                Name:
                  Joan
                  P. Neuscheler

                Title:
                  Principal

              


      

      
        	 	 	 
	
              	By:  	/s/
                Perry Sutaria 
	 	
                

                Perry
                  Sutaria, for the Sutaria family

              


      

      
        	 	 	 
	 	
                SUTARIA
                  FAMILY REALTY, LLC

              
	 
 	 
 	 
 
	
              	By:  	/s/
                Maganlal Sutaria
	 	
                

                Name:
                  Maganlal Sutaria

                Title:
                  Managing Member

              
	 	 
	 	/s/ Cameron Reid 
                

                Cameron
                  Reid

              


      

      
        	 	 	 
	 	
                INTERPHARM
                  HOLDINGS INC.

              
	 
 	 
 	 
 
	
              	By:  	/s/
                Peter Giallorenzo
	 	
                

                Name:
                  Peter Giallorenzo

                Title:
                  CFO

              


      

      
        	 	 	 
	 	
                INTERPHARM
                  INC.

              
	 
 	 
 	 
 
	
              	By:  	/s/
                Peter Giallorenzo
	 	
                

                Name:
                  Peter Giallorenzo

                Title:
                  CFO

              


      

      
 

      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      

       

      


      EXHIBIT
        B

      STOCKHOLDER
        APPROVAL

      


      WRITTEN
        CONSENT

      OF
        A

      MAJORITY
        OF THE SHAREHOLDERS

      OF

      INTERPHARM
        HOLDINGS, INC.

      TO
        ACTION
        TAKEN WITHOUT A MEETING 

      


      The
        undersigned, being the holders of a majority of the issued and outstanding
        shares of the common stock, par value $0.01 per share, of Interpharm Holdings,
        Inc. (the “Company”), do hereby consent to the following action taken without a
        meeting and do hereby adopt the following resolutions, as and for the action
        and
        the resolutions of the shareholders of the Company, to have the same force
        and
        effect as if taken and adopted at a duly called and noticed meeting of the
        shareholders of the Company at which a quorum was present and in attendance
        and
        acting throughout.

      


      WHEREAS,
        the Company shall enter into financing transactions on the terms set forth
        in
        the term sheets (the “Term Sheets”) annexed hereto as Exhibit A (the
“Financings”) and shall enter into a Waiver and Consent Agreement in the form
        annexed hereto as Exhibit B (the “Waiver”); 

       

      NOW
        THEREFORE, be it

      


      RESOLVED,
        that the Company is hereby authorized to proceed with the Financings and
        Waiver
        on substantially the terms set forth in the documents annexed hereto;; and
        be it
        further

      


      RESOLVED,
        that the execution, delivery and performance by the Company of each of the
        documents necessary for the Financing and Waiver be, and it hereby is,
        authorized and approved; and be it further

      


      RESOLVED,
        that the issuance of the STAR Notes, Convertible Notes, the Sutaria Notes,
        the
        Warrants, and the Series D-1 Preferred as defined in the Term Sheets be,
        and it
        hereby is, authorized and approved; and be it further

      


      RESOLVED,
        that the amendment of the Company’s Certificate of Incorporation to create the
        Series D-1 Preferred, as set forth in the Board Resolutions, be, and it hereby
        is, authorized and approved; and be it further

      


      RESOLVED,
        that the Information Statement and other securities filings described in
        the
        Waiver be, and they hereby is, authorized and approved; and be it further
        

      


      RESOLVED,
        that the consummation of each transaction contemplated by the Term Sheets
        and
        the Waiver be, and they hereby are, authorized and approved; and be it
        further

       

      
        
          
          

        

        
          25

          
            

          

        

        
          
          

        

      

      
 

      RESOLVED,
        that the ratification of actions taken by the Company and its officers,
        directors, representatives and agents be, and it hereby is, authorized and
        approved; and be it further

       

      RESOLVED,
        that all securities previously issued to Tullis-Dickerson Capital Focus
        III,  L.P. (“Tullis”) and Aisling Capital II, L.P. (“Aisling”, including,
        without limitation, all securities issued pursuant to the Certificate of
        Designations, Preferences and Rights of Series B-1 Convertible Preferred
        Stock
        of the Company and the Certificate of Designations, Preferences and Rights
        of
        the Series C-1 Convertible Preferred Stock of the Company (including as
        Conversion Shares, Dividend Shares and otherwise, as defined in such
        certificates of designation), the Warrants and otherwise issued to Tullis
        and
        Aisling by the Company, are ratified such that they shall be deemed to be
        issued
        in accordance with, and shall be deemed to be subject to the exemptions
        contained in, Rule 16b-3 of the Exchange Act.

       

      This
        instrument of written consent shall be filed with the minutes of the meetings
        of
        the shareholders of the Company, and shall have the same force and effect
        as the
        vote of the shareholders.

       

      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      

       

      IN
        WITNESS WHEREOF, the undersigned have executed this instrument of written
        consent as of the day and year written below. 

      


      Dated:
        November 6, 2007 

      
        	 	 	 
	 	
                P&K
                  HOLDINGS
                  I,
                  LLC 

              
	 
 	 
 	 
 
	
              	By:  	/s/
                Perry Sutaria 
	 	
                

                Perry
                  Sutaria, Managing Member

              


        	 	 	 
	 	 	 
	 	
                RAMETRA
                  HOLDINGS
                  I,
                  LLC

              
	 
 	 
 	 
 
	
              	By:  	/s/
                Perry Sutaria 
	 	
                

                Perry
                  Sutaria, Managing Member

              


        	 	 	 
	 	 	 
	 	
                RAJS
                  HOLDINGS I,
                  LLC

              
	 
 	 
 	 
 
	
              	By:  	/s/
                Perry Sutaria 
	 	
                

                Perry
                  Sutaria, Managing Member 

              


        	 	 	 
	 	
                RAVIS
                  HOLDINGS I, LLC 

              
	 
 	 
 	 
 
	
              	By:  	/s/
                Perry Sutaria 
	 	
                

                Perry
                  Sutaria, Managing Member

              
	 	
              
	 	
                /s/
                  Perry Sutaria 
                  

                

                PERRY
                  SUTARIA

              
	 	 
	 	
                /s/
                  Raj Sutaria 
                  

                

                RAJ
                  SUTARIA

              




      


      
        
          
          

        

        
          27

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
        C

      


      CERTIFICATE
        OF DESIGNATIONS, PREFERENCES AND RIGHTS 

      OF

      SERIES
        D-1 CONVERTIBLE PREFERRED STOCK

      OF

      INTERPHARM
        HOLDINGS, INC.


      


      Interpharm
        Holdings, Inc. (the "Company"),
        a
        corporation organized and existing under the General Corporation Law of the
        State of Delaware (the "DGCL"),
        does
        hereby certify that, pursuant to authority conferred upon the Board of Directors
        of the Company by the Certificate of Incorporation, as amended, of the Company,
        and pursuant to Section 151 of the DGCL, the Board of Directors of the Company,
        has adopted resolutions (a) authorizing the issuance of preferred stock,
        $0.01 par value per share, of the Company ("Preferred
        Stock")
        in one
        or more series and the provision of the designations, preferences and relative
        participating, optional or other rights, and the qualifications, limitations
        and
        restrictions relating to the shares of each such series, and (b) has
        adopted resolutions (i) designating 20,825 shares of the Company's previously
        authorized Preferred Stock as "Series D-1 Convertible Preferred Stock," $0.01
        value per share (the "Preferred
        Shares"),
        and
        (ii) providing for the designations,
        preferences and relative participating, optional or other rights, and the
        qualifications, limitations or restrictions thereof,
        as
        follows:

       

      RESOLVED,
        that the Company is authorized to issue up to 20,825 shares of Series D-1
        Convertible Preferred Stock, $0.01 value per share, which shall have the
        following designations, powers, preferences, relative rights, qualifications,
        limitations and restrictions (with certain defined terms set forth in Section
        2(a) below):

       

      ARTICLE
        II.Dividends.
        The
        holders of the Preferred Shares (each, a "Holder"
        and
        collectively, the "Holders")
        shall
        be entitled to receive dividends ("Dividends")
        payable on the Stated Value (as defined below) of such Preferred Share at
        the
        Dividend Rate (as defined below). Dividends on the Preferred Shares shall
        commence accruing on the Initial Issuance Date and shall be computed on the
        basis of a 360-day year consisting of twelve 30-day months and shall be payable
        in arrears for each Calendar Quarter on the first day of the succeeding Calendar
        Quarter (as defined below) during the period beginning on the Initial Issuance
        Date and ending when no Preferred Shares remain outstanding (each, an
        "Dividend Date")
        with
        the first Dividend Date being July 1, 2008. Prior to the payment of Dividends
        on
        a Dividend Date, Dividends on the Preferred Shares shall accrue at the Dividend
        Rate. If a Dividend Date is not a Business Day (as defined below), then the
        Dividend shall be due and payable on the Business Day immediately following
        such
        Dividend Date. Dividends shall be payable by adding the amount of such Dividend
        to the Stated Value of the Preferred Shares as Capitalized Dividends, or,
        at the
        option of the Company, in cash, provided that the Dividends which accrued
        during
        any period shall be payable in cash only if the Company indicates that the
        Dividend will be paid in cash in the Dividend Notice (as defined below).
        At
        least twenty-five (25) Trading Days prior to the applicable Dividend Date
        (the
        "Dividend
        Notice Date"),
        the
        Company shall provide written notice (the "Dividend
        Notice")
        to
        each Holder of Preferred Shares either indicating that the Dividend is to
        be
        paid in cash or confirming that the Dividend shall be paid as Capitalized
        Dividends.

       

      
        
          
          

        

        
          28

          
            

          

        

        
          
          

        

      

       

      ARTICLE
        III.Conversion
        of Preferred Shares.
        Preferred Shares shall be convertible into the Company's common stock, par
        value
        $0.01 per share (the "Common
        Stock"),
        on
        the terms and conditions set forth in this Section 2.

       

      3.1 Certain
        Defined Terms. For purposes of this Certificate of Designations, the following
        terms shall have the following meanings:

       

      (a) "Additional
        Amount"
        means,
        on a per Preferred Share basis, the product of (x) the result of the following
        formula: (Dividend Rate)(N/360) and (y) the Stated Value.

       

      (b) "ANDA"
        means
        an Abbreviated New Drug Application which
        when submitted to the Food and Drug Administration's Center for Drug
        Evaluation and Research, Office of Generic Drugs, is accepted for review
        by the
        Food and Drug Administration.

       

      (c) "Approved
        Stock Plan"
        means
        any employee benefit plan which has been approved by the Board of Directors
        and
        stockholders of the Company, pursuant to which the Company's securities may
        be
        issued to any employee, officer or director for services provided to the
        Company.

       

      (d) "Bloomberg"
        means
        Bloomberg Financial Markets.

       

      (e) "Business
        Day"
        means
        any day other than Saturday, Sunday or other day on which commercial banks
        in
        The City of New York are authorized or required by law to remain
        closed.

       

      (f) "Calendar
        Quarter"
        means
        each of the following periods: the period beginning on and including January
        1
        and ending on and including March 31; the period beginning on and including
        April 1 and ending on and including June 30; the period beginning on and
        including July 1 and ending on and including September 30; and the period
        beginning on and including October 1 and ending on and including December
        31.

       

      (g) "Capitalized
        Dividends"
        means
        Dividends due on the Preferred Shares pursuant to Section 1 that have been
        capitalized by adding the amount of the Dividends to the Stated Value of
        the
        Preferred Shares.

       

      (h) "Change
        of Control"
        means
        any Fundamental Transaction other than any reorganization, recapitalization
        or
        reclassification in which holders of the Company's voting power immediately
        prior to such reorganization, recapitalization or reclassification continue
        after such reorganization, recapitalization or reclassification to hold publicly
        traded securities of the Company and, directly or indirectly, the voting
        power
        of the surviving entity or entities necessary to elect a majority of the
        members
        of the board of directors (or their equivalent if other than a corporation)
        of
        such entity or entities.

       

      
        
          
          

        

        
          29

          
            

          

        

        
          
          

        

      

       

      (i) "Closing
        Bid Price"
        and
        "Closing
        Sale Price"
        means,
        for any security as of any date, the last closing bid price and last closing
        trade price, respectively, for such security on the Principal Market, as
        reported by Bloomberg, or, if the Principal Market begins to operate on an
        extended hours basis and does not designate the closing bid price or the
        closing
        trade price, as the case may be, then the last bid price or last trade price,
        respectively, of such security prior to 4:00:00 p.m., New York Time, as reported
        by Bloomberg, or, if the Principal Market is not the principal securities
        exchange or trading market for such security, the last closing bid price
        or last
        trade price, respectively, of such security on the principal securities exchange
        or trading market where such security is listed or traded as reported by
        Bloomberg, or if none of the foregoing apply, the last closing bid price
        or last
        trade price, respectively, of such security in the over-the-counter market
        on
        the electronic bulletin board for such security as reported by Bloomberg,
        or, if
        no closing bid price or last trade price, respectively, is reported for such
        security by Bloomberg, the average of the bid prices, or the ask prices,
        respectively, of any market makers for such security as reported in the "pink
        sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.).
        If
        the Closing Bid Price or the Closing Sale Price cannot be calculated for
        a
        security on a particular date on any of the foregoing bases, the Closing
        Bid
        Price or the Closing Sale Price, as the case may be, of such security on
        such
        date shall be the fair market value as mutually determined by the Company
        and
        the Required Holders. If the Company and the Holder are unable to agree upon
        the
        fair market value of such security, then such dispute shall be resolved pursuant
        to Section 2(d)(vi). All such determinations shall be appropriately adjusted
        for
        any share dividend, share split, share combination or other similar transaction
        during the applicable calculation period.

       

      (j) "Conversion
        Amount"
        means
        the sum of (1) the Additional Amount and (2) the Stated Value.

       

      (k) "Conversion
        Price"
        means,
        with respect to the Preferred Shares, as of any Conversion Date or other
        date of
        determination, $0.95, subject to adjustment as provided herein.

       

      (l) "Convertible
        Securities"
        means
        any shares or securities (other than Options) directly or indirectly convertible
        into or exchangeable or exercisable for Common Stock.

       

      
        
          
          

        

        
          30

          
            

          

        

        
          
          

        

      

       

      (m) "Dividend
        Rate"
        means
        (i) eight and one-quarter percent (8.25%) per annum and (ii) for the period
        from
        and after the occurrence of a Triggering Event through such time that such
        Triggering Event is cured, ten percent (10%) per annum.

       

      (n) "Eligible
        Market"
        means
        the Principal Market, NYSE, the Nasdaq Global Select Market, the Nasdaq Global
        Market or The Nasdaq Capital Market.

       

      (o) "Equity
        Conditions"
        means:
        (i) on each day during the period beginning six months prior to the applicable
        date of determination and ending on and including the applicable date of
        determination (the "Equity
        Conditions Measuring Period"),
        (except as to Capitalized Dividends this condition (i) shall not apply prior
        to
        the earlier of the Effective Date and the Effectiveness Deadline (each as
        defined in the Registration Rights Agreement) (the "Required
        Registration Date"),
        and
        for purposes hereof the Equity Condition Measuring Period shall commence
        on the
        Required Registration Date) either
        (x) the Registration Statement (as
        defined in the Registration Rights Agreement, the "Registration
        Statement")
        filed
        pursuant to the Registration Rights Agreement shall be effective and available
        for the resale of all of the Registrable Securities (as defined in the
        Registration Rights Agreement) in accordance with the terms of the Registration
        Rights Agreement and
        there
        shall not have been any Grace Periods
        (as
        defined in the Registration Rights Agreement) or (y) all shares of Common
        Stock
        issuable upon conversion of the Preferred Shares and the exercise of Warrants
        shall be eligible for sale without restriction and without the need for
        registration under any applicable federal or state securities laws; (ii)
        on
        each day during the Equity Conditions Measuring Period, the Common Stock
        is
        designated for quotation on the Principal Market and shall not have been
        suspended from trading on such exchange or market (other than suspensions
        of not
        more than two days and occurring prior to the applicable date of determination
        due to business announcements by the Company) nor shall delisting or suspension
        by such exchange or market been threatened or pending either (A) in writing
        by
        such exchange or market or (B) by falling below the minimum listing maintenance
        requirements of such exchange or market; (iii) on each day during the Equity
        Conditions Measuring Period, the Company shall have delivered Conversion
        Shares
        upon conversion of the Preferred Shares and Common Stock upon exercise of
        the
        Warrants to the Holders on a timely basis as set forth in Section 2(c)(ii)
        hereof and Section 1(a) of the Warrants; (iv) any applicable Common Stock
        to be
        issued in connection with the event requiring determination may be issued
        in
        full without violating Section 12 hereof or the rules or regulations of the
        applicable Principal Market; (v) during the Equity Conditions Measuring Period,
        the Company shall not have failed to timely make any payments within five
        (5)
        Business Days of when such payment is due pursuant to any Transaction Document
        (as defined in the Securities Purchase Agreement); (vi) during the Equity
        Conditions Measuring Period, there shall not have occurred either (A) the
        public
        announcement of a pending, proposed or intended Fundamental Transaction which
        has not been abandoned, terminated or consummated or (B) a
        Triggering Event or an
        event
        that with the passage of time or giving of notice would constitute a Triggering
        Event; (vii)
        the
        Company shall have no actual knowledge of any fact that would cause (x) any
        Registration Statement required pursuant to the Registration Rights Agreement
        not to be effective and available for the resale of at least all of the
        Registrable Securities in accordance with the terms of the Registration Rights
        Agreement or (y) any Common Stock issuable upon conversion of the Preferred
        Shares and Common Stock issuable upon exercise of the Warrants not to be
        eligible for sale without restriction pursuant to Rule 144(k) and any applicable
        state securities laws; and (viii) the
        Company otherwise shall have been in material compliance with and shall not
        have
        materially breached any provision, covenant, representation or warranty of
        any
        Transaction Document.

       

      
        
          
          

        

        
          31

          
            

          

        

        
          
          

        

         

      

      (p) "Exchange
        Act"
        means
        the Securities and Exchange Act of 1934, as amended.

       

      (q) "Excluded
        Securities"
        means
        any Common Stock issued or issuable or deemed to be issued in accordance
        with
        Section 2(f) hereof by the Company: (i) in connection with any Approved Stock
        Plan; (ii) upon conversion of the Preferred Shares or upon the exercise of
        the
        Warrants; (iii) upon conversion, exercise or exchange of any Options or
        Convertible Securities which are outstanding on the day immediately preceding
        the Subscription Date, provided that such issuance of Common Stock upon exercise
        of such Options or Convertible Securities is made pursuant to the terms of
        such
        Options or Convertible Securities in effect on the date immediately preceding
        the Subscription Date and such Options or Convertible Securities are not
        amended, modified or changed on or after the Subscription Date; (iv) in
        connection with any stock split, stock dividend, recapitalization or similar
        transaction by the Company for which adjustment is made pursuant to Section
        2(f)(ii); (v) Common Stock issued upon the conversion of any of those certain
        secured convertible 12% notes due 2009 of the Company and Interpharm, Inc.
        issued pursuant to the Securities Purchase Agreement dated October 31, 2007
        (the
“Convertible Notes”); (vi) Common Stock issued as payment of dividends on the
        Convertible Notes; and (vii) securities issued pursuant to acquisitions or
        other
        strategic transactions; provided that (A) such acquisition or other transaction
        is not with an Affiliate (as defined under Rule 405 of the Securities Act
        of
        1933) of the Company or any individual who is related by blood, marriage
        or
        adoption to any Affiliate of the Company, (B) the primary purpose of such
        acquisition or other transaction is not to raise capital and (C) such security
        is issued at a price which is greater than or equal to the arithmetic average
        of
        the Closing Sale Price of the Common Stock for the ten (10) consecutive Trading
        Days immediately preceding the date of issuance.

       

      
        
          
          

        

        
          32

          
            

          

        

        
          
          

        

      

       

      (r) "Founders"
        means
        (i) Maganlal K. Sutaria, any of his immediate family members and any Person
        affiliated with him or the immediate family members and (ii) any immediate
        family member of Munish K. Rametra and any Person affiliated with such immediate
        family members.

       

      (s) "Fundamental
        Transaction"
        means
        that (i) the Company shall, directly or indirectly, in one or more related
        transactions, (A) consolidate or merge with or into (whether or not the Company
        is the surviving corporation) another Person, or (B) sell, assign, transfer,
        convey or otherwise dispose of all or substantially all of the properties
        or
        assets of the Company to another Person, or (C) allow another Person to make
        a
        purchase, tender or exchange offer that is accepted by the holders of more
        than
        the 50% of the outstanding Common Stock (not including any Common Stock held
        by
        the Person or Persons making or party to, or associated or affiliated with
        the
        Persons making or party to, such purchase, tender or exchange offer), (D)
        consummate a share purchase agreement or other business combination (including,
        without limitation, a reorganization, recapitalization, spin-off or scheme
        of
        arrangement) with another Person whereby such other Person acquires more
        than
        the 50% of the outstanding Common Stock (not including any Common Stock held
        by
        the other Person or other Persons making or party to, or associated or
        affiliated with the other Persons making or party to, such share purchase
        agreement or other business combination), (E) reorganize, recapitalize or
        reclassify its Common Stock or (F) any "person" or "group" (as these terms
        are
        used for purposes of Sections 13(d) and 14(d) of the Exchange Act), other
        than
        the Founders, is or shall become the "beneficial owner" (as defined in Rule
        13d-3 under the Exchange Act), directly or indirectly, of 50% of the issued
        and
        outstanding Common Stock or the aggregate ordinary voting power represented
        by
        issued and outstanding Common Stock.

       

      (t) "GAAP"
        means
        United States generally accepted accounting principles, consistently
        applied.

       

      (u) "Indebtedness"
        shall
        have the meaning as set forth in the Securities Purchase Agreement.

       

      (v) "Initial
        Issuance Date"
        means
        [___________].1 

       

      (w) "Liquidation
        Event"
        means
        the voluntary or involuntary liquidation, dissolution or winding up of the
        Company or such Subsidiaries the assets of which constitute all or substantially
        all of the business of the Company and its Subsidiaries taken as a whole,
        in a
        single transaction or series of transactions.

       

      
        
          

        

      

      
        1
          Insert
          date of issuance.

        -

      

      
        
          
          

        

        
          33

          
            

          

        

        
          
          

        

      

       

      (x) "N"
        means
        the number of days from, but excluding, the last Dividend Date with respect
        to
        which dividends have been paid or capitalized by the Company on the applicable
        Preferred Share, or the Initial Issuance Date if no Dividend Date has occurred,
        through and including the Conversion Date or other date of determination
        for
        such Preferred Share, as the case may be, for which such determination is
        being
        made.

       

      (y) "Net
        Income"
        means,
        with respect to any Person for any applicable period, the pre-tax net income
        (loss) of such Person for such period, determined on a consolidated basis
        and in
        accordance with GAAP, but excluding from the determination of Net Income
        any
        non-cash charges related to the sale of the Preferred Shares.

       

      (z) "NYSE"
        means
        The New York Stock Exchange, Inc.

       

      (aa) "Options"
        means
        any rights, warrants or options to subscribe for or purchase Common Stock
        or
        Convertible Securities.

       

      (bb) "Parent
        Entity"
        of a
        Person means an entity that, directly or indirectly, controls the applicable
        Person and whose common shares or equivalent equity security are quoted or
        listed on an Eligible Market, or, if there is more than one such Person or
        Parent Entity, the Person or Parent Entity with the largest public market
        capitalization as of the date of consummation of the Fundamental
        Transaction.

       

      (cc) "Person"
        means
        an individual, a limited liability company, a partnership, a joint venture,
        a
        corporation, a trust, an unincorporated organization and a government or
        any
        department or agency thereof.

       

      (dd) "Principal
        Market"
        means
        the American Stock Exchange.

       

      (ee) "Profitable"
        means,
        with respect to any Person for any applicable period, such Person having
        positive Net Income for such period.

       

      (ff) "Registration
        Rights Agreement"
        means
        that certain registration rights agreement by and among the Company and the
        initial Holders of the Preferred Shares relating to the filing of a registration
        statement covering the resale of the Common Stock issuable upon conversion
        of
        the Preferred Shares and exercise of the Warrants, as such agreement may
        be
        amended from time to time as provided in such agreement.

       

      (gg) "Required
        Holders"
        means
        the Holders of Preferred Shares representing at least a majority of the
        aggregate Preferred Shares then outstanding.

       

      
        
          
          

        

        
          34

          
            

          

        

        
          
          

        

      

       

      (hh) "Rule
        13e-3 Transaction"
        means a
        transaction involving the Company that would be deemed a "going private
        transaction" under Rule 13e-3 of the Exchange Act; provided, however, that
        for
        purposes of this definition the Founders shall be deemed "affiliates" of
        the
        Company for purposes of Rule 13e-3. 

       

      (ii) "SEC"
        means
        the Securities and Exchange Commission.

       

      (jj) "Securities
        Purchase Agreement"
        means
        that certain securities purchase agreement by and among the Company and the
        initial Holders, dated as of May 15, 2006 or September 11, 2006, as the case
        may
        be, as such agreement further may be amended from time to time as provided
        in
        such agreement.

       

      (kk) "Stated
        Value"
        means
        per Preferred Share the sum of (i) $1,000 and (ii) all Capitalized Dividends
        with respect to such Preferred Share.

       

      (ll) "Subscription
        Date"
        means
        October 31, 2007.

       

      (mm) "Subsidiary"
        has the
        meaning set forth in the Securities Purchase Agreement.

       

      (nn) "Successor
        Entity"
        means
        the Person, which may be the Company, formed by, resulting from or surviving
        any
        Fundamental Transaction or the Person with which such Fundamental Transaction
        shall have been made, provided that if such Person is not a publicly traded
        entity whose common shares or equivalent equity security are quoted or listed
        for trading on an Eligible Market, Successor Entity shall mean such Person's
        Parent Entity if such Parent Entity is so quoted or listed.

       

      (oo) "Trading
        Day"
        means
        any day on which the Common Stock is traded on the Principal Market, or,
        if the
        Principal Market is not the principal trading market for the Common Stock,
        then
        on the principal securities exchange or securities market on which the Common
        Stock is then traded; provided that "Trading Day" shall not include any day
        on
        which the Common Stock is scheduled to trade on such exchange or market for
        less
        than 4.5 hours or any day that the Common Stock is suspended from trading
        during
        the final hour of trading on such exchange or market (or if such exchange
        or
        market does not designate in advance the closing time of trading on such
        exchange or market, then during the hour ending at 4:00:00 p.m., New York
        Time).

       

      (pp) "Warrants"
        has the
        meaning ascribed to such term in the Securities Purchase Agreement, and shall
        include all warrants issued in exchange therefor or replacement
        thereof.

       

      
        
          
          

        

        
          35

          
            

          

        

        
          
          

        

      

       

      (qq) "Weighted
        Average Price"
        means,
        for any security as of any date, the dollar volume-weighted average price
        for
        such security on the Principal Market during the period beginning at 9:30:01
        a.m., New York City Time, and ending at 4:00:00 p.m., New York City Time,
        as
        reported by Bloomberg through its "Volume at Price" function or, if the
        foregoing does not apply, the dollar volume-weighted average price of such
        security in the over-the-counter market on the electronic bulletin board
        for
        such security during the period beginning at 9:30:01 a.m., New York City
        Time,
        and ending at 4:00:00 p.m., New York City Time, as reported by Bloomberg,
        or, if
        no dollar volume-weighted average price is reported for such security by
        Bloomberg for such hours, the average of the highest closing bid price and
        the
        lowest closing ask price of any of the market makers for such security as
        reported in the "pink sheets" by Pink Sheets LLC (formerly the National
        Quotation Bureau, Inc.). If the Weighted Average Price cannot be calculated
        for
        such security on such date on any of the foregoing bases, the Weighted Average
        Price of such security on such date shall be the fair market value as mutually
        determined by the Company and the Required Holders. If the Company and the
        Required Holders are unable to agree upon the fair market value of the Common
        Stock, then such dispute shall be resolved pursuant to Section 2(d)(iii)
        below
        with the term "Weighted Average Price" being substituted for the term "Closing
        Sale Price." All such determinations shall be appropriately adjusted for
        any
        share dividend, share split or other similar transaction during such
        period.

       

      3.2 Holder's
        Conversion Right. Subject to the provisions of Section 5 and Section 12,
        at any
        time or times on or after the Initial Issuance Date, any Holder shall be
        entitled to convert any whole number of Preferred Shares, plus the amount
        of any
        accrued but unpaid Dividends per Preferred Share then remaining, into fully
        paid
        and nonassessable shares of Common Stock in accordance with Section 2(d)
        at the
        Conversion Rate (as defined below).

       

      3.3 Conversion.
        The number of shares of Common Stock issuable upon conversion of each Preferred
        Share pursuant to Section 2(b) shall be determined according to the following
        formula (the "Conversion
        Rate"):

       

      Conversion
        Amount

      Conversion
        Price

       

      No
        fractional shares of Common Stock are to be issued upon the conversion of
        any
        Preferred Share, but rather the number of shares of Common Stock to be issued
        shall be rounded up to the nearest whole number. 

       

      3.4 Mechanics
        of Conversion. The conversion of Preferred Shares shall be conducted in the
        following manner:

       

      (a)  Holder's
        Delivery Requirements.
        To
        convert Preferred Shares into Common Stock on any date (the "Conversion
        Date"),
        the
        Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt
        on or
        prior to 11:59 p.m., New York City Time, on such date, a copy of a properly
        completed notice of conversion executed by the registered Holder of the
        Preferred Shares subject to such conversion in the form attached hereto as
        Exhibit
        I
        (the
        "Conversion
        Notice")
        to the
        Company and the Company's transfer agent (the "Transfer
        Agent")
        and
        (B) if required by Section 2(d)(vii), surrender to a common carrier for delivery
        to the Company as soon as practicable following such date the original
        certificates representing the Preferred Shares being converted (or compliance
        with the procedures set forth in Section 14) (the "Preferred
        Share Certificates").

       

      
        
          
          

        

        
          36

          
            

          

        

        
          
          

        

      

       

      (b)  Company's
        Response.
        Upon
        receipt by the Company of copy of a Conversion Notice, the Company shall
        as soon
        as practicable, but in any event within two (2) Business Days, send, via
        facsimile, a confirmation of receipt of such Conversion Notice to such Holder
        and the Transfer Agent, which confirmation shall constitute an instruction
        to
        the Transfer Agent to process such Conversion Notice in accordance with the
        terms herein. On or before the third (3rd)
        Business Day following the date of receipt by the Company of such Conversion
        Notice (the "Share
        Delivery Date"),
        the
        Company shall (A) provided the Transfer Agent is participating in the Depository
        Trust Company ("DTC")
        DTC
        Fast Automated Securities Transfer Program, cause the Transfer Agent to credit
        such aggregate number of shares of Common Stock to which the Holder shall
        be
        entitled to the Holder's or its designee's balance account with DTC through
        its
        Deposit Withdrawal Agent Commission system, or (B) if the Transfer Agent
        is not
        participating in the DTC Fast Automated Securities Transfer Program, cause
        the
        Transfer Agent to issue and deliver to the address as specified in the
        Conversion Notice, a certificate, registered in the name of the Holder or
        its
        designee, for the number of shares of Common Stock to which the Holder shall
        be
        entitled. If the number of Preferred Shares represented by the Preferred
        Share
        Certificate(s) submitted for conversion, as may be required pursuant to Section
        2(d)(vii), is greater than the number of Preferred Shares being converted,
        then
        the Company shall, as soon as practicable and in no event later than three
        (3)
        Business Days after receipt of the Preferred Share Certificate(s) (the
        "Preferred
        Share Delivery Date")
        and at
        its own expense, issue and deliver to the Holder a new Preferred Share
        Certificate representing the number of Preferred Shares not converted.


       

      (c)  Dispute
        Resolution.
        In the
        case of a dispute as to the determination of the Closing Sale Price or the
        arithmetic calculation of the Conversion Rate, the Company shall instruct
        the
        Transfer Agent to issue to the Holder the number of shares of Common Stock
        that
        is not disputed and shall transmit an explanation of the disputed determinations
        or arithmetic calculations to the Holder via facsimile within one (1) Business
        Day of receipt of such Holder's Conversion Notice or other date of
        determination. If such Holder and the Company are unable to agree upon the
        determination of the Closing Sale Price or arithmetic calculation of the
        Conversion Rate within two (2) Business Days of such disputed determination
        or
        arithmetic calculation being transmitted to the Holder, then the Company
        shall
        within one (1) Business Day submit via facsimile (A) the disputed determination
        of the Closing Sale Price to an independent, reputable investment bank selected
        by the Company and approved by the Required Holders or (B) the disputed
        arithmetic calculation of the Conversion Rate to the Company's independent,
        outside accountant. The Company shall cause, at the Company's expense, the
        investment bank or the accountant, as the case may be, to perform the
        determinations or calculations and notify the Company and the Holders of
        the
        results no later than two (2) Business Days from the time it receives the
        disputed determinations or calculations. Such investment bank's or accountant's
        determination or calculation, as the case may be, shall be binding upon all
        parties absent error.

       

      
        
          
          

        

        
          37

          
            

          

        

        
          
          

        

      

       

      (d)  Miscellaneous;
        Record Holder.
        The
        Person or Persons entitled to receive the Common Stock issuable upon a
        conversion of Preferred Shares shall be treated for all purposes as the record
        holder or holders of such Common Stock on the Conversion Date. 

       

      (e)  Company's
        Failure to Timely Convert.

       

      (i)  Cash
        Damages.
        If (I)
        within ten (10) calendar days after the Company's receipt of a Conversion
        Notice
        the Company shall fail to credit a Holder's balance account with DTC or issue
        and deliver a certificate to such Holder for the number of shares of Common
        Stock to which such Holder is entitled upon such Holder's conversion of
        Preferred Shares (a "Conversion
        Failure")
        or
        (II) within ten (10) calendar days of the Company's receipt of a Preferred
        Share
        Certificate the Company shall fail to issue and deliver a new Preferred Share
        Certificate representing the number of Preferred Shares to which such Holder
        is
        entitled pursuant to Section 2(d)(ii), then in addition to all other available
        remedies which such holder may pursue hereunder and under the Securities
        Purchase Agreement (including indemnification pursuant to Section 9(k) thereof),
        the Company shall pay additional damages to such Holder for each day after
        the
        Share Delivery Date that such conversion is not timely effected and/or each
        day
        after the Preferred Share Delivery Date that such Preferred Share Certificate
        is
        not delivered in an amount equal to 1.0% of the product of (I) the sum of
        the number of shares of Common Stock not issued to the Holder on or prior
        to the
        Share Delivery Date and to which such Holder is entitled as set forth in
        the
        applicable Conversion Notice and, in the event the Company has failed to
        deliver
        a Preferred Share Certificate to the Holder on or prior to the Preferred
        Share
        Delivery Date, the number of shares of Common Stock issuable upon conversion
        of
        the Preferred Shares represented by such Preferred Share Certificate as of
        the
        Preferred Share Delivery Date and (II) the Closing Sale Price of the Common
        Stock on the Share Delivery Date, in the case of the failure to deliver Common
        Stock, or the Preferred Share Delivery Date, in the case of failure to deliver
        a
        Preferred Share Certificate. If the Company fails to pay the additional damages
        set forth in this Section 2(d)(v) within five (5) Business Days of the date
        incurred, then the Holder entitled to such payments shall have the right
        at any
        time, so long as the Company continues to fail to make such payments, to
        require
        the Company, upon written notice, to immediately issue, in lieu of such cash
        damages, the number of shares of Common Stock equal to the quotient of (X)
        the
        aggregate amount of the damages payments described herein divided by (Y)
        the
        Conversion Price in effect on such Conversion Date as specified by the Holder
        in
        the Conversion Notice. In addition to the foregoing, if within three (3)
        Business Days after the Company's receipt of a Conversion Notice the Company
        shall fail to issue and deliver a certificate to a Holder or credit such
        Holder's balance account with DTC for the number of shares of Common Stock
        to
        which such Holder is entitled upon such Holder's conversion of Preferred
        Shares,
        and if on or after such Business Day the Holder purchases (in an open market
        transaction or otherwise) Common Stock to deliver in satisfaction of a sale
        by
        the Holder of the Common Stock issuable upon such conversion that the Holder
        anticipated receiving from the Company (a "Buy-In"),
        then
        the Company shall, within three (3) Business Days after the Holder's request
        and
        in the Holder's discretion, either (i) pay cash to the Holder in an amount
        equal
        to the Holder's total purchase price (including brokerage commissions, if
        any)
        for the Common Stock so purchased (the "Buy-In
        Price"),
        at
        which point the Company's obligation to deliver such certificate (and to
        issue
        such Common Stock) shall terminate, or (ii) promptly honor its obligation
        to
        deliver to the Holder a certificate or certificates representing such Common
        Stock and pay cash to the Holder in an amount equal to the excess (if any)
        of
        the Buy-In Price over the product of (A) such number of shares of Common
        Stock
        times (B) the Closing Sale Price on the Conversion Date.

       

      
        
          
          

        

        
          38

          
            

          

        

        
          
          

        

      

       

      (ii)  Void
        Conversion Notice; Adjustment of Conversion Price.
        If for
        any reason a Holder has not received all of the Common Stock to which such
        Holder is entitled prior to the fifth (5th)
        Business Day after the Share Delivery Date with respect to a conversion of
        Preferred Shares, then the Holder, upon written notice to the Company, with
        a
        copy to the Transfer Agent, may void its Conversion Notice with respect to,
        and
        retain or have returned, as the case may be, any Preferred Shares that have
        not
        been converted pursuant to such Holder's Conversion Notice; provided that
        the
        voiding of a Holder's Conversion Notice shall not effect the Company's
        obligations to make any payments which have accrued prior to the date of
        such
        notice pursuant to Section 2(d)(v)(A) or otherwise. Thereafter, the Conversion
        Price of any Preferred Shares returned or retained by the Holder for failure
        to
        timely convert shall be adjusted to the lesser of (I) the Conversion Price
        relating to the voided Conversion Notice and (II) the lowest Weighted Average
        Price of the Common Stock during the period beginning on the Conversion Date
        and
        ending on the date such Holder voided the Conversion Notice, subject to further
        adjustment as provided in this Certificate of Designations.

       

      
        
          
          

        

        
          39

          
            

          

        

        
          
          

        

      

       

      (f)  Pro
        Rata Conversion; Disputes.
        Subject
        to Section 12, in the event the Company receives a Conversion Notice from
        more
        than one Holder for the same Conversion Date and the Company can convert
        some,
        but not all, of such Preferred Shares, the Company shall convert from each
        Holder electing to have Preferred Shares converted at such time a pro rata
        amount of such Holder's Preferred Shares submitted for conversion based on
        the
        number of Preferred Shares submitted for conversion on such date by such
        Holder
        relative to the number of Preferred Shares submitted for conversion on such
        date. In the event of a dispute as to the number of shares of Common Stock
        issuable to a Holder in connection with a conversion of Preferred Shares,
        the
        Company shall issue to such Holder the number of shares of Common Stock not
        in
        dispute and resolve such dispute in accordance with Section
        2(d)(iii).

       

      (g)  Book-Entry.
        Notwithstanding anything to the contrary set forth herein, upon conversion
        of
        Preferred Shares in accordance with the terms hereof, any Holder thereof
        shall
        not be required to physically surrender the certificate representing the
        Preferred Shares to the Company unless (A) the full or remaining number of
        Preferred Shares represented by the certificate are being converted or (B)
        such
        Holder has provided the Company with prior written notice (which notice may
        be
        included in a Conversion Notice) requesting reissuance of Preferred Shares
        upon
        physical surrender of any Preferred Shares. The Holders and the Company shall
        maintain records showing the number of Preferred Shares so converted and
        the
        dates of such conversions or shall use such other method, reasonably
        satisfactory to the Holders and the Company, so as not to require physical
        surrender of the certificate representing the Preferred Shares upon each
        such
        conversion. In the event of any dispute or discrepancy, such records of the
        Company establishing the number of Preferred Shares to which the record holder
        is entitled shall be controlling and determinative in the absence of manifest
        error. Notwithstanding the foregoing, if Preferred Shares represented by
        a
        certificate are converted as aforesaid, a Holder may not transfer the
        certificate representing the Preferred Shares unless such Holder first
        physically surrenders the certificate representing the Preferred Shares to
        the
        Company, whereupon the Company will forthwith issue and deliver upon the
        order
        of such Holder a new certificate of like tenor, registered as such Holder
        may
        request, representing in the aggregate the remaining number of Preferred
        Shares
        represented by such certificate. A Holder and any assignee, by acceptance
        of a
        certificate, acknowledge and agree that, by reason of the provisions of this
        paragraph, following conversion of any Preferred Shares, the number of Preferred
        Shares represented by such certificate may be less than the number of Preferred
        Shares stated on the face thereof. Each certificate for Preferred Shares
        shall
        bear the following legend: 

       

      
        
          
          

        

        
          40

          
            

          

        

        
          
          

        

      

    

    Preferred
      Shares unless such Holder first physically surrenders the certificate
      representing the Preferred Shares to the Company, whereupon the Company will
      forthwith issue and deliver upon the order of such Holder a new certificate
      of
      like tenor, registered as such Holder may request, representing in the aggregate
      the remaining number of Preferred Shares represented by such certificate. A
      Holder and any assignee, by acceptance of a certificate, acknowledge and agree
      that, by reason of the provisions of this paragraph, following conversion of
      any
      Preferred Shares, the number of Preferred Shares represented by such certificate
      may be less than the number of Preferred Shares stated on the face thereof.
      Each
      certificate for Preferred Shares shall bear the following legend: 

     

    ANY
      TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE TERMS OF THE
      COMPANY'S CERTIFICATE OF DESIGNATIONS RELATING TO THE PREFERRED SHARES
      REPRESENTED BY THIS CERTIFICATE, INCLUDING SECTION 2(d)(vii) THEREOF. THE NUMBER
      OF PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN THE NUMBER
      OF PREFERRED SHARES STATED ON THE FACE HEREOF PURSUANT TO SECTION 2(d)(vii)
      OF
      THE CERTIFICATE OF DESIGNATIONS RELATING TO THE PREFERRED SHARES REPRESENTED
      BY
      THIS CERTIFICATE.

     

    3.5 Taxes.
      The Company shall pay any and all documentary, stamp, transfer (but only in
      respect of the registered holder thereof) and other similar taxes that may
      be
      payable with respect to the issuance and delivery of Common Stock upon the
      conversion of Preferred Shares. 

     

    3.6 Adjustments
      to Conversion Price. The Conversion Price will be subject to adjustment from
      time to time as provided in this Section 2(f).

     

    (a) Adjustment
      of Conversion Price upon Issuance of Common Stock.
      If and
      whenever on or after the Subscription Date, the Company issues or sells, or
      in
      accordance with this Section 2(f) is deemed to have issued or sold, any Common
      Stock (including the issuance or sale of Common Stock owned or held by or for
      the account of the Company but excluding Excluded Securities) for a
      consideration per share (the "New
      Securities Issuance Price")
      less
      than a price (the "Applicable
      Price")
      equal
      to the Conversion Price in effect immediately prior to such time (a
      "Dilutive
      Issuance"),
      then
      immediately after such issue or sale, the Conversion Price then in effect shall
      be reduced to an amount equal to ninety percent (90%) of the New Securities
      Issuance Price. For purposes of determining the adjusted Conversion Price under
      this Section 2(f)(i), the following shall be applicable:

     

    (i)  Issuance
      of Options.
      If the
      Company in any manner grants or sells any Options and the lowest price per
      share
      for which one share of Common Stock is issuable upon the exercise of any such
      Option or upon conversion, exchange or exercise of any Convertible Securities
      issuable upon exercise of such Option is less than the Applicable Price, then
      such share of Common Stock shall be deemed to be outstanding and to have been
      issued and sold by the Company at the time of the granting or sale of such
      Option for such price per share. For purposes of this Section 2(f)(i)(A), the
      "lowest price per share for which one share of Common Stock is issuable upon
      the
      exercise of any such Option or upon conversion, exchange or exercise of any
      Convertible Securities issuable upon exercise of such Option" shall be equal
      to
      the sum of the lowest amounts of consideration (if any) received or receivable
      by the Company with respect to any one share of Common Stock upon granting
      or
      sale of the Option, upon exercise of the Option and upon conversion, exchange
      or
      exercise of any Convertible Security issuable upon exercise of such Option.
      No
      further adjustment of the Conversion Price shall be made upon the actual
      issuance of such Common Stock or of such Convertible Securities upon the
      exercise of such Options or upon the actual issuance of such Common Stock upon
      conversion, exchange or exercise of such Convertible Securities.

     

    
      
        
        

      

      
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    (ii)  Issuance
      of Convertible Securities.
      If the
      Company in any manner issues or sells any Convertible Securities and the lowest
      price per share for which one share of Common Stock is issuable upon such
      conversion, exchange or exercise thereof is less than the Applicable Price,
      then
      such share of Common Stock shall be deemed to be outstanding and to have been
      issued and sold by the Company at the time of the issuance of sale of such
      Convertible Securities for such price per share. For the purposes of this
      Section 2(f)(i)(B), the "lowest price per share for which one share of Common
      Stock is issuable upon such conversion, exchange or exercise" shall be equal
      to
      the sum of the lowest amounts of consideration (if any) received or receivable
      by the Company with respect to any one share of Common Stock upon the issuance
      or sale of the Convertible Security and upon the conversion, exchange or
      exercise of such Convertible Security. No further adjustment of the Conversion
      Price shall be made upon the actual issuance of such Common Stock upon
      conversion, exchange or exercise of such Convertible Securities, and if any
      such
      issue or sale of such Convertible Securities is made upon exercise of any
      Options for which adjustment of the Conversion Price had been or are to be
      made
      pursuant to other provisions of this Section 2(f)(i), no further adjustment
      of
      the Conversion Price shall be made by reason of such issue or sale.

     

    
      
        
        

      

      
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    (iii)  Change
      in Option Price or Rate of Conversion.
      If the
      purchase or exercise price provided for in any Options, the additional
      consideration, if any, payable upon the issue, conversion, exchange or exercise
      of any Convertible Securities, or the rate at which any Convertible Securities
      are convertible into or exchangeable or exercisable for Common Stock changes
      at
      any time, the Conversion Price in effect at the time of such change shall be
      adjusted to the Conversion Price which would have been in effect at such time
      had such Options or Convertible Securities provided for such changed purchase
      price, additional consideration or changed conversion rate, as the case may
      be,
      at the time initially granted, issued or sold. For purposes of this Section
      2(f)(i)(C), if the terms of any Option or Convertible Security that was
      outstanding as of the date of issuance of the Preferred Shares are changed
      in
      the manner described in the immediately preceding sentence, then such Option
      or
      Convertible Security and the Common Stock deemed issuable upon exercise,
      conversion or exchange thereof shall be deemed to have been issued as of the
      date of such change. No adjustment shall be made if such adjustment would result
      in an increase of the Conversion Price then in effect.

     

    (iv)  Calculation
      of Consideration Received.
      In case
      any Option is issued in connection with the issue or sale of other securities
      of
      the Company, together comprising one integrated transaction in which no specific
      consideration is allocated to such Options by the parties thereto, the Options
      will be deemed to have been issued for a consideration equal to the fair market
      value of such Options. If any Common Stock, Options or Convertible Securities
      are issued or sold or deemed to have been issued or sold for cash, the
      consideration received therefor will be deemed to be the gross amount received
      by the Company therefor. If any Common Stock, Options or Convertible Securities
      are issued or sold for a consideration other than cash, the amount of the
      consideration other than cash received by the Company will be the fair value
      of
      such consideration, except where such consideration consists of marketable
      securities, in which case the amount of consideration received by the Company
      will be the arithmetic average of the Closing Sale Prices of such securities
      during the ten (10) consecutive Trading Days ending on the date of receipt
      of
      such securities. The fair value of any consideration other than cash or
      securities will be determined jointly by the Company and the Required Holders.
      If such parties are unable to reach agreement within ten (10) days after the
      occurrence of an event requiring valuation (the "Valuation
      Event"),
      the
      fair value of such consideration will be determined within five (5) Business
      Days after the tenth (10th)
      day
      following the Valuation Event by an independent, reputable appraiser selected
      by
      the Company and the Required Holders. The determination of such appraiser shall
      be deemed binding upon all parties absent manifest error and the fees and
      expenses of such appraiser shall be borne by the Company.

     

    
      
        
        

      

      
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    (v)  Record
      Date.
      If the
      Company takes a record of the holders of Common Stock for the purpose of
      entitling them (I) to receive a dividend or other distribution payable in Common
      Stock, Options or Convertible Securities or (II) to subscribe for or purchase
      Common Stock, Options or Convertible Securities, then such record date will
      be
      deemed to be the date of the issue or sale of the Common Stock deemed to have
      been issued or sold upon the declaration of such dividend or the making of
      such
      other distribution or the date of the granting of such right of subscription
      or
      purchase, as the case may be.

     

    (b) Adjustment
      of Conversion Price upon Subdivision or Combination of Common
      Stock.
      If the
      Company at any time after the Subscription Date subdivides (by any share split,
      share dividend, recapitalization or otherwise) its outstanding Common Stock
      into
      a greater number of shares, the Conversion Price in effect immediately prior
      to
      such subdivision will be proportionately reduced. If the Company at any time
      after the Subscription Date combines (by combination, reverse share split or
      otherwise) its outstanding Common Stock into a smaller number of shares, the
      Conversion Price in effect immediately prior to such combination will be
      proportionately increased.

     

    (c) Other
      Events.
      If any
      event occurs of the type contemplated by the provisions of this Section 2(f)
      but
      not expressly provided for by such provisions, then the Company's Board of
      Directors will make an appropriate adjustment in the Conversion Price so as
      to
      protect the rights of the Holders; provided that no such adjustment will
      increase the Conversion Price as otherwise determined pursuant to this Section
      2(f).

     

    (d) Notices.

     

    (i) Immediately
      upon any adjustment of the Conversion Price pursuant to this Section 2(f),
      the
      Company will give written notice thereof to each Holder, setting forth in
      reasonable detail, and certifying, the calculation of such adjustment. In the
      case of a dispute as to the determination of such adjustment, then such dispute
      shall be resolved in accordance with the procedures set forth in Section
      2(d)(iii).

     

    
      
        
        

      

      
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    (ii) The
      Company will give written notice to each Holder at least ten (10) Business
      Days
      prior to the date on which the Company closes its books or takes a record (I)
      with respect to any dividend or distribution upon the Common Stock, (II) with
      respect to any pro rata subscription offer to holders of Common Stock or (III)
      for determining rights to vote with respect to any Fundamental Transaction
      or
      Liquidation Event, provided that such information shall be made known to the
      public prior to or in conjunction with such notice being provided to such
      Holder.

     

    (iii) The
      Company will also give written notice to each Holder at least ten (10) Business
      Days prior to the date on which any Fundamental Transaction or Liquidation
      Event
      will take place, provided that such information shall be made known to the
      public prior to or in conjunction with such notice being provided to such
      Holder.

     

    (e) Voluntary
      Adjustment by Company.
      The
      Company may at any time, while any Series D-1 Preferred Shares are outstanding,
      reduce the then current Conversion Price to any amount and for any price deemed
      appropriate by the Board of Directors of the Company.

     

    ARTICLE
      IV.Triggering
      Event.

     

    4.1 Triggering
      Event. A "Triggering
      Event"
      shall be deemed to have occurred at such time as any of the following
      events: 

     

    (a) the
      Company's (A) failure to cure a Conversion Failure by delivery of the required
      number of shares of Common Stock within ten (10) Trading Days after the
      applicable Conversion Date or (B) notice, written or oral, to any Holder,
      including by way of public announcement or through any of its agents, at any
      time, of its intention not to comply, as required, with a request for conversion
      of any Preferred Shares into Common Stock that is tendered in accordance with
      the provisions of this Certificate of Designations; 

     

    (b) the
      Company's failure to pay to the Holder any Dividends, Redemption Price, Change
      of Control Redemption Price, or other amounts when and as due pursuant to this
      Certificate of Designations or any other Transaction Document (as defined in
      the
      Securities Purchase Agreement);

     

    (c) any
      event
      of default occurs with respect to any Indebtedness, including borrowings under
      the Credit and Security Agreement dated as of February 9, 2006 (the
      "Credit
      Agreement")
      with
      Wells Fargo Bank, National Association ("Wells
      Fargo"),
      under
      which the obligee or obligees of such Indebtedness are entitled to and do
      accelerate the maturity of at least an aggregate of $3,000,000 million in
      outstanding Indebtedness; or

     

    
      
        
        

      

      
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    (d) the
      Company breaches any representation, warranty, covenant or other term or
      condition herein or in any Transaction Document; provided, however, that (A)
      in
      the case of a breach of a covenant or other term or condition herein or in
      any
      Transaction Document which is curable, only if such breach remains uncured
      for a
      period of at least ten (10) consecutive Business Days after the expiration
      of
      any applicable cure period and (B) in the case of any representation, warranty
      or covenant which is not already so qualified, the breach of the representation,
      warranty or covenant by the Company could reasonably be expected to have a
      Material Adverse Effect (as defined in the Securities Purchase Agreement) on
      the
      Company or on the Holder.

     

    4.2 Redemption
      Option Upon Triggering Event. In addition to all other rights of the Holders
      contained herein, after a Triggering Event, each Holder shall have the right
      to
      require the Company to redeem all or a portion of the Preferred Shares at a
      price per Preferred Share equal to the greater of (x) the Conversion Amount
      and
      (y) the product of (A) the Conversion Rate in effect at such time as such Holder
      delivers a Notice of Redemption at Option of Holder (as defined below) and
      (B)
      the Closing Sale Price of the Common Shares on the Trading Day immediately
      preceding such Triggering Event (the "Triggering
      Redemption Price").

     

    4.3 Mechanics
      of Redemption at Option of Buyer. 

     

    (a) Within
      one (1) Business Day after the occurrence of a qualifying Triggering Event,
      the
      Company shall deliver written notice thereof via facsimile and overnight courier
      ("Notice
      of Triggering Event")
      to
      each Holder. 

     

    (b) At
      any
      time after the earlier of a Holder's receipt of a Notice of Triggering Event
      and
      such Holder becoming aware of a Triggering Event, any Holder of Preferred Shares
      then outstanding may require the Company to redeem up to all of such Holder's
      Preferred Shares by delivering written notice thereof via facsimile and
      overnight courier ("Notice
      of Redemption at Option of Holder")
      to the
      Company, which Notice of Redemption at Option of Holder shall indicate the
      number of Preferred Shares that such Holder is electing to redeem.

     

    4.4 Payment
      of Redemption Price. Upon the Company's receipt of a Notice(s) of Redemption
      at
      Option of Buyer from any Holder, the Company shall immediately notify each
      Holder by facsimile of the Company's receipt of such notice(s). The Company
      shall deliver on the fifth (5th)
      Business Day after the Company's receipt of the first Notice of Redemption
      at
      Option of Holder the applicable Redemption Price to all Holders that deliver
      a
      Notice of Redemption at Option of Holder prior to the fifth (5th)
      Business Day after the Company's receipt of the first Notice of Redemption
      at
      Option of Holder; provided that, if required by Section 2(d)(vii), a Holder's
      Preferred Share Certificates shall have been delivered to the Transfer Agent.
      To
      the extent redemptions required by this Section 3 are deemed or determined
      by a
      court of competent jurisdiction to be prepayments of the Preferred Shares by
      the
      Company, such redemptions shall be deemed to be voluntary prepayments. If the
      Company is unable to redeem all of the Preferred Shares submitted for
      redemption, the Company shall (i) redeem a pro rata amount from each Holder
      based on the number of Preferred Shares submitted for redemption by such Holder
      relative to the total number of Preferred Shares submitted for redemption by
      all
      Holders and (ii) in addition to any remedy such Holder may have under this
      Certificate of Designation and the Securities Purchase Agreement, pay to each
      Holder interest at the rate of 3.0% per month (prorated for partial months)
      in
      respect of each unredeemed Preferred Share until paid in full. The Holders
      and
      Company agree that in the event of the Company's redemption of any Preferred
      Shares under this Section 3, the Holders' damages would be uncertain and
      difficult to estimate because of the parties' inability to predict future
      interest rates and the uncertainty of the availability of a suitable substitute
      investment opportunity for the Holders. Accordingly, any redemption premium
      due
      under this Section 3 is intended by the parties to be, and shall be deemed,
      a
      reasonable estimate of the Holders' actual loss of its investment opportunity
      and not as a penalty.

     

    
      
        
        

      

      
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    4.5 Void
      Redemption. In the event that the Company does not pay the Redemption Price
      within the time period set forth in Section 3(d), at any time thereafter and
      until the Company pays such unpaid applicable Redemption Price in full, a Holder
      shall have the option to, in lieu of redemption, require the Company to promptly
      return to such Holder any or all of the Preferred Shares that were submitted
      for
      redemption by such Holder under this Section 3 and for which the applicable
      Redemption Price (together with any interest thereon) has not been paid, by
      sending written notice thereof to the Company via facsimile (the "Void
      Optional Redemption Notice").
      Upon the Company's receipt of such Void Optional Redemption Notice, (i) the
      Notice of Redemption at Option of Holder shall be null and void with respect
      to
      those Preferred Shares subject to the Void Optional Redemption Notice, (ii)
      the
      Company shall immediately return any Preferred Shares subject to the Void
      Optional Redemption Notice, and (iii) the Conversion Price of such returned
      Preferred Shares shall be adjusted to the lesser of (A) the Conversion Price
      as
      in effect on the date on which the Void Optional Redemption Notice is delivered
      to the Company and (B) the lowest Weighted Average Price of the Common Shares
      during the period beginning on the date on which the Notice of Redemption at
      Option of Holder is delivered to the Company and ending on the date on which
      the
      Void Optional Redemption Notice is delivered to the Company.

     

    4.6 Disputes;
      Miscellaneous. In the event of a dispute as to the determination of the
      arithmetic calculation of the Redemption Price, such dispute shall be resolved
      pursuant to Section 2(d)(iii) above with the term "Redemption Price" being
      substituted for the term "Conversion Rate". A Holder's delivery of a Void
      Optional Redemption Notice and exercise of its rights following such notice
      shall not effect the Company's obligations to make any payments which have
      accrued prior to the date of such notice. In the event of a redemption pursuant
      to this Section 3 of less than all of the Preferred Shares represented by a
      particular Preferred Share Certificate, the Company shall promptly cause to
      be
      issued and delivered to the Holder of such Preferred Shares a Preferred Share
      Certificate representing the remaining Preferred Shares which have not been
      redeemed, if necessary. 

     

    
      
        
        

      

      
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    ARTICLE
      V.Other
      Rights of Holders.

     

    5.1 Assumption.
      The Company shall not enter into or be party to a Fundamental Transaction unless
      the Successor Entity assumes in writing all of the obligations of the Company
      under this Certificate of Designations and the other Transaction Documents
      in
      accordance with the provisions of this Section 4(a) pursuant to written
      agreements in form and substance satisfactory to the Required Holders and
      approved by the Required Holders prior to such Fundamental Transaction,
      including agreements to deliver to each holder of Preferred Shares in exchange
      for such Preferred Shares a security of the Successor Entity evidenced by a
      written instrument substantially similar in form and substance to this
      Certificate of Designations, including, without limitation, having a stated
      value and dividend rate equal to the Stated Value and Dividend Rate of the
      Preferred Shares held by such holder and having similar ranking to the Preferred
      Shares, and reasonably satisfactory to the Required Holders. Upon the occurrence
      of any Fundamental Transaction, the Successor Entity shall succeed to, and
      be
      substituted for (so that from and after the date of such Fundamental
      Transaction, the provisions of this Certificate of Designations referring to
      the
      "Company" shall refer instead to the Successor Entity), and may exercise every
      right and power of the Company and shall assume all of the obligations of the
      Company under this Certificate of Designations with the same effect as if such
      Successor Entity had been named as the Company herein. Upon consummation of
      the
      Fundamental Transaction, the Successor Entity shall deliver to the Holder
      confirmation that there shall be issued upon conversion or redemption of the
      Preferred Shares at
      any
      time after the consummation of the Fundamental Transaction, in lieu of the
      Common Stock (or
      other
      securities, cash, assets or other property) purchasable
      upon the conversion or redemption of the Preferred Shares prior to such
      Fundamental Transaction,
      such
      publicly traded common shares (or their equivalent) of the Successor Entity,
      as
      adjusted in accordance with the provisions of this Certificate of Designations.
      The
      provisions of this Section shall apply similarly and equally to successive
      Fundamental Transactions and shall be applied without regard to any limitations
      on the conversion or redemption of the Preferred Shares. 

     

    5.2 Purchase
      Rights. If at any time the Company grants, issues or sells any Options,
      Convertible Securities or rights to purchase shares, warrants, securities or
      other property pro rata to the record holders of any class of Common Stock
      (the
      "Purchase
      Rights"),
      then the Holders will be entitled to acquire, upon the terms applicable to
      such
      Purchase Rights, the aggregate Purchase Rights which such Holder could have
      acquired if such Holder had held the number of shares of Common Stock acquirable
      upon complete conversion of the Preferred Shares (without taking into account
      any limitations or restrictions on the convertibility of the Preferred Shares)
      immediately before the date on which a record is taken for the grant, issuance
      or sale of such Purchase Rights, or, if no such record is taken, the date as
      of
      which the record holders of Common Stock are to be determined for the grant,
      issue or sale of such Purchase Rights.

     

    
      
        
        

      

      
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    ARTICLE
      VI.[Reserved].

     

    ARTICLE
      VII.Authorized
      Shares.

     

    7.1 Reservation.
      The Company shall have reserved not less than 25,000,000 of the shares of its
      authorized Common Stock for the conversion of the Preferred Shares and the
      issuance of shares of Common Stock upon exercise of all of the Warrants. The
      Company shall take all action necessary to reserve and keep available out of
      its
      authorized and unissued Common Stock the number of shares required to be
      reserved by the this paragraph (without regard to any limitations on
      conversions) (the "Required
      Amount").
      The
      initial number of shares of Common Stock reserved for conversions of the
      Preferred Shares and each increase in the number of shares so reserved shall
      be
      allocated pro rata among the Holders based on the number of Preferred Shares
      held by each Holder at the time of issuance of the Preferred Shares or increase
      in the number of reserved shares, as the case may be (the "Authorized
      Share Allocation").
      In
      the event a Holder shall sell or otherwise transfer any of such Holder's
      Preferred Shares, each transferee shall be allocated a pro rata portion of
      the
      number of reserved shares of Common Stock reserved for such transferor. Any
      Common Stock reserved and allocated to any Person which ceases to hold any
      Preferred Shares shall be allocated to the remaining Holders of Preferred
      Shares, pro rata based on the number of Preferred Shares then held by such
      Holders.

     

    7.2 Insufficient
      Authorized Shares. After the Capital Increase, if at any time while any of
      the
      Preferred Shares remain outstanding the Company does not have a sufficient
      number of authorized and unissued Common Stock to satisfy its obligation to
      have
      available for issuance upon conversion of the Preferred Shares at least a number
      of shares of Common Stock equal to the Required Amount (an "Authorized
      Share Failure"),
      then the Company shall as promptly as practicable take use reasonable best
      efforts to increase the Company's authorized Common Stock to an amount
      sufficient to allow the Company to have available the Required Amount for the
      Preferred Shares then outstanding.

     

    ARTICLE
      VIII.Voting
      Rights.
      

     

    8.1 General
      Voting. Each Holder shall be entitled to the whole number of votes equal to
      the
      number of shares of Common Stock into which such holder's Preferred Shares
      would
      be convertible on the record date for the vote or consent of stockholders,
      and
      shall otherwise have voting rights and powers equal to the voting rights and
      powers of the Common Stock. Each holder shall be entitled to receive the same
      prior notice of any stockholders' meeting as is provided to the holders of
      Common Stock in accordance with the bylaws of the Company, as well as prior
      notice of all stockholder actions to be taken by legally available means in
      lieu
      of a meeting and shall vote as a class with the holders of Common Stock on
      all
      matters, except those matters required by law or by the terms hereof to be
      submitted to a class vote of the Holders of Preferred Shares, in which case
      the
      Holders of Preferred Shares only shall vote as a separate class.


     

    
      
        
        

      

      
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    8.2 Board
      Size. The authorized number of directors of the Company's Board of Directors
      shall initially be five (5); provided, however, that at any time following
      the
      approval of the Required Holders the authorized number of directors of the
      Company's Board of Directors may be increased or decreased from five (5)
      members. 

     

    8.3 Board
      of
      Directors Election. So long as Tullis-Dickerson Capital Focus III, L.P. (the
      "Investor")
      or an
      affiliate of the Investor continues to hold at least twenty five percent (25%)
      of the cumulative aggregate number of Preferred Shares issued to the Investor
      on
      the Initial Issuance Date, the Investor shall be entitled to elect one (1)
      director to the Board of Directors of the Company (an "Investor
      Designee")
      at
      each annual election of directors; provided, however, that any Investor Designee
      other than Joan P. Neuscheler must be approved by the Company, such approval
      not
      to be unreasonably withheld or delayed. At any meeting held of the purpose
      of
      electing or nominating directors, the presence in person or by proxy of the
      Investor or its designee shall constituted a quorum for the election or
      nomination of the Investor Designee. Any director elected as provided herein
      may
      be removed during the aforesaid term of office, either with or without cause,
      by, and only by, the affirmative vote of the Investor or its designee, given
      either at a special meeting of such stockholders duly called for that purpose
      or
      pursuant to a written consent of stockholders, and any vacancy thereby created
      may be filled by the Investor or its designee represented at the meeting or
      pursuant to written consent of such holders. In case of any vacancy (other
      than
      a vacancy caused by removal) in the office of a director occurring among the
      director elected by the Investor or its designee pursuant hereto, the vacancy
      thereby created may be filled by the Investor or its designee represented at
      a
      special meeting of such stockholders duly called for that purpose or pursuant
      to
      written consent of the Investor or its designee. 

     

    ARTICLE
      IX.Change
      of Control Redemption Right.
      (a) No
      sooner than fifteen (15) days nor later than ten (10) days prior to the
      consummation of a Change of Control, but not prior to the public announcement
      of
      such Change of Control, the Company shall deliver written notice thereof via
      facsimile and overnight courier to the Holders (a "Change
      of Control Notice").
      In
      the event that the Successor Entity is not a publicly traded corporation whose
      common shares are quoted or listed for trading on an Eligible Market, at any
      time during the period (the "Change
      of Control Period")
      beginning after a Holder's receipt of a Change of Control Notice and ending
      on
      the date that is twenty (20) Trading Days after the consummation of such Change
      of Control, such Holder may require the Company to redeem prior to any payment
      on any Junior Shares (as defined below) all or any portion of such Holder's
      Preferred Shares by delivering written notice thereof ("Change
      of Control Redemption Notice")
      to the
      Company, which Change of Control Redemption Notice shall indicate the Conversion
      Amount the Holder is electing to redeem. Any Preferred Shares subject to
      redemption pursuant to this Section 8 shall be redeemed by the Company in cash
      at a price equal to (the "Change
      of Control Redemption Price")
      the
      greater of (i) the Conversion Amount being redeemed and (ii) the product of
      (A)
      the Conversion Amount being redeemed multiplied by (B) the quotient determined
      by dividing (I) the aggregate Change of Control Transaction Consideration (as
      defined below) by (II) the Conversion Price. In the event that any of the Change
      of Control Redemption Price is based on any Non-Cash Consideration (as defined
      below) (a "Non-Cash
      Change of Control"),
      then
      the Holder shall be entitled to indicate in its Change of Control Redemption
      Notice (the "Alternate
      Change of Control Redemption")
      that
      the Change of Control Redemption Price shall be equal to (i) cash in an amount
      equal to 110% of the Conversion Amount being redeemed, (ii) in exchange for
      the
      surrender to the Company of the Change of Control Eligible Dividend Shares
      (as
      defined below), the Change of Control Dividend Share Payment (as defined below)
      (the cash payments under the foregoing clauses (i) and (ii) are referred to
      herein as the "Alternate
      Change of Control Cash Payment")
      and
      (iii) as to the Change of Control Balance Amount (as defined below), the same
      form of consideration per share of Common Stock as that paid upon consummation
      of the Change of Control. The Company shall make payment of the Change of
      Control Redemption Price concurrently with the consummation of such Change
      of
      Control if such a Change of Control Redemption Notice is received prior to
      the
      consummation of such Change of Control and within five (5) Trading Days after
      the Company's receipt of such notice otherwise (the "Change
      of Control Redemption Date").
      To
      the extent redemptions required by this Section 8 are deemed or determined
      by a
      court of competent jurisdiction to be prepayments of the Preferred Shares by
      the
      Company, such redemptions shall be deemed to be voluntary prepayments.
      Notwithstanding anything to the contrary in this Section 8, until the Change
      of
      Control Redemption Price (together with any interest thereon) is paid in full,
      the Conversion Amount submitted for redemption under this Section 8(a) may
      be
      converted, in whole or in part, by the Holder into Common Stock, or in the
      event
      the Conversion Date is after the consummation of the Change of Control, shares
      or equity interests of the Successor Entity substantially equivalent to the
      Company's Common Stock pursuant to Section 2(c)(i). The parties hereto agree
      that in the event of the Company's redemption of any portion of the Preferred
      Shares under this Section 8(a), the Holder's damages would be uncertain and
      difficult to estimate because of the parties' inability to predict future
      interest rates and the uncertainty of the availability of a suitable substitute
      investment opportunity for the Holder. Accordingly, any redemption premium
      due
      under this Section 8(a) is intended by the parties to be, and shall be deemed,
      a
      reasonable estimate of the Holder's actual loss of its investment opportunity
      and not as a penalty. In the event that the Company does not pay the Change
      of
      Control Redemption Price on the Change of Control Redemption Date, then the
      Holder shall have the right to void the redemption pursuant to Section 3(e)
      with
      the term "Change of Control Redemption Price" being substituted for "Redemption
      Price" and "Change of Control Redemption Notice" being substituted for "Notice
      of Redemption at Option of Holder". 

     

    
      
        
        

      

      
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    For
      purposes of this Section 8(a), the following terms shall have the following
      meanings:

    


    "Change
      of Control Balance Amount"
      means a
      number of shares of Common Stock equal to the quotient of (x) the Change of
      Control Cash Balance Amount divided by (y) Change of Control Transaction
      Consideration.

     

    
      
        
        

      

      
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    "Change
      of Control Cash Balance Amount"
      means
      (A) the product of (x) the Change of Control Transaction Consideration and
      (y)
      the sum of (I) the Total Dividend Shares and (II) the number of shares of Common
      Stock then issuable upon conversion of the applicable Conversion Amount at
      then
      applicable Conversion Price minus
      (B) the
      Alternate Change of Control Cash Payment.

    


    "Change
      of Control Dividend Share Payment"
      means a
      cash payment equal to the product of (x) the Change of Control Transaction
      Consideration and (y) the number of Change of Control Eligible Dividend
      Shares.

    


    "Change
      of Control Eligible Dividend Shares"
      means a
      number of shares of Common Stock equal to the quotient of (x) the number of
      Dividend Shares previously issued to the Holder (the "Total
      Dividend Shares")
      and
      (y) the Change of Control Transaction Consideration.

    


    "Change
      of Control Transaction Consideration"
      means
      an amount per share of Common Stock equal to the cash consideration and the
      aggregate cash value of any non-cash consideration ("Non-Cash
      Consideration")
      per
      share of Common Stock to be paid to the holders of Common Stock upon
      consummation of the Change of Control (any such non-cash consideration
      consisting of marketable securities to be valued at the higher of the Closing
      Sale Price of such securities as of the Trading Day immediately prior to or
      the
      Trading Day immediately following the public announcement of such proposed
      Change of Control and any other non-cash consideration to be valued in good
      faith by the Board of Directors of the Company).

    


    Solely
      for purposes of clarification, in the event of a Non-Cash Change of Control
      and
      assuming that (a) the Non-Cash Change of Control occurs on the one year
      anniversary of the Issuance Date, (b) that 10,000 Preferred Shares are
      outstanding (such that the Conversion Amount equals $10,000,000), (c) there
      are
      no accrued but unpaid Dividends at such time, (d) Dividend Shares were issued
      at
      the Conversion Price (such that the 8.25% Dividend Rate for the first year
      yielded 537,880 Dividend Shares issued ($10,000,000 x 8.25%/$1.5338)), (e)
      solely for purposes of this example, compounding is ignored in calculating
      Dividends (if compounding were not ignored, the number of Dividend Shares in
      clause (d) would have been 554,750), (f) the Change of Control Transaction
      Consideration is $3 per share, and (g) the Holder elects to redeem all of its
      Preferred Shares (i.e., 10,000 Preferred Shares) in such Non-Cash Change of
      Control pursuant to the Alternate Change of Control Redemption, then the Change
      of Control Redemption Price shall be equal to:

    


    (i)
      $11,000,000 (the Conversion Amount of $10,000,000 times 110%),

    


    plus

    


    (ii)
      in
      exchange for the surrender to the Company of the Change of Control Eligible
      Dividend Shares, which are 179,293 of the Dividend Shares of the Holder (the
      quotient of (x) the 537,880 Total Dividend Shares previously issued to the
      Holder and (y) the $3 Change of Control Transaction Consideration), $537,880
      (the Change of Control Dividend Share Payment which is the product of (x) the
      $3
      Change of Control Transaction Consideration and (y) the 179,293 Change of
      Control Eligible Dividend Shares),

     

    
      
        
        

      

      
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    plus

    


    (iii)
      the
      same form of consideration per share of Common Stock as that being paid upon
      consummation of the Change of Control as to 3,211,675 shares of Common Stock
      (determined as the quotient of:

    


    (x)
      the
      Change of Control Cash Balance Amount ($9,635,025 (determined as (A) $21,172,905
      (the product of (x) the $3 Change of Control Transaction Consideration and
      (y)
      7,057,635 (the sum of (I) the 537,880 Total Dividend Shares and (II) the
      6,519,755 shares of Common Stock then issuable upon conversion of the
      $10,000,000 Conversion Amount at the Conversion Price of $1.5338)) minus
      (B) the
      $11,537,880 Alternate Change of Control Cash Payment (the sum of (i) $11,000,000
      and $537,880)) 

    


    and

    


    (y)
      the
      $3 Change of Control Transaction Consideration).

    


    9.1 No
      sooner
      than fifteen (15) days nor later than ten (10) days prior to the consummation
      of
      a Rule 13e-3 Transaction, but not prior to the public announcement of such
      Rule
      13e-3 Transaction, the Company shall deliver written notice thereof via
      facsimile and overnight courier to the Holders (a "13e-3
      Notice").
      At
      any time during the period (the "13e-3
      Period")
      beginning after a Holder's receipt of a 13e-3 Notice and ending on the date
      that
      is twenty (20) Trading Days after the consummation of such 13e-3 Transaction,
      such Holder may require the Company to redeem prior to the payment of any Junior
      Shares all or any portion of such Holder's Preferred Shares by delivering
      written notice thereof ("13e-3
      Redemption Notice")
      to the
      Company, which 13e-3 Redemption Notice shall indicate the Conversion Amount
      the
      Holder is electing to redeem. Any Preferred Shares subject to redemption
      pursuant to this Section 8(b) shall be redeemed by the Company in cash at a
      price equal to the greater of (i) 110% of the Conversion Amount being redeemed
      and (ii) the product of (A) the Conversion Amount being redeemed multiplied
      by
      (B) the quotient determined by dividing (I) the arithmetic average of the
      Closing Sale Price over the twenty Trading Day period immediately prior to
      consummation of such Rule 13e-3 Transaction by (II) the Conversion Price (the
      "13e-3
      Redemption Price").
      The
      Company shall made payment of the 13e-3 Redemption Price concurrently with
      the
      consummation of such 13e-3 Transaction if such a 13e-3 Redemption Notice is
      received prior to the consummation of such 13e-3 Transaction and within five
      (5)
      Trading Days after the Company's receipt of such notice otherwise (the
      "13e-3
      Redemption Date").
      To
      the extent redemptions required by this Section 8(b) are deemed or determined
      by
      a court of competent jurisdiction to be prepayments of the Preferred Shares
      by
      the Company, such redemptions shall be deemed to be voluntary prepayments.
      Notwithstanding anything to the contrary in this Section 8(b), until the 13e-3
      Redemption Price (together with any interest thereon) is paid in full, the
      Conversion Amount submitted for redemption under this Section 8(b) may be
      converted, in whole or in part, by the Holder into Common Stock, or in the
      event
      the Conversion Date is after the consummation of the 13e-3 Transaction, shares
      or equity interests of the Successor Entity substantially equivalent to the
      Company's Common Stock pursuant to Section 2(c)(i). The parties hereto agree
      that in the event of the Company's redemption of any portion of the Preferred
      Shares under this Section 8(b), the Holder's damages would be uncertain and
      difficult to estimate because of the parties' inability to predict future
      interest rates and the uncertainty of the availability of a suitable substitute
      investment opportunity for the Holder. Accordingly, any redemption premium
      due
      under this Section 8(b) is intended by the parties to be, and shall be deemed,
      a
      reasonable estimate of the Holder's actual loss of its investment opportunity
      and not as a penalty. In the event that the Company does not pay the 13e-3
      Redemption Price on the 13e-3 Redemption Date, then the Holder shall have the
      right to void the redemption pursuant to Section 3(e) with the term "13e-3
      Redemption Price" being substituted for "Redemption Price" and "13e-3 Redemption
      Notice" being substituted for "Notice of Redemption at Option of Holder".


     

    
      
        
        

      

      
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    ARTICLE
      X.COMPANY'S
      RIGHT OF MANDATORY CONVERSION

     

    10.1 Mandatory
      Conversion. If at any time beginning with the fiscal quarter of the Company
      ending on June 30, 2007, (the "Mandatory
      Conversion Eligibility Date"),
      (i)
      the Company has (A) been Profitable for two (2) consecutive fiscal quarters
      (not
      taking into account any non-cash charges related to the issuance and sale of
      the
      Preferred Shares) (each such quarter, a "Positive
      Quarter")
      and
      (B) filed 25 ANDAs including 12 from a list agreed upon by the Required Holders
      and the Company, and (ii) the Equity Conditions shall have been satisfied or
      waived in writing by the Holder on each day during the period commencing on
      the
      Mandatory Conversion Notice Date and ending on the Mandatory Conversion Date
      (each, as defined below), the Company shall have the right to require the Holder
      to convert up to all of the Conversion Amount into fully paid, validly issued
      and nonassessable shares of Common Stock in accordance with Section 3(c)
      hereof at the Conversion Rate as of the Mandatory Conversion Date (as defined
      below) (a "Mandatory
      Conversion").
      The
      Company may exercise its right to require conversion under this Section 9(a)
      on
      one occasion by delivering within not more than two (2) Trading Days following
      the end of the public announcement of such second consecutive Positive Quarter
      a
      written notice thereof by facsimile and overnight courier to all, but not less
      than all, of the Holders of Preferred Shares and the Transfer Agent (the
"Mandatory
      Conversion Notice"
      and the
      date all of the Holders received such notice by facsimile is referred to as
      the
      "Mandatory
      Conversion Notice Date").
      The
      Mandatory Conversion Notice shall be irrevocable. The Mandatory Conversion
      Notice shall state (i) the Trading Day selected for the Mandatory Conversion
      in
      accordance with Section 9(a), which Trading Day shall be at least twenty (20)
      Business Days but not more than sixty (60) Business Days following the Mandatory
      Conversion Notice Date (the "Mandatory
      Conversion Date"),
      (ii) the number of Preferred Shares of such Holder subject to the Mandatory
      Conversion, (iii) the aggregate Conversion Amount of the Preferred Shares
      subject to Mandatory Conversion from all of the Holders of the Preferred Shares
      pursuant to this Section 9 and (iv) the number of shares of Common Stock to
      be
      issued to such Holder on the Mandatory Conversion Date. Notwithstanding the
      foregoing, the Company may not effect a Mandatory Conversion of any applicable
      Holder under this Section if the number of shares of Common Stock issuable
      upon
      conversion of the Preferred Shares of any Holder subject to a Mandatory
      Conversion would cause such Holder's beneficial ownership of the Common Stock
      to
      exceed the Maximum Percentage as set forth in Section 5.

     

    
      
        
        

      

      
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    10.2 Pro
      Rata Conversion Requirements. 

     

    (a) If
      the
      Company elects to cause a conversion of any Conversion Amount of Preferred
      Shares pursuant to Section
      9(a),
      then it
      must simultaneously take the same action in the same proportion with respect
      to
      all Preferred Shares. 

     

    (b) All
      Conversion Amounts converted by the Holder after the Mandatory Conversion Notice
      Date shall reduce the Conversion Amount required to be converted on the
      Mandatory Conversion Date. If the Company has elected a Mandatory Conversion,
      the mechanics of conversion set forth in Section
      2(d)
      shall
      apply, to the extent applicable, as if the Company and the Transfer Agent had
      received from the Holder on the Mandatory Conversion Date a Conversion Notice
      with respect to the Conversion Amount being converted pursuant to the Mandatory
      Conversion.

     

    ARTICLE
      XI.Liquidation,
      Dissolution, Winding-Up.
      In the
      event of a Liquidation Event, the Holders shall be entitled to receive in cash
      out of the assets of the Company, whether from capital or from earnings
      available for distribution to its stockholders (the "Liquidation
      Funds"),
      before any amount shall be paid to the holders of any of the capital shares
      of
      the Company of any class junior in rank to the Preferred Shares in respect
      of
      the preferences as to distributions and payments on the liquidation, dissolution
      and winding up of the Company ("Junior
      Shares"),
      an
      amount per Preferred Share equal to the Conversion Amount; provided that, if
      the
      Liquidation Funds are insufficient to pay the full amount due to the Holders
      and
      holders of shares of other classes or series of preferred shares of the Company
      that are of equal rank with the Preferred Shares as to payments of Liquidation
      Funds (the "Pari
      Passu Shares"),
      then
      each Holder and Pari Passu Shares shall receive a percentage of the Liquidation
      Funds equal to the full amount of Liquidation Funds payable to such Holder
      as a
      liquidation preference, in accordance with their respective certificate of
      designations (or equivalent), as a percentage of the full amount of Liquidation
      Funds payable to all holders of Preferred Shares and Pari Passu Shares. To
      the
      extent necessary, the Company shall cause such actions to be taken by any of
      its
      Subsidiaries so as to enable, to the maximum extent permitted by law, the
      proceeds of a Liquidation Event to be distributed to the Holders in accordance
      with this Section. All the preferential amounts to be paid to the Holders under
      this Section shall be paid or set apart for payment before the payment or
      setting apart for payment of any amount for, or the distribution of any
      Liquidation Funds of the Company to the holders of shares of other classes
      or
      series of preferred shares of the Company junior in rank to the Preferred Shares
      in connection with a Liquidation Event as to which this Section applies. The
      purchase or redemption by the Company of shares of any class, in any manner
      permitted by law, shall not, for the purposes hereof, be regarded as a
      Liquidation Event.

     

    
      
        
        

      

      
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    ARTICLE
      XII.Preferred
      Rank.
      All
      Common Stock shall be of junior rank to all Preferred Shares with respect to
      the
      preferences as to dividends, distributions and payments upon the liquidation,
      dissolution and winding up of the Company. The rights of the Common Stock shall
      be subject to the preferences and relative rights of the Preferred Shares.
      Without the prior express written consent of the Required Holders, the Company
      shall not hereafter authorize or issue additional or other capital shares that
      is of senior or pari-passu rank to the Preferred Shares in respect of the
      preferences as to distributions and payments upon the liquidation, dissolution
      and winding up of the Company. The Company shall be permitted to issue preferred
      shares that are junior in rank to the Preferred Shares in respect of the
      preferences as to distributions and payments upon the liquidation, dissolution
      and winding up of the Company, provided that the maturity date (or any other
      date requiring redemption or repayment of such preferred shares) of any such
      junior preferred shares are not on or before the date no Preferred Shares are
      outstanding. In the event of the merger or consolidation of the Company with
      or
      into another corporation, the Preferred Shares shall maintain their relative
      powers, designations and preferences provided for herein and no merger shall
      result inconsistent therewith.

     

    ARTICLE
      XIII.Limitation
      on Number of Conversion Shares.
      Notwithstanding anything to the contrary contained herein, the Company shall
      not
      be obligated to issue any shares of Common Stock upon conversion of the
      Preferred Shares or exercise of the Warrants if the issuance of such Common
      Stock would exceed that number of shares of Common Stock which the Company
      may
      issue upon conversion of the Preferred Shares without breaching the Company's
      obligations under the rules or regulations of the Principal Market (the
      "Exchange
      Cap"),
      except that such limitation shall not apply in the event that the Company (a)
      obtains the approval of its stockholders as required by the applicable rules
      of
      the Principal Market (or any successor rule or regulation) for issuances of
      Common Stock in excess of such amount, or (b) obtains a written opinion from
      outside counsel to the Company that such approval is not required, which opinion
      shall be reasonably satisfactory to the Required Holders. Until such approval
      or
      written opinion is obtained, no purchaser of Preferred Shares pursuant to the
      Securities Purchase Agreement (the "Purchasers")
      shall
      be issued, in the aggregate, upon conversion of Preferred Shares or exercise
      of
      the Warrants, Common Stock in an amount greater than the product of (i) the
      Exchange Cap amount multiplied by (ii) a fraction, the numerator of which is
      the
      number of Preferred Shares issued to such Purchaser pursuant to the Securities
      Purchase Agreement on the Initial Issuance Date and the denominator of which
      is
      the aggregate amount of all the Preferred Shares issued to the Purchasers
      pursuant to the Securities Purchase Agreement on the Initial Issuance Date
      (the
      "Exchange
      Cap Allocation").
      In
      the event that any Purchaser shall sell or otherwise transfer any of such
      Purchaser's Preferred Shares, the transferee shall be allocated a pro rata
      portion of such Purchaser's Exchange Cap Allocation. In the event that any
      Holder shall convert all of such Holder's Preferred Shares into a number of
      shares of Common Stock which, in the aggregate, is less than such Holder's
      Exchange Cap Allocation, then the difference between such Holder's Exchange
      Cap
      Allocation and the number of shares of Common Stock actually issued to such
      Holder shall be allocated to the respective Exchange Cap Allocations of the
      remaining Holders on a pro rata basis in proportion to the number of Preferred
      Shares then held by each such Holder.

     

    
      
        
        

      

      
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    ARTICLE
      XIV.Protective
      Provisions.
      So long
      as the Investor holds at least 25% of the Preferred Shares issued on the Initial
      Issuance Date, in addition to any other rights provided by law, except where
      the
      vote or written consent of the holders of a greater number of shares is required
      by law or by another provision of the Certificate of Incorporation, without
      first obtaining the affirmative vote at a meeting duly called for such purpose
      or the written consent without a meeting of the Required Holders, voting
      together as a single class, the Company shall not: 

     

    14.1 amend
      or repeal any provision of, or add any provision to, the Certificate of
      Incorporation or bylaws, or file any certificate of designations or articles
      of
      amendment of any series of preferred shares, if such action would materially
      adversely alter or change the preferences, rights, privileges or powers of,
      or
      restrictions provided for the benefit of the Preferred Shares, regardless of
      whether any such action shall be by means of amendment to the Certificate of
      Incorporation or by merger, consolidation or otherwise; 

     

    14.2 increase
      or decrease (other than by conversion) the authorized number of Preferred
      Shares;

     

    14.3 issue
      any shares of Common Stock, stock appreciation rights, stock options or other
      equity securities to officers, directors or employees of, or consultants (that
      are affiliates of the Company) to, the Company in excess of 2% of the fully
      diluted number of shares of Common Stock on the Initial Issuance
      Date;

     

    14.4 issue
      any shares of Common Stock, stock appreciation rights, stock options or other
      equity securities to independent third parties (e.g., investment banks, investor
      relations firms, consultants that are not affiliates of the Company) in excess
      of 2% of the fully diluted number of shares of Common Stock on the Initial
      Issuance Date;

     

    14.5 pay
      dividends or make any other distribution on the capital stock of the Company
      other than (i) dividends on the Preferred Stock or (ii) solely at such time
      as
      the Company is not in breach under any Transaction Document or under the Credit
      Agreement, the stated dividends on the shares of Series A-1 Preferred
      Stock;

     

    14.6 except
      as permitted herein, purchase, repurchase or redeem any shares of capital stock
      of the Company, excluding shares of Common Stock repurchased from an employee,
      consultant, officer or director pursuant to a restricted stock purchase
      agreement or an equity incentive agreement with employees giving the Company
      the
      right to repurchase shares upon the termination of services;

     

    14.7 effect
      any voluntary liquidation, dissolution or winding up of the
      Company;

     

    14.8 issue
      any Common Stock or any securities convertible into or exchangeable for Common
      Stock at a price per share of Common Stock less than the Purchase Price (as
      defined in the Securities Purchase Agreement) (as adjusted from time to time
      to
      reflect stock slits, stock dividends, subdivisions, combinations, consolidations
      and other similar transactions with respect to the Common Stock); provided,
      however, that if the Company has issued less than 15,000 Preferred Shares
      pursuant to the Securities Purchase Agreement, then the Company, provided it
      has
      complied with its obligations pursuant to Section 4(o) of the Securities
      Purchase Agreement, may 90 or more days after the Subscription Date, issue
      shares of Common Stock in an amount not in excess of the difference between
      the
      aggregate Purchase Price for all Preferred Shares issued in accordance with
      the
      Securities Purchase Agreement and $15,000,000.00;

     

    
      
        
        

      

      
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    14.9 enter
      into or amend any agreement with any stockholder, officer, director, any
      affiliate thereof or any other affiliate of the Company, other than on an arms'
      length basis;

     

    14.10 issue
      any Indebtedness that creates an obligation for the Company to repay in the
      aggregate more than $50 million in principal and interest;

     

    14.11 effect
      any acquisition of an equity interest or rights to acquire equity in any Person
      or assets of any Person, other than (i) a Person in which the Company owns
      a
      minority interest as of the Subscription Date and (ii) acquisitions in which
      the
      sole consideration consists of equity securities of the Company; provided,
      that,
      the value of any equity issued in accordance with clause (i) and (ii) shall
      not
      exceed $5 million in the aggregate; 

     

    14.12 whether
      or not prohibited by the terms of the Preferred Shares, circumvent a right
      of
      the Preferred Shares; or

     

    14.13 agree
      to any of the foregoing.

     

    ARTICLE
      XV.Lost
      or Stolen Certificates.
      Upon
      receipt by the Company of evidence reasonably satisfactory to the Company of
      the
      loss, theft, destruction or mutilation of any Preferred Share Certificates
      representing the Preferred Shares, and, in the case of loss, theft or
      destruction, of an indemnification undertaking by the Holder to the Company
      in
      customary form and, in the case of mutilation, upon surrender and cancellation
      of the Preferred Share Certificate(s), the Company shall execute and deliver
      new
      Preferred Share Certificate(s) of like tenor and date; provided, however, the
      Company shall not be obligated to re-issue Preferred Share Certificates if
      the
      Holder contemporaneously requests the Company to convert such Preferred Shares
      into Common Stock.

     

    ARTICLE
      XVI.Remedies,
      Characterizations, Other Obligations, Breaches and Injunctive
      Relief.
      The
      remedies provided in this Certificate of Designations shall be cumulative and
      in
      addition to all other remedies available under this Certificate of Designations,
      at law or in equity (including a decree of specific performance and/or other
      injunctive relief). No remedy contained herein shall be deemed a waiver of
      compliance with the provisions giving rise to such remedy. Nothing herein shall
      limit a Holder's right to pursue actual damages for any failure by the Company
      to comply with the terms of this Certificate of Designations. The Company
      covenants to each Holder that there shall be no characterization concerning
      this
      instrument other than as expressly provided herein. Amounts set forth or
      provided for herein with respect to payments, conversion and the like (and
      the
      computation thereof) shall be the amounts to be received by the Holder thereof
      and shall not, except as expressly provided herein, be subject to any other
      obligation of the Company (or the performance thereof). The Company acknowledges
      that a breach by it of its obligations hereunder will cause irreparable harm
      to
      the Holders and that the remedy at law for any such breach may be inadequate.
      The Company therefore agrees that, in the event of any such breach or threatened
      breach, the Holders shall be entitled, in addition to all other available
      remedies, to an injunction restraining any breach, without the necessity of
      showing economic loss and without any bond or other security being
      required.

     

    
      
        
        

      

      
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    ARTICLE
      XVII.Construction.
      This
      Certificate of Designations shall be deemed to be jointly drafted by the Company
      and all Holders and shall not be construed against any person as the drafter
      hereof.

     

    ARTICLE
      XVIII.Failure
      or Indulgence Not Waiver.
      No
      failure or delay on the part of a Holder in the exercise of any power, right
      or
      privilege hereunder shall operate as a waiver thereof, nor shall any single
      or
      partial exercise of any such power, right or privilege preclude other or further
      exercise thereof or of any other right, power or privilege.

     

    ARTICLE
      XIX.Notice.
      Whenever notice is required to be given under this Certificate of Designations,
      unless otherwise provided herein, such notice shall be given in accordance
      with
      Section 9(f) of the Securities Purchase Agreement (provided that if the
      Preferred Shares are not held by a Buyer (as defined in the Securities Purchase
      Agreement) then substituting the words "holder of Securities" for the word
      "Buyer").

     

    ARTICLE
      XX.Transfer
      of Preferred Shares.
      A
      Holder may assign some or all of the Preferred Shares and the accompanying
      rights hereunder held by such Holder without the consent of the Company;
      provided that such assignment is in compliance with applicable securities
      laws.

     

    ARTICLE
      XXI.Preferred
      Share Register.
      The
      Company shall maintain at its principal executive offices (or such other office
      or agency of the Company as it may designate by notice to the Holders), a
      register for the Preferred Shares, in which the Company shall record the name
      and address of the Persons in whose name the Preferred Shares have been issued,
      as well as the name and address of each transferee. The Company may treat the
      person in whose name any Preferred Share is registered on the register as the
      owner and holder thereof for all purposes, notwithstanding any notice to the
      contrary, but in all events recognizing any properly made
      transfers.

     

    ARTICLE
      XXII.Stockholder
      Matters.
      Any
      stockholder action, approval or consent required, desired or otherwise sought
      by
      the Company pursuant to the rules and regulations of the Principal Market,
      the
      General Corporation Law of the State of Delaware, this Certificate of
      Designation or otherwise with respect to the issuance of the Preferred Shares
      or
      the Common Stock issuable upon conversion thereof or the issuance of any
      Warrants and the Common Stock issuable upon exercise thereof may be effected
      by
      written consent of the Company's stockholders or at a duly called meeting of
      the
      Company's stockholders, all in accordance with the applicable rules and
      regulations of the Principal Market and the General Corporation Law of the
      State
      of Delaware. This provision is intended to comply with the applicable sections
      of the General Corporation Law of the State of Delaware permitting stockholder
      action, approval and consent affected by written consent in lieu of a
      meeting.

     

    
      
        
        

      

      
        59

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      XXIII.Disclosure.
      Upon
      receipt or delivery by the Company of any notice in accordance with the terms
      of
      this Certificate of Designations, unless the Company has in good faith
      determined that the matters relating to such notice do not constitute material,
      nonpublic information relating to the Company or its Subsidiaries, the Company
      shall within one (1) Business Day after any such receipt or delivery publicly
      disclose such material, nonpublic information on a Current Report on Form 8-K
      or
      otherwise. In the event that the Company believes that a notice contains
      material, nonpublic information relating to the Company or its Subsidiaries,
      the
      Company so shall indicate to the Holders contemporaneously with delivery of
      such
      notice, and in the absence of any such indication, the Holders shall be allowed
      to presume that all matters relating to such notice do not constitute material,
      nonpublic information relating to the Company or its Subsidiaries.

     

    ARTICLE
      XXIV.Redemption
      in Lieu of Sale.
      The
      Company may redeem the Preferred Shares in accordance with Section 4(r) of
      the
      Securities Purchase Agreement.

     

    *
      * * *
      *

     

    
      
        
        

      

      
        60

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF, the Company has caused this Certificate of Designations to
      be
      signed by [NAME], its [OFFICE], as of the ____ day of [_________]

    
      	 	 	
               

            
	 	
              INTERPHARM
                HOLDINGS, INC.

            
	 
 	 
 	
              
 

            
	
            	By:  	
            
	 	
              

              Name: 

              
                

              

              
              

            
	 	
              Title:  

              
                
 

            


    

     

    
      
        
        

      

      
        61

        
          

        

      

      
        
        

      

    


    EXHIBIT
      I

     

    INTERPHARM
      HOLDINGS, INC.
      CONVERSION NOTICE

     

    Reference
      is made to the Certificate of Designations of Series D-1 Convertible Preferred
      Shares (the "Certificate
      of Designations")
      of
      Interpharm Holdings, Inc, a Delaware corporation (the "Company").
      In
      accordance with and pursuant to the Certificate of Designations, the undersigned
      hereby elects to convert the number of shares of Series D-1 Convertible
      Preferred Shares, $0.01 par value per share (the "Preferred
      Shares"),
      of
      the Company, indicated below into Common Stock, par value $0.01 per share (the
      "Common
      Stock"),
      of
      the Company, as of the date specified below.

     

    Date
      of
      Conversion: _______________________________________________________

     

    Number
      of
      Preferred Shares to be converted:
      _____________________________________

     

    Share
      certificate no(s). of Preferred Shares to be converted:
      _________________________

     

    Tax
      ID
      Number (If applicable):
      _______________________________________________

     

    Please
      confirm the following information:
      ______________________________________________

     

    Conversion
      Price: _________________________________________________________

     

    Number
      of
      Common Stock to be issued: ________________________________________

     

    Please
      issue the Common Stock into which the Preferred Shares are being converted
      in
      the following name and to the following address:

     

    Issue
      to:
      _________________________________________

                           
      _________________________________________

     

    Address:
      _________________________________________

     

    Telephone
      Number: ________________________________

     

    Facsimile
      Number: _________________________________

     

    Authorization:
      ____________________________________

     

    By:
      ________________________________

     

    Title:
      _______________________________

     

    Dated:

     

    Account
      Number (if electronic book entry
      transfer):_______________________________

     

    Transaction
      Code Number (if electronic book entry
      transfer):________________________

     

    [NOTE
      TO
      HOLDER -- THIS FORM MUST BE SENT CONCURRENTLY TO TRANSFER AGENT]

     

    
      
        
        

      

      
        62

        
          

        

      

      
        
        

      

    

    


    ACKNOWLEDGMENT

     

    The
      Company hereby acknowledges this Conversion Notice and hereby directs NORTH
      AMERICAN TRANSFER AGENT to issue the above indicated number of shares of Common
      Stock in accordance with the Irrevocable Transfer Agent Instructions dated
      May [
      ], 2006 from the Company with respect to the Series B-1 Preferred Shares and
      dated September [ ] 2006 as to the Series C-1 Preferred Shares as if such
      Transfer Agent Instructions referred to Series D-1 Preferred Shares and
      acknowledged and agreed to by NORTH AMERICAN TRANSFER AGENT.

    
      	 	 	 
	 	
              INTERPHARM
                HOLDINGS, INC.

            
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              

              Name:
                

              
                

              

            
	 	
              Title:

              
                

              

              
              

            
	 	 


    

     

    
      
        
        

      

      
        63

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      D

    


    FORM
      OF WARRANT


    


    FORM
      OF WARRANT

     

    NEITHER
      THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
      OR ANY STATE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
      UNDER THE SECURITIES ACT, AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD,
      TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES
      ACT
      AND UNDER APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN AVAILABLE EXEMPTION
      FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
      THE
      SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. THESE
      SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY BE PLEDGED
      IN
      CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
      SECURITIES. THE COMPANY MAY REQUIRE AN OPINION OF COUNSEL REASONABLY
      SATISFACTORY TO THE COMPANY TO THE EFFECT THAT ANY PROPOSED OFFER, SALE,
      TRANSFER OR OTHER DISPOSITION IS IN COMPLIANCE WITH THE SECURITIES ACT AND
      ANY
      APPLICABLE STATE SECURITIES LAWS.

     

    ANY
      TRANSFEREE OF THIS WARRANT SHOULD CAREFULLY REVIEW THE TERMS OF THE WARRANT,
      INCLUDING SECTION 4(b) HEREOF. THE NUMBER OF COMMON SHARES UNDERLYING THIS
      WARRANT MAY BE LESS THAN THE NUMBER OF COMMON SHARES STATED ON THE FACE HEREOF
      PURSUANT TO SECTION 4(b) HEREOF.

     

    INTERPHARM
      HOLDINGS INC.

     

    WARRANT

     

    
      	
              Warrant
                No. [ ]

            	
              Dated:
                [_________], 2008

            


    

    


    INTERPHARM
      HOLDINGS INC., a Delaware corporation (the “Company”),
      hereby certifies that, for value received, [______________] or its registered
      assigns (the “Holder”),
      is
      entitled to purchase from the Company up to a total of
      [     ]1 
      shares
      of common stock, $0.01 par value per share (the “Common
      Stock”),
      of
      the Company (each such share, a “Warrant
      Share”
and
      all
      such shares, the “Warrant
      Shares”)
      at an
      exercise price equal to $0.95 per share (as adjusted from time to time as
      provided in Section 9,
      the
“Exercise
      Price”),
      at
      any time and from time to time from and after the date hereof and through and
      including the date that is five years from the date of issuance hereof (the
      “Expiration
      Date”),
      and
      subject to the following terms and conditions. This Warrant (this “Warrant”)
      is one
      of a series of similar Warrants issued pursuant to that certain Securities
      Purchase Agreement, dated as of November ___, 2007, by and among the Company
      and
      the Purchasers identified therein (the “Purchase
      Agreement”).
      All
      such Warrants are referred to herein, collectively, as the “Warrants.”

     

    ARTICLE
      XXV.Definitions.
      In
      addition to the terms defined elsewhere in this Warrant, capitalized terms
      that
      are not otherwise defined herein have the meanings given to such terms in the
      Purchase Agreement.

     

    ARTICLE
      XXVI.Registration
      of Warrant.
      The
      Company shall register this Warrant, upon records to be maintained by the
      Company for that purpose (the “Warrant
      Register”),
      in
      the name of the record Holder hereof from time to time. The Company may deem
      and
      treat the registered Holder of this Warrant as the absolute owner hereof for
      the
      purpose of any exercise hereof or any distribution to the Holder, and for all
      other purposes, absent actual notice to the contrary.

     

      
        

      

      
        2 Holder’s
          pro rata share of 1,842,103.

      

       

      
        
          
          

        

        
          64

          
            

          

        

        
          
          

        

      

       

    

    ARTICLE
      XXVII.Registration
      of Transfers.
      The
      Company shall register the transfer of any portion of this Warrant in the
      Warrant Register, upon surrender of this Warrant, with the Form of Assignment
      attached hereto on Annex B
      duly
      completed and signed, to the Company at its address specified herein. Upon
      any
      such registration or transfer, a new warrant to purchase Common Stock, in
      substantially the form of this Warrant (any such new warrant, a “New
      Warrant”),
      evidencing the portion of this Warrant so transferred shall be issued to the
      transferee and a New Warrant evidencing the remaining portion of this Warrant
      not so transferred, if any, shall be issued to the transferring Holder. The
      acceptance of the New Warrant by the transferee thereof shall be deemed the
      acceptance by such transferee of all of the rights and obligations of a holder
      of a Warrant.

     

    ARTICLE
      XXVIII.Exercise
      and Duration of Warrants.

     

    28.1 This
      Warrant shall be exercisable by the registered Holder at any time and from
      time
      to time on or after the date hereof to and including the Expiration Date. At
      6:30 P.M., New York City time on the Expiration Date, the portion of this
      Warrant not exercised prior thereto shall be and become void and of no value;
      provided that, if the average of the Closing Prices for the five Trading Days
      immediately prior to (but not including) the Expiration Date exceeds the
      Exercise Price on the Expiration Date, then this Warrant shall be deemed to
      have
      been exercised in full (to the extent not previously exercised) on a “cashless
      exercise” basis at 6:30 P.M. New York City time on the Expiration Date if a
“cashless exercise” may occur at such time pursuant to Section 10
      below. 

     

    28.2 A
      Holder
      may exercise this Warrant by delivering to the Company (i) an exercise
      notice, in the form attached hereto on Annex A (the “Exercise
      Notice”),
      appropriately completed and duly signed, and (ii) payment of the Exercise
      Price for the number of Warrant Shares as to which this Warrant is being
      exercised (which may take the form of a “cashless exercise” if so indicated in
      the Exercise Notice and if a “cashless exercise” may occur at such time pursuant
      to Section 10 below), and the date such items are delivered to the Company
      (as determined in accordance with the notice provisions hereof) is an
“Exercise
      Date.”
The
      Holder shall not be required to deliver the original Warrant in order to effect
      an exercise hereunder. Execution and delivery of the Exercise Notice shall
      have
      the same effect as cancellation of the original Warrant and issuance of a New
      Warrant evidencing the right to purchase the remaining number of Warrant
      Shares.

     

    ARTICLE
      XXIX.Delivery
      of Warrant Shares.
      

     

    29.1 Upon
      exercise of this Warrant, the Company shall promptly (but in no event later
      than
      five Trading Days after the Exercise Date) issue or cause to be issued and
      cause
      to be delivered to or upon the written order of the Holder and in such name
      or
      names as the Holder may designate, a certificate for the Warrant Shares issuable
      upon such exercise, free of restrictive legends unless a registration statement
      covering the resale of the Warrant Shares and naming the Holder as a selling
      stockholder thereunder is not then effective and the Warrant Shares are not
      freely transferable without volume restrictions pursuant to Rule 144 under
      the 1933 Act. The Holder, or any Person so designated by the Holder to receive
      Warrant Shares, shall be deemed to have become holder of record of such Warrant
      Shares as of the Exercise Date. The Company shall, upon request of the Holder
      and provided a registration statement under the Securities Act providing for
      the
      resale of the Warrant Shares is then in effect, use its reasonable best efforts
      to deliver Warrant Shares hereunder electronically through the Depository Trust
      Corporation or another established clearing corporation performing similar
      functions. 

     

    
      
        
        

      

      
        65

        
          

        

      

      
        
        

      

    

     

    29.2 This
      Warrant is exercisable, either in its entirety or, from time to time, for a
      portion of the number of Warrant Shares. Upon surrender of this Warrant
      following one or more partial exercises, the Company shall issue or cause to
      be
      issued, at its expense, a New Warrant evidencing the right to purchase the
      remaining number of Warrant Shares.

     

    29.3 In
      addition to any other rights available to a Holder, if the Company fails to
      deliver to the Holder a certificate representing Warrant Shares by the fifth
      Trading Day after the date on which delivery of such certificate is required
      by
      this Warrant, and if after such fifth Trading Day the Holder purchases (in
      an
      open market transaction or otherwise) shares of Common Stock to deliver in
      satisfaction of a sale by the Holder of the Warrant Shares that the Holder
      anticipated receiving from the Company (a “Buy-In”),
      then
      the Company shall, within five Trading Days after the Holder’s request and in
      the Holder’s discretion, either (i) pay cash to the Holder in an amount
      equal to the Holder’s total purchase price (including brokerage commissions, if
      any) for the shares of Common Stock so purchased (the “Buy-In
      Price”),
      at
      which point the Company’s obligation to deliver such certificate (and to issue
      such Common Stock) shall terminate, or (ii) promptly honor its obligation
      to deliver to the Holder a certificate or certificates representing such Common
      Stock and pay cash to the Holder in an amount equal to the excess (if any)
      of
      the Buy-In Price over the product of (A) such number of shares of Common
      Stock, times (B) the Closing Price on the date of the event giving rise to
      the Company’s obligation to deliver such certificate.

     

    29.4 The
      Company’s obligations to issue and deliver Warrant Shares in accordance with the
      terms hereof are absolute and unconditional, irrespective of any action or
      inaction by the Holder to enforce the same, any waiver or consent with respect
      to any provision hereof, any setoff, counterclaim, recoupment, limitation or
      termination, or any breach or alleged breach by the Holder or any other Person
      of any obligation to the Company or any violation or alleged violation of law
      by
      the Holder or any other Person, and irrespective of any other circumstance
      which
      might otherwise limit such obligation of the Company to the Holder in connection
      with the issuance of Warrant Shares. Nothing herein shall limit a Holder’s right
      to pursue any other remedies available to it hereunder, at law or in equity
      including, without limitation, a decree of specific performance and/or
      injunctive relief with respect to the Company’s failure to timely deliver
      certificates representing shares of Common Stock upon exercise of the Warrant
      as
      required pursuant to the terms hereof.

     

    ARTICLE
      XXX.Charges,
      Taxes and Expenses.
      Issuance and delivery of certificates for shares of Common Stock upon exercise
      of this Warrant shall be made without charge to the Holder for any issue or
      transfer tax, withholding tax, transfer agent fee or other incidental tax or
      expense in respect of the issuance of such certificates, all of which taxes
      and
      expenses shall be paid by the Company; provided, however, that the Company
      shall
      not be required to pay any tax which may be payable in respect of any transfer
      involved in the registration of any certificates for Warrant Shares or Warrants
      in a name other than that of the Holder or an Affiliate thereof. The Holder
      shall be responsible for all other tax liability that may arise as a result
      of
      holding or transferring this Warrant or receiving Warrant Shares upon exercise
      hereof.

     

    
      
        
        

      

      
        66

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      XXXI.Replacement
      of Warrant.
      If this
      Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or
      cause to be issued in exchange and substitution for and upon cancellation
      hereof, or in lieu of and substitution for this Warrant, a New Warrant, but
      only
      upon receipt of evidence reasonably satisfactory to the Company of such loss,
      theft or destruction and customary and reasonable indemnity, if requested.
      Applicants for a New Warrant under such circumstances shall also comply with
      such other reasonable regulations and procedures and pay such other reasonable
      third-party costs as the Company may prescribe.

     

    ARTICLE
      XXXII.Reservation
      of Warrant Shares.
      The
      Company covenants that it will at all times reserve and keep available out
      of
      the aggregate of its authorized but unissued and otherwise unreserved Common
      Stock, solely for the purpose of enabling it to issue Warrant Shares upon
      exercise of this Warrant as herein provided, the number of Warrant Shares which
      are then issuable and deliverable upon the exercise of this entire Warrant,
      free
      from preemptive rights or any other contingent purchase rights of persons other
      than the Holder (taking into account the adjustments and restrictions of
Section 9).
      The
      Company covenants that all Warrant Shares so issuable and deliverable shall,
      upon issuance and the payment of the applicable Exercise Price in accordance
      with the terms hereof, be duly and validly authorized, issued and fully paid
      and
      nonassessable. The Company will take all such action as may be necessary to
      assure that such shares of Common Stock may be issued as provided herein without
      violation of any applicable law or regulation, or of any requirements of any
      securities exchange or automated quotation system upon which the Common Stock
      may be listed.

     

    ARTICLE
      XXXIII.Certain
      Adjustments.
      The
      Exercise Price and number of Warrant Shares issuable upon exercise of this
      Warrant are subject to adjustment from time to time as set forth in this
Section 9.

     

    33.1 Stock
      Dividends and Splits. If the Company, at any time while this Warrant is
      outstanding, (i) pays a stock dividend on its Common Stock or otherwise
      makes a distribution on any class of capital stock that is payable in shares
      of
      Common Stock (other than regular dividends on the Series A-1 Convertible
      Preferred Stock, Series B-1 Convertible Preferred Stock the Series C-1
      Convertible Preferred Stock, or the Series D-1 Convertible Preferred Stock),
      (ii) subdivides outstanding shares of Common Stock into a larger number of
      shares, or (iii) combines outstanding shares of Common Stock into a smaller
      number of shares, then in each such case the Exercise Price shall be multiplied
      by a fraction of which the numerator shall be the number of shares of Common
      Stock outstanding immediately before such event and of which the denominator
      shall be the number of shares of Common Stock outstanding immediately after
      such
      event. Any adjustment made pursuant to clause (i) of this paragraph shall
      become effective immediately after the record date for the determination of
      stockholders entitled to receive such dividend or distribution, and any
      adjustment pursuant to clause (ii) or (iii) of this paragraph shall
      become effective immediately after the effective date of such subdivision or
      combination.

     

    
      
        
        

      

      
        67

        
          

        

      

      
        
        

      

    

     

    33.2 Pro
      Rata
      Distributions. If the Company, at any time while this Warrant is outstanding,
      distributes to all of its holders of Common Stock (i) evidences of its
      indebtedness, (ii) any security (other than a distribution of Common Stock
      covered by the preceding paragraph), (iii) rights or warrants to subscribe
      for or purchase any security, or (iv) any other asset (in each case,
“Distributed
      Property”),
      then
      in each such case the Exercise Price in effect immediately prior to the record
      date fixed for determination of stockholders entitled to receive such
      distribution shall be adjusted (effective on such record date) to equal the
      product of such Exercise Price times a fraction of which the denominator shall
      be the average of the Closing Prices for the five Trading Days immediately
      prior
      to (but not including) such record date and of which the numerator shall be
      such
      average less the then fair market value of the Distributed Property distributed
      in respect of one outstanding share of Common Stock, as determined by the a
      nationally recognized accounting or investment banking firm selected by the
      Company (an “Appraiser”).
      In
      such event, the Holder, after receipt of the determination by the Appraiser,
      shall have the right to select an additional appraiser (which shall be a
      nationally recognized accounting or investment banking firm), in which case
      such
      fair market value shall be deemed to equal the average of the values determined
      by each of the Appraiser and such appraiser. As an alternative to the foregoing
      adjustment to the Exercise Price and number of Warrant Shares obtainable upon
      exercise of the Warrant determined pursuant to Section 9(e) below, at the
      request of the Holder delivered before the 90th day after such record date,
      the
      Company will deliver to such Holder, within five Trading Days after such request
      (or, if later, on the effective date of such distribution), the Distributed
      Property that such Holder would have been entitled to receive in respect of
      the
      Warrant Shares for which this Warrant could have been exercised immediately
      prior to such record date. If such Distributed Property is not delivered to
      a
      Holder pursuant to the preceding sentence, then upon expiration of or any
      exercise of the Warrant that occurs after such record date, such Holder shall
      remain entitled to receive, in addition to the Warrant Shares otherwise issuable
      upon such exercise (if applicable), such Distributed Property.

     

    33.3 Fundamental
      Transactions. If at any time while this Warrant is outstanding, (i) the
      Company effects any merger or consolidation of the Company with or into another
      Person, (ii) the Company effects any sale of all or substantially all of
      its assets in one or a series of related transactions, (iii) any tender
      offer or exchange offer (whether by the Company or another Person) is completed
      pursuant to which holders of Common Stock are permitted to tender or exchange
      their shares for other securities, cash or property, or (iv) the Company
      effects any reclassification of the Common Stock or any compulsory share
      exchange, pursuant to which the Common Stock is effectively converted into
      or
      exchanged for other securities, cash or property (other than as a result of
      a
      subdivision or combination of shares of Common Stock covered by
      Section 9(a) above) (in any such case, a “Fundamental
      Transaction”),
      then
      the Holder shall have the right thereafter to receive, upon exercise of this
      Warrant, the same amount and kind of securities, cash or property as it would
      have been entitled to receive upon the occurrence of such Fundamental
      Transaction if it had been, immediately prior to such Fundamental Transaction,
      the holder of the number of Warrant Shares then issuable upon exercise in full
      of this Warrant (the “Alternate
      Consideration”).
      The aggregate Exercise Price for this Warrant will not be affected by any such
      Fundamental Transaction, but the Company shall apportion such aggregate Exercise
      Price among the Alternate Consideration in a reasonable manner reflecting the
      relative value of any different components of the Alternate Consideration.
      If
      holders of Common Stock are given any choice as to the securities, cash or
      property to be received in a Fundamental Transaction, then the Holder shall
      be
      given the same choice as to the Alternate Consideration it receives upon any
      exercise of this Warrant following such Fundamental Transaction. In the event
      of
      a Fundamental Transaction, the Company or the successor or purchasing Person,
      as
      the case may be, shall execute with the Holder a written agreement providing
      that:

     

    (A)
      this
      Warrant shall thereafter entitle the Holder to purchase the Alternate
      Consideration in accordance with this Section 9(c),
      

     

    
      
        
        

      

      
        68

        
          

        

      

      
        
        

      

    

     

    (B)
      in
      the case of any such successor or purchasing Person, upon such consolidation,
      merger, statutory exchange, combination, sale or conveyance such successor
      or
      purchasing Person shall be jointly and severally liable with the Company for
      the
      performance of all of the Company’s obligations under this Warrant and the
      Purchase Agreement, and 

     

    (C)
      if
      registration or qualification is required under the 1933 Act, the 1934 Act
      or
      applicable state law for the public resale by the Holder of shares of stock
      and
      other securities so issuable upon exercise of this Warrant, such registration
      or
      qualification shall be completed prior to such reclassification, change,
      consolidation, merger, statutory exchange, combination or sale. 

     

    If,
      in
      the case of any Fundamental Transaction, the Alternate Consideration includes
      shares of stock, other securities, other property or assets of a Person other
      than the Company or any such successor or purchasing Person, as the case may
      be,
      in such Fundamental Transaction, then such written agreement shall also be
      executed by such other Person and shall contain such additional provisions
      to
      protect the interests of the Holder as the Board of Directors of the Company
      shall reasonably consider necessary by reason of the foregoing. At the Holder’s
      request, any successor to the Company or surviving entity in such Fundamental
      Transaction shall issue to the Holder a new warrant consistent with the
      foregoing provisions and evidencing the Holder’s right to purchase the Alternate
      Consideration for the aggregate Exercise Price upon exercise thereof. The terms
      of any agreement pursuant to which a Fundamental Transaction is effected shall
      include terms requiring any such successor or surviving entity to comply with
      the provisions of this Section
      9(c)
      and
      insuring that the Warrant (or any such replacement security) will be similarly
      adjusted upon any subsequent transaction analogous to a Fundamental Transaction.
      If any Fundamental Transaction constitutes or results in a “Rule 13e-3
      transaction” as defined in Rule 13e-3 under the 1934 Act with respect to
      the Company in which the consideration issued consists principally of cash
      or
      stock in a non-public company, then at the request of the Holder delivered
      before the 90th day after such Fundamental Transaction, the Company (or any
      such
      successor or surviving entity) will purchase the Warrant from the Holder for
      a
      purchase price, payable in cash within five Trading Days after such request
      (or,
      if later, on the effective date of the Fundamental Transaction), equal to the
      Black-Scholes value of the remaining unexercised portion of this Warrant on
      the
      date of such request.

     

    33.4 Antidilution
      Adjustment of Conversion Price upon Issuance of Common Stock. If
      at any
      time this Warrant is outstanding, the Company issues or sells, or in accordance
      with this Section 9(d) is deemed to have issued or sold, any shares of Common
      Stock, with the exception of Excluded Stock, for a consideration per share
      (the
“New
      Securities Issuance Price”)
      less
      than the Exercise Price in effect immediately prior to such time (each such
      sale
      or issuance, a “Dilutive
      Issuance”),
      then concurrent with such Dilutive Issuance, the Exercise Price then in effect
      shall be reduced to an amount equal to ninety percent (90%) of the New
      Securities Issuance Price. 

     

    For
      purposes of determining the adjusted Conversion Price under this Section
      10(d),
      the
      following shall be applicable:

     

    (a) Issuance
      of Options.
      If the
      Company in any manner grants or sells any Options (other than Excluded Stock)
      and the lowest price per share for which one share of Common Stock is issuable
      upon the exercise of any such Option or upon conversion, exchange or exercise
      of
      any Convertible Securities issuable upon exercise of such Option is less than
      the Conversion
      Price in effect immediately prior to such Dilutive Issuance,
      then
      such share of Common Stock shall be deemed to be outstanding and to have been
      issued and sold by the Company at the time of the granting or sale of such
      Option for such price per share. For purposes of this Section
      9(d)(i),
      the
“lowest price per share for which one share of Common Stock is issuable upon
      the
      exercise of any such Option or upon conversion, exchange or exercise of any
      Convertible Securities issuable upon exercise of such Option” shall be equal to
      the sum of the lowest amounts of consideration (if any) received or receivable
      by the Company with respect to any one share of Common Stock upon granting
      or
      sale of the Option, upon exercise of the Option and upon conversion, exchange
      or
      exercise of any Convertible Security issuable upon exercise of such Option.
      No
      further adjustment of the Conversion Price shall be made upon the actual
      issuance of such Common Stock or of such Convertible Securities upon the
      exercise of such Options or upon the actual issuance of such Common Stock upon
      conversion, exchange or exercise of such Convertible Securities.

     

    
      
        
        

      

      
        69

        
          

        

      

      
        
        

      

    

     

    (b) Issuance
      of Convertible Securities.
      If the
      Company in any manner issues or sells any Convertible Securities (other than
      Excluded Stock) and the lowest price per share for which one share of Common
      Stock is issuable upon such conversion, exchange or exercise thereof is less
      than the Exercise
      Price in effect immediately prior to such Dilutive Issuance,
      then
      such share of Common Stock shall be deemed to be outstanding and to have been
      issued and sold by the Company at the time of the issuance of sale of such
      Convertible Securities for such price per share. For the purposes of this
Section
      9(d)(ii),
      the
“lowest price per share for which one share of Common Stock is issuable upon
      such conversion, exchange or exercise” shall be equal to the sum of the lowest
      amounts of consideration (if any) received or receivable by the Company with
      respect to any one share of Common Stock upon the issuance or sale of the
      Convertible Security and upon the conversion, exchange or exercise of such
      Convertible Security. No further adjustment of the Conversion Price shall be
      made upon the actual issuance of such Common Stock upon conversion, exchange
      or
      exercise of such Convertible Securities, and if any such issue or sale of such
      Convertible Securities is made upon exercise of any Options for which adjustment
      of the Conversion Price had been or is to be made pursuant to other provisions
      of this Section
      9(d),
      no
      further adjustment of the Conversion Price shall be made by reason of such
      issue
      or sale.

     

    (c) Change
      in Option Price or Rate of Conversion.
      If the
      purchase or exercise price provided for in any Options, the additional
      consideration, if any, payable upon the issue, conversion, exchange or exercise
      of any Convertible Securities, or the rate at which any Convertible Securities
      are convertible into or exchangeable or exercisable for Common Stock changes
      at
      any time (other than Excluded Stock), the Exercise Price in effect at the time
      of such change shall be adjusted to the Exercise Price which would have been
      in
      effect at such time had such Options or Convertible Securities provided for
      such
      changed purchase price, additional consideration or changed conversion rate,
      as
      the case may be, at the time initially granted, issued or sold. For purposes
      of
      this Section
      9(d)(iii),
      if the
      terms of any Option or Convertible Security that was outstanding as of the
      Initial Closing Date are changed in the manner described in the immediately
      preceding sentence, then such Option or Convertible Security and the Common
      Stock deemed issuable upon exercise, conversion or exchange thereof shall be
      deemed to have been issued as of the date of such change. On the expiration
      of
      any Option or Convertible Security not exercised, the applicable Exercise Price
      then in effect shall forthwith be increased to the Exercise Price that would
      have been in effect at the time of such expiration had such Stock Purchase
      Rights or Convertible Securities never been issued. No adjustment shall be
      made
      if such adjustment would increase the applicable Exercise Price by an amount
      in
      excess of the adjustment originally made to the Exercise Price in respect of
      the
      issue, sale or grant of the applicable Option or Convertible Security.
      Notwithstanding anything to the contrary herein, in no event shall an adjustment
      to the Exercise Price be made retroactively with respect to any portion of
      the
      Warrant which has been exercised prior to the actual date of the dilutive
      issuance or change. In addition, to clarify for purposes of this Section
      9(d),
      if an
      Option or Convertible Security has a price reset or similar provision that
      would
      cause the price to adjust based on a future event or contingency, then the
      “lowest price per share for which one share of Common Stock is issuable upon
      the
      exercise of any such Option or upon conversion, exchange or exercise of any
      Convertible Securities issuable upon exercise of such Option” shall not become
      such adjusted price unless and until the happening of such event or contingency
      that actually gives effect to the adjustment.

     

    
      
        
        

      

      
        70

        
          

        

      

      
        
        

      

    

     

    (d) Calculation
      of Consideration Received.
      In case
      any Option is issued in connection with the issue or sale of other securities
      of
      the Company, together comprising one integrated transaction in which no specific
      consideration is allocated to such Options by the parties thereto, then solely
      for purposes of this Section
      9(d),
      the
      Options will be deemed to have been issued for a consideration equal to the
      exercise price of such Option. If any Common Stock, Options or Convertible
      Securities are issued or sold or deemed to have been issued or sold for cash,
      the consideration received therefor will be deemed to be the gross amount
      received by the Company therefor. If any Common Stock, Options or Convertible
      Securities are issued or sold for a consideration other than cash, the amount
      of
      the consideration other than cash received by the Company will be the fair
      value
      of such consideration, except where such consideration consists of marketable
      securities, in which case the amount of consideration received by the Company
      will be the arithmetic average of the closing price of such securities during
      the ten (10) consecutive Trading Days ending on the date of receipt of such
      securities. The fair value of any consideration other than cash or securities
      will be determined jointly by the Company and Required Holders in good faith.
      If
      such parties are unable to reach agreement within ten (10) days after the
      occurrence of an event requiring valuation (the “Valuation
      Event”),
      the
      fair value of such consideration will be determined within five Business Days
      after the tenth (10th) day following the Valuation Event by an independent,
      reputable appraiser selected by the Company and the Required Holders. The
      determination of such appraiser shall be deemed binding upon all parties absent
      manifest error and the fees and expenses of such appraiser shall be borne
      equally by the Company and the Required Holders.

     

    33.5 Number
      of Warrant Shares. Simultaneously with any adjustment to the Exercise Price
      pursuant to paragraphs (a), (b) or (d) of this Section, the
      number of Warrant Shares that may be purchased upon exercise of this Warrant
      shall be increased or decreased proportionately, so that after such adjustment
      the aggregate Exercise Price payable hereunder for the increased or decreased
      number of Warrant Shares shall be the same as the aggregate Exercise Price
      in
      effect immediately prior to such adjustment.

     

    33.6 Calculations.
      All calculations under this Section 9 shall be made to the nearest cent or
      the nearest 1/100th of a share, as applicable. The number of shares of Common
      Stock outstanding at any given time shall not include shares owned or held
      by or
      for the account of the Company, and the disposition of any such shares shall
      be
      considered an issue or sale of Common Stock.

     

    
      
        
        

      

      
        71

        
          

        

      

      
        
        

      

    

     

    33.7 Notice
      of Adjustments. Upon the occurrence of each adjustment pursuant to this
      Section 9, the Company at its expense will promptly, but in any event no
      later than 10 Trading Days after such occurrence compute such adjustment in
      accordance with the terms of this Warrant and prepare a certificate setting
      forth such adjustment, including a statement of the adjusted Exercise Price
      and
      adjusted number or type of Warrant Shares or other securities issuable upon
      exercise of this Warrant (as applicable), describing the transactions giving
      rise to such adjustments and showing in detail the facts upon which such
      adjustment is based. Upon written request, the Company will promptly deliver
      a
      copy of each such certificate to the Holder and to the Company’s Transfer
      Agent.

     

    33.8 Notice
      of Corporate Events. If the Company (i) declares a dividend or any other
      distribution of cash, securities or other property in respect of its Common
      Stock, including without limitation any granting of rights or warrants to
      subscribe for or purchase any capital stock of the Company or any Subsidiary,
      (ii) authorizes or approves, enters into any agreement contemplating or
      solicits stockholder approval for any Fundamental Transaction or
      (iii) authorizes the voluntary dissolution, liquidation or winding up of
      the affairs of the Company, then the Company shall deliver to the Holder a
      notice describing the material terms and conditions of such transaction, at
      least 20 calendar days prior to the applicable record or effective date on
      which
      a Person would need to hold Common Stock in order to participate in or vote
      with
      respect to such transaction, and the Company will take all steps reasonably
      necessary in order to insure that the Holder is given the practical opportunity
      to exercise this Warrant prior to such time so as to participate in or vote
      with
      respect to such transaction; provided, however, that the failure to deliver
      such
      notice or any defect therein shall not affect the validity of the corporate
      action required to be described in such notice. 

     

    ARTICLE
      XXXIV.Payment
      of Exercise Price.
      The
      Holder shall pay the Exercise Price in immediately available funds; provided,
      however,
      that if
      the Registration Statement did not become effective on or before the Required
      Effectiveness Date (as defined in the Registration Rights Agreement) and is
      not
      continuously effective through the Expiration Date, the Holder may satisfy
      its
      obligation to pay the Exercise Price through a “cashless exercise,” in which
      event the Company shall issue to the Holder the number of Warrant Shares
      determined as follows:

     

    
      	 	
              X
                =
                Y [(A-B)/A]

            
	
              where:

            	 
	 	
              X
                =
                the number of Warrant Shares to be issued to the
                Holder.

            
	 	 
	 	
              Y
                =
                the number of Warrant Shares with respect to which this Warrant is
                being
                exercised.

            
	 	 
	 	
              A
                =
                the arithmetic average of the Closing Prices for the five Trading
                Days
                immediately prior to (but not including) the Exercise
                Date.

            
	 	 
	 	
              B
                =
                the Exercise Price.

            


    

    


    
      
        
        

      

      
        72

        
          

        

      

      
        
        

      

    

     

    For
      purposes of Rule 144 promulgated under the 1933 Act, it is intended,
      understood and acknowledged that the Warrant Shares issued in a cashless
      exercise transaction shall be deemed to have been acquired by the Holder, and
      the holding period for the Warrant Shares shall be deemed to have commenced,
      on
      the date this Warrant was originally issued pursuant to the Purchase
      Agreement.

     

    ARTICLE
      XXXV.Intentionally
      Blank.

     

    ARTICLE
      XXXVI.Fractional
      Shares.
      The
      Company shall not be required to issue or cause to be issued fractional Warrant
      Shares on the exercise of this Warrant. If any fraction of a Warrant Share
      would, except for the provisions of this Section,
      be
      issuable upon exercise of this Warrant, the number of Warrant Shares to be
      issued will be rounded up to the nearest whole share.

     

    ARTICLE
      XXXVII.Notices.
      Any and
      all notices or other communications or deliveries hereunder (including without
      limitation any Exercise Notice) shall be in writing and shall be deemed given
      and effective on the earliest of (i) the date of transmission, if such
      notice or communication is delivered via facsimile at the facsimile number
      specified in this Section
      prior to
      6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day
      after the date of transmission, if such notice or communication is delivered
      via
      facsimile at the facsimile number specified in this Section
      on a day
      that is not a Trading Day or later than 6:30 p.m. (New York City time) on any
      Trading Day, (iii) the Trading Day following the date of mailing, if sent
      by nationally recognized overnight courier service, or (iv) upon actual
      receipt by the party to whom such notice is required to be given. The address
      for such notices or communications shall be as set forth in the Purchase
      Agreement. The addresses for such communications shall be: (i) if to the
      Company, as set forth in the Purchase Agreement, or (ii) if to the Holder,
      to
      the address or facsimile number appearing on the Company’s Warrant Register or
      such other address or facsimile number as the Holder may provide to the Company
      in accordance with this Section 13.

     

    ARTICLE
      XXXVIII.Warrant
      Agent.
      The
      Company shall serve as warrant agent under this Warrant. Upon 30 days’
notice to the Holder, the Company may appoint a new warrant agent. Any
      corporation into which the Company or any new warrant agent may be merged or
      any
      corporation resulting from any consolidation to which the Company or any new
      warrant agent shall be a party or any corporation to which the Company or any
      new warrant agent transfers substantially all of its corporate trust or
      stockholders services business shall be a successor warrant agent under this
      Warrant without any further act. Any such successor warrant agent shall promptly
      cause notice of its succession as warrant agent to be mailed (by first class
      mail, postage prepaid) to the Holder at the Holder’s last address as shown on
      the Warrant Register.

     

    
      
        
        

      

      
        73

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      XXXIX.Miscellaneous.

     

    39.1 This
      Warrant shall be binding on and inure to the benefit of the parties hereto
      and
      their respective successors and permitted assigns. The Borrowers shall not
      be
      permitted to assign this Note.

     

    39.2 The
      Company will not, by amendment of its governing documents or through any
      reorganization, transfer of assets, consolidation, merger, dissolution, issue
      or
      sale of securities or any other voluntary action, avoid or seek to avoid the
      observance or performance of any of the terms of this Warrant, but will at
      all
      times in good faith assist in the carrying out of all such terms and in the
      taking of all such action as may be necessary or appropriate in order to protect
      the rights of the Holder against impairment. Without limiting the generality
      of
      the foregoing, the Company (i) will not increase the par value of any
      Warrant Shares above the amount payable therefor on such exercise,
      (ii) will take all such action as may be reasonably necessary or
      appropriate in order that the Company may validly and legally issue fully paid
      and nonassessable Warrant Shares on the exercise of this Warrant, and
      (iii) will not close its stockholder books or records in any manner which
      unreasonably interferes with the timely exercise of this
      Warrant.

     

    39.3 GOVERNING
      LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
      VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED
      BY
      AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
      YORK.
      EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE
      NON-EXCLUSIVE
      JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK,
      BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
      CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED
      HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION
      DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY
      SUIT,
      ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
      JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS
      IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS
      AND
      CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
      MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY
      (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES
      TO IT UNDER THIS WARRANT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD
      AND
      SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN
      SHALL
      BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED
      BY LAW. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY
      JURY.

     

    39.4 The
      headings herein are for convenience only, do not constitute a part of this
      Warrant and shall not be deemed to limit or affect any of the provisions
      hereof.

     

    
      
        
        

      

      
        74

        
          

        

      

      
        
        

      

    

     

    39.5 In
      case any one or more of the provisions of this Warrant shall be invalid or
      unenforceable in any respect, the validity and enforceability of the remaining
      terms and provisions of this Warrant shall not in any way be affected or
      impaired thereby and the parties will attempt in good faith to agree upon a
      valid and enforceable provision which shall be a commercially reasonable
      substitute therefor, and upon so agreeing, shall incorporate such substitute
      provision in this Warrant.

     

    [Signature
      Page Follows]

     

    
      
        
        

      

      
        75

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
      its
      authorized officer as of the date first indicated above.

     

    
      	 	 	 
	 	
              INTERPHARM
                HOLDINGS INC.

            
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              

              Name:  

              
                

              

            
	 	
              Title:

              
                

              

              
              

            


    

     

    
      
        
        

      

      
        76

        
          

        

      

      
        
        

      

    

     

    Annex A

     

    FORM
      OF EXERCISE NOTICE

     

    (To
      be
      executed by the Holder to exercise the right to purchase shares of Common Stock
      under the foregoing Warrant)

     

    To:
      INTERPHARM HOLDINGS INC.

     

    The
      undersigned is the Holder of Warrant No. _______ (the “Warrant”)
      issued
      by Interpharm Holdings Inc., a Delaware corporation (the “Corporation”).
      Capitalized terms used herein and not otherwise defined have the respective
      meanings set forth in the Warrant.

     

    (a) The
      Warrant is currently exercisable to purchase a total of ______________ Warrant
      Shares.

     

    (b) The
      undersigned Holder hereby exercises its right to purchase _________________
      Warrant Shares pursuant to the Warrant.

     

    (c) The
      Holder intends that payment of the Exercise Price shall be made as (check
      one):

     

    ____
      “Cash Exercise” 

     

    ____
      “Cashless Exercise” (if permitted)

     

    (d) If
      the
      holder has elected a Cash Exercise, the holder shall pay the sum of
      $____________ to the Company in accordance with the terms of the
      Warrant.

     

    (e) Pursuant
      to this exercise, the Company shall deliver to the holder _______________
      Warrant Shares in accordance with the terms of the Warrant.

    
      	 	 	 
	
              Dated:
                _______________, ______

            	
              Name
                of Holder:

               

              
                (Print)
                  _____________________________

              

            
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              
                

              

              Name:

              
                

              

            
	 	
              Title:

              
                

              

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    ACKNOWLEDGEMENT

     

    The
      Corporation hereby acknowledges this Exercise Notice and hereby directs
      [transfer agent] to issue the above indicated number of shares of Common Stock
      in accordance with the Transfer Agent Instructions dated November [__], 2007
      from the Corporation and acknowledged and agreed to by [transfer
      agent].

    
      
        	 	 	 
	 	
                
                  INTERPHARM
                    HOLDINGS INC.

                

              
	 
 	 
 	 
 
	
              	By:  	
              
	 	
                
                  

                

                Name:

                
                  

                

              
	 	
                Title:

                
                  

                

              


      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    Annex B

     

    FORM
      OF
      ASSIGNMENT

     

    [To
      be
      completed and signed only upon transfer of Warrant]

     

    FOR
      VALUE
      RECEIVED, the undersigned hereby sells, assigns and transfers unto
      ________________________________ the right represented by the within Warrant
      to
      purchase ____________ shares of Common Stock of Interpharm Holdings Inc. to
      which the within Warrant relates and appoints ________________ attorney to
      transfer said right on the books of Interpharm Holdings Inc. with full power
      of
      substitution in the premises.

    
      	 	 	 
	
              Dated:
                _______________, ______

            	
              
              

            
	 
 	 
 	
               

               

              
                

              

              
                (Signature
                  must conform in all respects to name of 

                holder
                  as specified on the face of the Warrant) 

              

            
	 	 	 
	
            	
            	
            
	 	 	
              
 Address
              of Transferee
	 	
            	 
	 	 	
              
                
 

                

              

            
	 	 	 
	
              In
                the presence of: