Unassociated Document


    


     

    
      

      

    

     

     

    NOTE
      AND
      WARRANT PURCHASE AGREEMENT

     

    by
      and
      among

     

    DrugMax,
      Inc.,
      as
      Issuer and Seller,

     

    and

     

    Deerfield
      Special Situations Fund, L.P. 

     

    and

     

    Deerfield
      Special Situations Fund International, Limited, as Purchasers

     

    June
      23,
      2006

     

     

    
      

      

    

     

    
      
        
        

      

      
        
        

        
        

      

      
        
        

      

    


    Table
      of Exhibits and Schedules

     

    
      	 	 
	
              Exhibit
                A-1

            	
              Form
                of Deerfield L.P. Note

            
	
              Exhibit
                A-2

            	
              Form
                of Deerfield International Note

            
	
              Exhibit
                B-1

            	
              Form
                of Deerfield L.P. Series A Warrant

            
	
              Exhibit
                B-2

            	
              Form
                of Deerfield International Series A Warrant

            
	
              Exhibit
                B-3

            	
              Form
                of Deerfield L.P. Series B Warrant

            
	
              Exhibit
                B-4

            	
              Form
                of Deerfield International Series B Warrant

            
	
              Exhibit
                B-5

            	
              Form
                of Deerfield L.P. Series C Warrant

            
	
              Exhibit
                B-6

            	
              Form
                of Deerfield International Series C Warrant

            
	
              Exhibit
                B-7

            	
              Form
                of Deerfield L.P. Series D Warrant

            
	
              Exhibit
                B-8

            	
              Form
                of Deerfield International Series D Warrant

            
	
              Exhibit
                C

            	
              Form
                of Investor Rights Agreement

            
	
              Exhibit
                D

            	
              Form
                of Security Agreement

            
	
              Exhibit
                E

            	
              Form
                of Opinion of Seller’s Counsel

            
	
              Schedule
                1.1

            	
              Notes
                and Warrants

            
	
              Schedule
                3.5

            	
              Non-Contravention

            
	
              Schedule
                3.10

            	
              Litigation

            
	
              Schedule
                3.11(a)

            	
              Absence
                of Certain Changes

            
	
              Schedule
                3.11(b)

            	
              Absence
                of Certain Changes

            
	
              Schedule
                3.11(c)

            	
              Absence
                of Certain Changes

            
	
              Schedule
                3.11(d)

            	
              Absence
                of Certain Changes

            
	
              Schedule
                3.11(e)

            	
              Absence
                of Certain Changes

            
	
              Schedule
                3.11(f)

            	
              Absence
                of Certain Changes

            
	
              Schedule
                3.11(g)

            	
              Absence
                of Certain Changes

            
	
              Schedule
                3.15

            	
              Intellectual
                Property

            
	
              Schedule
                3.17

            	
              Preemptive
                Rights

            
	
              Schedule
                3.19

            	
              Subsidiaries
                and Investments

            
	
              Schedule
                3.20

            	
              Capitalization

            
	
              Schedule
                3.22

            	
              Employees,
                Employment Agreements and Employee Benefit Plans

            
	
              Schedule
                3.28

            	
              Brokers

            
	
              Schedule
                5.12(a)

            	
              Limitation
                on Debt

            
	
              Schedule
                5.12(b)

            	
              Limitation
                on Liens

            


    

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    



    NOTE
      AND
      WARRANT PURCHASE AGREEMENT (the “Agreement”)
      dated
      as of June 23, 2006, by and among DrugMax, Inc., a Nevada corporation (the
      “Seller”),
      Deerfield Special Situations Fund, L.P., a Delaware limited partnership
      (“Deerfield
      L.P.”),
      and
      Deerfield Special Situations Fund International, Limited, a British Virgin
      Islands company (“Deerfield
      International”).
      Each
      of Deerfield L.P. and Deerfield International is referred to as a “Purchaser,”
and
      collectively as the “Purchasers.”

     

    


     

    W
      I T N E
      S S E T H:

     

    WHEREAS,
      the Purchasers are willing to purchase from the Seller, and the Seller desires
      to sell to the Purchasers (i) secured promissory notes, dated the date hereof,
      pursuant to which the Seller promises to pay to the order of Purchasers the
      aggregate principal sum of ten million dollars ($10,000,000.00) plus interest
      on
      the terms set forth therein (collectively, the “Notes”)
      and
      (ii) an aggregate of eight (8) Common Stock Purchase Warrants, each dated the
      date hereof (collectively, the “Warrants”),
      entitling the holder thereof to purchase an aggregate of 16,500,000 shares
      of
      the Seller’s common stock, $0.001 par value per share (the “Common
      Stock”),
      on
      the terms set forth therein.

     

    NOW
      THEREFORE, in consideration of the mutual promises and representations,
      warranties, covenants and agreements set forth herein, the parties hereto,
      intending to be legally bound, hereby agree as follows: 

     

    ARTICLE
      I
      - PURCHASE AND SALE

     

    1.1 Purchase
      and Sale.
      On the
      terms and subject to the conditions set forth in this Agreement at the Closing
      (as defined in Section 2.2), the Seller will sell and each Purchaser will
      purchase the Notes in such principal amount and the Warrants exercisable
      initially into such number of shares of Common Stock, as are listed on
Schedule
      1.1
      hereto.
      The shares of Common Stock issuable upon exercise of the Warrants are referred
      to herein as the “Warrant
      Stock.”

     

    1.2 Terms
      of the Notes and Warrants.
      The
      terms and provisions of the Notes are more fully set forth in the forms of
      Secured Promissory Note, attached hereto as Exhibit
      A-1
      and
      as
      Exhibit A-2,
      respectively. The terms and provisions of the Warrants are more fully set forth
      in the forms of Common Stock Purchase Warrant, attached hereto as Exhibit B-1,
      B-2,
      B-3,
      B-4,
      B-5,
      B-6,
      B-7,
      and
B-8,
      respectively.

     

    1.3 Transfers;
      Legends.
      Except
      as required by federal securities laws and the securities law of any state
      or
      other jurisdiction within the United States, the Notes, Warrants and Warrant
      Stock (collectively, the “Securities”) may be transferred, in whole or in part,
      by a Purchaser at any time. Any such transfer shall be made by a Purchaser
      in
      accordance with applicable law. In connection with any transfer of Securities
      other than pursuant to an effective registration statement under the Securities
      Act of 1933, as amended (the “Securities
      Act”),
      or to
      the Seller, the Seller may require the transferor thereof to furnish to the
      Seller an opinion of counsel selected by the transferor, such counsel and the
      form and substance of which opinion shall be reasonably satisfactory to the
      Seller and Seller’s counsel, to the effect that such transfer does not require
      registration under the Securities Act. 
      Notwithstanding the foregoing, the Seller hereby consents to and agrees to
      register on the books of the Seller and with any transfer agent for the
      securities of the Seller, without any such legal opinion, any transfer of
      Securities by a Purchaser to an Affiliate of such Purchaser, provided that
      the
      transferee certifies to the Seller that it is an Affiliate of such Purchaser
      and
      an “accredited investor” as defined in Rule 501(a) under the Securities Act and
      that it is acquiring the Securities solely for investment purposes (subject
      to
      the qualifications hereof) and not with a view to, or for, resale, distribution
      or fractionalization thereof in whole or in part in violation of the Securities
      Act. Any transferee of the Warrant Stock shall agree to be bound by the terms
      of
      the Investor Rights Agreement (as defined in Section 6.1) and this Agreement.
      The Seller shall reissue certificates evidencing the Securities upon surrender
      of certificates evidencing the Securities being transferred in accordance with
      this Section 1.3. An “Affiliate”
means
      any Person (as such term is defined below) that, directly or indirectly through
      one or more intermediaries, controls or is controlled by or is under common
      control with a Person, as such terms are used in and construed under Rule 144
      under the Securities Act. With respect to a Purchaser, any investment fund
      or
      managed account that is managed on a discretionary basis by the investment
      manager of such Purchaser will be deemed to be an Affiliate of such Purchaser.
      A
“Person” means any individual or corporation, partnership, trust, incorporated
      or unincorporated association, joint venture, limited liability company, joint
      stock company, government (or an agency or subdivision of any thereof) or other
      entity of any kind.

     

    
      
        
        

      

      
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    ARTICLE
      II - PURCHASE PRICE AND CLOSING

     

    2.1 Purchase
      Price.
      The
      aggregate purchase price (the “Purchase
      Price”)
      to be
      paid by the Purchasers to the Seller to acquire the Notes and the Warrants
      is
      ten million dollars ($10,000,000.00). 

     

    2.2 The
      Closing.
      The
      closing of the transactions contemplated under this Agreement (the “Closing”)
      will
      take place as promptly as practicable, following satisfaction or waiver of
      the
      conditions set forth in Article 6.1(a) and 6.2(a) at the offices of Seller’s
      counsel. The date on which the Closing occurs is the “Closing
      Date.”

     

    ARTICLE
      III - REPRESENTATIONS AND WARRANTIES OF THE SELLER

     

    The
      Seller represents and warrants to the Purchasers as follows:

     

    3.1 Corporate
      Existence and Power; Subsidiaries.
      The
      Seller and its Subsidiaries (as defined below) are corporations duly
      incorporated, validly existing and in good standing under the laws of the state
      in which they are incorporated, and have all corporate powers required to carry
      on their business as now conducted. The Seller and its Subsidiaries are duly
      qualified to do business as a foreign corporation and are in good standing
      in
      each jurisdiction where the character of the property owned or leased by them
      or
      the nature of their activities makes such qualification necessary, except for
      those jurisdictions where the failure to be so qualified would not have a
      Material Adverse Effect on the Seller or any of its Subsidiaries. For purposes
      of this Agreement, the term “Material Adverse Effect” means, with respect to any
      person or entity, a material adverse effect on its and its Subsidiaries’
condition (financial or otherwise), business, properties, assets, liabilities
      (including contingent liabilities), results of operations or current prospects,
      taken as a whole. True and complete copies of the Seller’s Articles of
      Incorporation, as amended, and Bylaws, as amended, as currently in effect and
      as
      will be in effect on the Closing Date (collectively, the “Articles
      and Bylaws”),
      have
      previously been made available to the Purchasers. For purposes of this
      Agreement, the term “Subsidiary” or “Subsidiaries” means, with respect to any
      entity, any corporation or other organization of which securities or other
      ownership interests having ordinary voting power to elect a majority of the
      board of directors or other persons performing similar functions are directly
      or
      indirectly owned by such entity or of which such entity is a partner or is,
      directly or indirectly, the beneficial owner of 50% or more of any class of
      equity securities or equivalent profit participation interests. 

     

    
      
        
        

      

      
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    3.2 Corporate
      Authorization.
      The
      execution, delivery and performance by the Seller of this Agreement, the Notes,
      the Warrants, the Security Agreement (as defined in Section 6.1) and the
      Investor Rights Agreement, and each of the other documents executed pursuant
      to
      and in connection with this Agreement (collectively, the “Transaction
      Documents”), and the consummation of the transactions contemplated hereby and
      thereby (including, but not limited to, the sale and delivery of the Notes
      and
      the Warrants, and the subsequent issuance of the Warrant Stock upon exercise
      of
      the Warrants) have been duly authorized, and no additional corporate or
      stockholder action is required for the approval of this Agreement or the other
      Transaction Documents. The shares of Warrant Stock have been duly reserved
      for
      issuance by the Seller. This Agreement and the other Transaction Documents
      have
      been or, to the extent contemplated hereby or by the Transaction Documents,
      will
      be duly executed and delivered and constitute the legal, valid and binding
      agreement of the Seller, enforceable against the Seller in accordance with
      their
      terms, except as may be limited by bankruptcy, reorganization, insolvency,
      moratorium and similar laws of general application relating to or affecting
      the
      enforcement of rights of creditors, and except as enforceability of its
      obligations hereunder are subject to general principles of equity (regardless
      of
      whether such enforceability is considered in a proceeding in equity or at
      law).

     

    3.3 Charter,
      Bylaws and Corporate Records.
      The
      minute books of the Seller and its Subsidiaries contain complete and accurate
      records in all material respects of all meetings and other corporate actions
      of
      the board of directors, committees of the board of directors, incorporators
      and
      stockholders of the Seller and its Subsidiaries from November 12, 2004 to the
      date hereof. 

     

    3.4 Governmental
      Authorization.
      Except
      as otherwise specifically contemplated in this Agreement or the other
      Transaction Documents, and except for: (i) the filings referenced in Section
      5.10; and (ii) any filings required under federal or state securities laws
      that
      are permitted to be made after the date hereof, the execution, delivery and
      performance by the Seller of this Agreement and the other Transaction Documents,
      and the consummation of the transactions contemplated hereby and thereby
      (including, but not limited to, the sale and delivery of the Notes and Warrants)
      and the subsequent issuance of the Warrant Stock upon exercise of the Warrants
      by the Seller require no action by or in respect of, or filing with, any
      governmental body, agency, official or authority. 

     

    
      
        
        

      

      
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    3.5 Non-Contravention.
      The
      execution, delivery and performance by the Seller of this Agreement and the
      Transaction Documents, and the consummation by the Seller of the transactions
      contemplated hereby and thereby (including the issuance of the Notes and Warrant
      Stock) do not and will not (a) contravene or conflict with the Articles and
      Bylaws of the Seller and its Subsidiaries or, except as set forth on
Schedule
      3.5,
      any
      material agreement to which the Seller is a party or by which it is bound;
      (b)
      contravene or conflict with or constitute a violation of any provision of any
      law, regulation, judgment, injunction, order or decree binding upon or
      applicable to the Seller or any of its Subsidiaries; (c) constitute a default
      (or would constitute a default with notice or lapse of time or both) under
      or,
      except as set forth on Schedule
      3.5,
      give
      rise to a right of termination, cancellation or acceleration or loss of any
      benefit under any material agreement, contract or other instrument binding
      upon
      the Seller or any of its Subsidiaries or under any material license, franchise,
      permit or other similar authorization held by the Seller or any of its
      Subsidiaries; or (d) result in the creation or imposition of any Lien (as
      defined below) on any asset of the Seller or any of its Subsidiaries. For
      purposes of this Agreement, the term “Lien” means, with respect to any asset,
      any mortgage, lien, pledge, charge, security interest, claim or encumbrance
      of
      any kind in respect of such asset.

     

    3.6 SEC
      Documents.
      The
      Seller is obligated under the Securities Exchange Act of 1934, as amended (the
      “Exchange
      Act”)
      to
      file reports pursuant to Sections 13 or 15(d) thereof (all such reports filed
      or
      required to be filed by the Seller, including all exhibits thereto or
      incorporated therein by reference, and all documents filed by the Seller under
      the Securities Act hereinafter called the “SEC
      Documents”).
      The
      Seller has filed all reports or other documents required to be filed under
      the
      Exchange Act. All SEC Documents filed by the Seller as of or for any period
      beginning on or after January 1, 2004, (i) were prepared in all material
      respects in accordance with the requirements of the Exchange Act and (ii) did
      not at the time they were filed (or, if amended or superseded by a filing prior
      to the date hereof, then on the date of such filing) contain any untrue
      statement of a material fact or omit to state a material fact required to be
      stated therein or necessary in order to make the statements therein, in light
      of
      the circumstances under which they were made, not misleading. The Seller has
      previously made available to the Purchasers a correct and complete copy of
      each
      report which the Seller filed with the Securities and Exchange Commission (the
      “SEC”
or
      the
“Commission”)
      under
      the Exchange Act for any period ending on or after December 31, 2005 (the
“Recent
      Reports”);
      provided, however, that the Company shall have no obligation to make available
      periodic reports to the Purchasers under this Section 3.6 to the extent such
      reports are publicly available. None of the information about the Seller or
      any
      of its Subsidiaries which has been disclosed to any Purchaser herein or in
      the
      course of discussions and negotiations with respect hereto which is not
      disclosed in the Recent Reports is or was required to be so disclosed, and
      no
      material non-public information has been disclosed to any
      Purchaser.

     

    3.7 Financial
      Statements.
      Each of
      the Seller’s audited consolidated balance sheet and related consolidated
      statements of income, cash flows and changes in stockholders’ equity (including
      the related notes) as of and for the years ended December 31, 2005 and January
      1, 2005, as contained in the Recent Reports (collectively, the “Seller’s
      Financial Statements”
or
      the
“Financial
      Statements”)
      (x)
      present fairly in all material respects the financial position of the Seller
      and
      its Subsidiaries on a consolidated basis as of the dates thereof and the results
      of operations, cash flows and stockholders’ equity as of and for each of the
      periods then ended, and (y) were prepared in accordance with generally accepted
      accounting principals (“GAAP”) applied on a consistent basis throughout the
      periods involved, in each case, except as otherwise indicated in the notes
      thereto.

     

    
      
        
        

      

      
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    3.8 Compliance
      with Law.
      The
      Seller and each of its Subsidiaries are in compliance and have conducted their
      business so as to comply with all laws, rules and regulations, judgments,
      decrees or orders of any court, administrative agency, commission, regulatory
      authority or other governmental authority or instrumentality, domestic or
      foreign, applicable to their operations, the violation of which would cause
      a
      Material Adverse Affect. There are no judgments or orders, injunctions, decrees,
      stipulations or awards (whether rendered by a court or administrative agency
      or
      by arbitration), including any such actions relating to affirmative action
      claims or claims of discrimination, against the Seller or any of its
      Subsidiaries or against any of their properties or businesses.

     

    3.9 No
      Defaults.
      The
      Seller and its Subsidiaries are not, nor have they received notice that they
      would be with the passage of time, giving of notice, or both, (i) in violation
      of any provision of their Articles and Bylaws (ii) in default or violation
      of
      any term, condition or provision of (A) any judgment, decree, order, injunction
      or stipulation applicable to the Seller or any of its Subsidiaries or (B) any
      material agreement, note, mortgage, indenture, contract, lease or instrument,
      permit, concession, franchise or license to which the Seller or its Subsidiaries
      are a party or by which the Seller or its Subsidiaries or their properties
      or
      assets may be bound, and, to the Seller’s knowledge, no circumstances exist
      which would entitle any party to any material agreement, note, mortgage,
      indenture, contract, lease or instrument to which such Seller or any of its
      Subsidiaries are a party, to terminate such as a result of such Seller or its
      Subsidiaries, having failed to meet any material provision thereof including,
      but not limited to, meeting any applicable milestone under any material
      agreement or contract.

     

    3.10 Litigation.
      Except
      as disclosed in the Recent Reports or on Schedule
      3.10,
      there
      is no action, suit, proceeding, judgment, claim or investigation pending or,
      to
      the knowledge of the Seller, threatened against the Seller or any of its
      Subsidiaries which could, individually or in the aggregate, reasonably be
      expected to have a Material Adverse Effect on the Seller or its Subsidiaries
      or
      which in any manner challenges or seeks to prevent, enjoin, alter or materially
      delay any of the transactions contemplated hereby, and, to the Seller’s
      knowledge, there is no basis for the assertion of any of the
      foregoing.

     

    3.11 Absence
      of Certain Changes.
      Since
      December 31, 2005, the Seller has conducted its business only in the ordinary
      course and there has not occurred, except as set forth in the Recent Reports
      or
      any exhibit thereto or incorporated by reference therein:

     

    (a) Except
      as
      set forth on Schedule
      3.11(a),
      any
      event that could reasonably be expected to have a Material Adverse Effect on
      the
      Seller or any of its Subsidiaries;

     

    (b) Except
      as
      set forth on Schedule
      3.11(b),
      any
      amendments or changes in the Articles or Bylaws of the Seller and or any of
      its
      Subsidiaries;

     

    
      
        
        

      

      
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    (c) Except
      as
      set forth on Schedule
      3.11(c),
      any
      damage, destruction or loss, whether or not covered by insurance, that would,
      individually or in the aggregate, have or would be reasonably likely to have,
      a
      Material Adverse Effect on the Seller and its Subsidiaries;

     

    (d) Except
      as
      set forth on Schedule
      3.11(d),
      any

     

    (i) incurrence,
      assumption or guarantee by the Seller or any of its Subsidiaries of any debt
      for
      borrowed money other than for equipment leases; 

     

    (ii) issuance
      or sale of any securities convertible into or exchangeable for securities of
      the
      Seller other than to directors, employees and consultants pursuant to existing
      equity compensation or stock purchase plans of the Seller; 

     

    (iii) issuance
      or sale of options or other rights to acquire from the Seller or any of its
      Subsidiaries, directly or indirectly, securities of the Seller or any securities
      convertible into or exchangeable for any such securities, other than options
      issued to directors, employees and consultants in the ordinary course of
      business in accordance with past practice; 

     

    (iv) issuance
      or sale of any stock, bond or other corporate security;

     

    (v) discharge
      or satisfaction of any material Lien, other than current liabilities incurred
      since December 31, 2005 in the ordinary course of business; 

     

    (vi) declaration
      or making any payment or distribution to stockholders or purchase or redemption
      of any share of its capital stock or other security; 

     

    (vii) sale,
      assignment or transfer any of its intangible assets except in the ordinary
      course of business, or cancellation of any debt or claim except in the ordinary
      course of business;

     

    (viii) waiver
      of
      any right of substantial value whether or not in the ordinary course of
      business;

     

    (ix) material
      change in officer compensation except in the ordinary course of business and
      consistent with past practices; or 

     

    (x) other
      commitment (contingent or otherwise) to do any of the foregoing.

     

    (e) Any
      creation, sufferance or assumption by the Seller or any of its Subsidiaries
      of
      any Lien on any asset (other than Liens existing on the date hereof or in
      connection with equipment leases and working capital lines of credit set forth
      on Schedule
      3.11(e))
      or any
      making of any loan, advance or capital contribution to or investment in any
      Person in an aggregate amount which exceeds $25,000 outstanding at any
      time;

     

    (f) Except
      as
      set forth on Schedule
      3.11(f),
      any
      entry into, amendment of, relinquishment, termination or non-renewal by the
      Seller or any of its Subsidiaries of any material contract, license, lease,
      transaction, commitment or other right or obligation, other than in the ordinary
      course of business; or

     

    
      
        
        

      

      
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    (g) Except
      as
      set forth on Schedule
      3.11(g),
      any
      transfer or grant of a right with respect to the trademarks, trade names,
      service marks, trade secrets, copyrights or other intellectual property rights
      owned or licensed by the Seller or any of its Subsidiaries, except as among
      the
      Seller and its Subsidiaries. 

     

    3.12 No
      Undisclosed Liabilities.
      Except
      as set forth in the Recent Reports, and except for liabilities and obligations
      incurred in the ordinary course of business since December 31, 2005, and except
      for contractual and other liabilities incurred in the ordinary course of
      business which are not required by GAAP to be reflected on a balance sheet,
      as
      of the date hereof, (i) the Seller and its Subsidiaries do not have any material
      liabilities or obligations (absolute, accrued, contingent or otherwise) which,
      and (ii) to the Seller’s knowledge, there has not been any aspect of the prior
      or current conduct of the business of the Seller or its Subsidiaries which
      may
      form the basis for any material claim by any third party which if asserted
      could
      result in any such material liabilities or obligations which, are not fully
      reflected, reserved against or disclosed in the balance sheet of the Seller
      as
      at December 31, 2005.

     

    3.13 Taxes.
      All tax
      returns and tax reports required to be filed with respect to the income,
      operations, business or assets of the Seller and its Subsidiaries have been
      timely filed (or appropriate extensions have been obtained) with the appropriate
      governmental agencies in all jurisdictions in which such returns and reports
      are
      required to be filed, and all of the foregoing as filed are correct and complete
      in all material respects and, in all material respects, reflect accurately
      all
      liability for taxes of the Seller and its Subsidiaries for the periods to which
      such returns relate, and all amounts shown as owing thereon have been paid.
      All
      income, profits, franchise, sales, use, value added, occupancy, property,
      excise, payroll, withholding, FICA, FUTA and other taxes (including interest
      and
      penalties), if any, collectible or payable by the Seller and its Subsidiaries
      or
      relating to or chargeable against any of its material assets, revenues or income
      or relating to any employee, independent contractor, creditor, stockholder
      or
      other third party through the Closing Date, were fully collected and paid by
      such date if due by such date or provided for by adequate reserves in the
      Financial Statements as of and for the periods ended December 31, 2005 (other
      than taxes accruing after such date) and all similar items due through the
      Closing Date will have been fully paid by that date or provided for by adequate
      reserves, whether or not any such taxes were reported or reflected in any tax
      returns or filings. No taxation authority has sought to audit the records of
      the
      Seller or any of its Subsidiaries for the purpose of verifying or disputing
      any
      tax returns, reports or related information and disclosures provided to such
      taxation authority, or for the Seller’s or any of its Subsidiaries’ alleged
      failure to provide any such tax returns, reports or related information and
      disclosure. No material claims or deficiencies have been asserted against or
      inquiries raised with the Seller or any of its Subsidiaries with respect to
      any
      taxes or other governmental charges or levies which have not been paid or
      otherwise satisfied, including claims that, or inquiries whether, the Seller
      or
      any of its Subsidiaries has not filed a tax return that it was required to
      file,
      and, to the Seller’s knowledge, there exists no reasonable basis for the making
      of any such claims or inquiries. Neither the Seller nor any of its Subsidiaries
      has waived any restrictions on assessment or collection of taxes or consented
      to
      the extension of any statute of limitations relating to taxation.

     

    
      
        
        

      

      
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    3.14 Interests
      of Officers, Directors and Other Affiliates.
      The
      description of any interest held, directly or indirectly, by any officer,
      director or other Affiliate of Seller (other than the interests of the Seller
      and its Subsidiaries in such assets) in any property, real or personal, tangible
      or intangible, used in or pertaining to Seller’s business, including any
      interest in the Intellectual Property (as defined in Section 3.15), as set
      forth
      in the Recent Reports, is true and complete, and no officer, director or other
      Affiliate of the Seller has any interest in any property, real or personal,
      tangible or intangible, used in or pertaining to the Seller’s business,
      including the Seller’s Intellectual Property, other than as set forth in the
      Recent Reports.

     

    3.15 Intellectual
      Property.
      Other
      than as set forth in the Recent Reports: 

     

    (a) the
      Seller or a Subsidiary thereof has the right to use or is the sole and exclusive
      owner of all right, title and interest in and to all material foreign and
      domestic patents, patent rights, trademarks, service marks, trade names, brands
      and copyrights (whether or not registered and, if applicable, including pending
      applications for registration) owned, used or controlled by the Seller and
      its
      Subsidiaries (collectively, the “Rights”)
      and in
      and to each material invention, software, trade secret, technology, product,
      composition, formula, method or process used by the Seller or its Subsidiaries
      (the Rights and such other items, the “Intellectual
      Property”),
      and,
      to the Seller’s knowledge, has the right to use the same, free and clear of any
      claim or conflict with the rights of others; 

     

    (b) no
      royalties or fees (license or otherwise) are payable by the Seller or its
      Subsidiaries to any Person by reason of the ownership or use of any of the
      Intellectual Property except as set forth on Schedule
      3.15;
      

     

    (c) there
      have been no claims made against the Seller or any of its Subsidiaries, since
      January 1, 2003, asserting the invalidity, abuse, misuse, or unenforceability
      of
      any of the Intellectual Property, and, to the Seller’s knowledge, there are no
      reasonable grounds for any such claims; 

     

    (d) neither
      the Seller nor any of its Subsidiaries have, since January 1, 2003, made any
      claim of any violation or infringement by others of its rights in the
      Intellectual Property, and to the Seller’s knowledge, no reasonable grounds for
      such claims exist; and 

     

    (e) neither
      the Seller nor any of its Subsidiaries have received notice that it is in
      conflict with or infringing upon the asserted rights of others in connection
      with the Intellectual Property.

     

    3.16 Restrictions
      on Business Activities.
      Other
      than as set forth in the Recent Reports, there is no agreement, judgment,
      injunction, order or decree binding upon the Seller or its Subsidiaries which
      has or could reasonably be expected to have the effect of prohibiting or
      materially impairing any business practice of the Seller or its Subsidiaries
      or
      the conduct of business by the Seller or its Subsidiaries as currently conducted
      or as currently proposed to be conducted by the Seller.

     

    
      
        
        

      

      
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    3.17 Preemptive
      Rights.
      Except
      as set forth in Schedule
      3.17,
      none of
      the stockholders of the Seller possess any preemptive rights in respect of
      the
      Notes or Warrant Stock to be issued to the Purchasers upon exercise of the
      Warrants.

     

    3.18 Insurance.
      The
      insurance policies providing insurance coverage to the Seller or its
      Subsidiaries including for product liability are, to the Seller’s knowledge,
      adequate for the business conducted by the Seller and its Subsidiaries
      (currently limited to the testing phase) and are sufficient for compliance
      by
      the Seller and its Subsidiaries with all material requirements of law and all
      material agreements to which the Seller or its Subsidiaries are a party or
      by
      which any of their material assets are bound. All of such policies are in full
      force and effect and are valid and enforceable in accordance with their terms,
      and the Seller and its Subsidiaries have complied with all material terms and
      conditions of such policies, including premium payments. None of the insurance
      carriers has indicated to the Seller or any of its Subsidiaries an intention
      to
      cancel any such policy.

     

    3.19 Subsidiaries
      and Investments.
      Except
      as set forth in the Recent Reports or on Schedule
      3.19,
      the
      Seller has no Subsidiaries or Investments. For purposes of this Agreement,
      the
      term “Investments” shall mean, with respect to any Person, all advances, loans
      or extensions of credit to any other Person, all purchases or commitments to
      purchase any stock, bonds, notes, debentures or other securities of any other
      Person, and any other investment in any other Person, including partnerships
      or
      joint ventures (whether by capital contribution or otherwise) or other similar
      arrangement (whether written or oral) with any Person, including but not limited
      to arrangements in which (i) the Person shares profits and losses, (ii) any
      such
      other Person has the right to obligate or bind the Person to any third party,
      or
      (iii) the Person may be wholly or partially liable for the debts or obligations
      of such partnership, joint venture or other arrangement.

     

    3.20 Capitalization.
      The
      authorized capital stock of the Seller consists of 200,000,000 shares of Common
      Stock, $0.001 par value per share, of which approximately 66,000,000 shares
      are
      issued and outstanding as of the date hereof, and 5,000,000 shares of preferred
      stock, issuable in one or more classes or series, with such relative rights
      and
      preferences as the Board of Directors may determine, none of which has been
      authorized for issuance and of which, immediately prior to the Closing, has
      been
      issued or is outstanding. All shares of the Seller’s issued and outstanding
      capital stock have been duly authorized, are validly issued and outstanding,
      and
      are fully paid and nonassessable. No securities issued by the Seller from the
      date of its incorporation to the date hereof were issued in violation of any
      statutory or common law preemptive rights. There are no dividends which have
      accrued or been declared but are unpaid on the capital stock of the Seller.
      All
      taxes required to be paid by Seller in connection with the issuance and any
      transfers of the Seller’s capital stock have been paid. Except as set forth on
Schedule
      3.20,
      all
      permits or authorizations required to be obtained from or registrations required
      to be effected with any Person in connection with any and all issuances of
      securities of the Seller from the date of the Seller’s incorporation to the date
      hereof have been obtained or effected, and all securities of the Seller have
      been issued and are held in accordance with the provisions of all applicable
      securities or other laws.

     

    
      
        
        

      

      
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    3.21 Options,
      Warrants, Rights.
      Except
      as set forth in the SEC Reports, there are no outstanding (a) securities, notes
      or instruments convertible into or exercisable for any of the capital stock
      or
      other equity interests of the Seller or its Subsidiaries; (b) options, warrants,
      subscriptions or other rights to acquire capital stock or other equity interests
      of the Seller or its Subsidiaries; or (c) commitments, agreements or
      understandings of any kind, including employee benefit arrangements, relating
      to
      the issuance or repurchase by the Seller or its Subsidiaries of any capital
      stock or other equity interests of the Seller or its Subsidiaries, any such
      securities or instruments convertible or exercisable for securities or any
      such
      options, warrants or rights. Except as set forth in the SEC Reports, neither
      the
      Seller nor the Subsidiaries have granted anti-dilution rights to any person
      or
      entity in connection with any outstanding option, warrant, subscription or
      any
      other instrument convertible or exercisable for the securities of the Seller
      or
      any of its Subsidiaries. Other than the rights granted to the Purchasers under
      the Investor Rights Agreement and except as set forth in the SEC Reports, there
      are no outstanding rights which permit the holder thereof to cause the Seller
      or
      the Subsidiaries to file a registration statement under the Securities Act
      or
      which permit the holder thereof to include securities of the Seller or any
      of
      its Subsidiaries in a registration statement filed by the Seller or any of
      its
      Subsidiaries under the Securities Act, and there are no outstanding agreements
      or other commitments which otherwise relate to the registration of any
      securities of the Seller or any of its Subsidiaries for sale or distribution
      in
      any jurisdiction, except as set forth in the SEC Reports.

     

    3.22 Employees,
      Employment Agreements and Employee Benefit Plans.
      Except
      as set forth in the Recent Reports or on Schedule
      3.22,
      there
      are no employment, severance or indemnification arrangements, agreements, or
      understandings between the Seller and any officer, director or employee of
      the
      Seller or its Subsidiaries (the “Employment
      Agreements”).
      No
      Employment Agreement provides for the acceleration or change in the award,
      grant, vesting or determination of options, warrants, rights, severance
      payments, or other contingent obligations of any nature whatsoever of the Seller
      or its Subsidiaries in favor of any such parties in connection with the
      transactions contemplated by this Agreement and the other Transaction Documents.
      

     

    3.23 Absence
      of Certain Business Practices.
      Neither
      the Seller, nor any Affiliate of the Seller, nor, to the knowledge of the
      Seller, any agent or employee of the Seller, any other Person acting on behalf
      of or associated with the Seller, or any individual related to any of the
      foregoing Persons, acting alone or together, has: (a) received, directly or
      indirectly, any rebates, payments, commissions, promotional allowances or any
      other economic benefits, regardless of their nature or type, from any customer,
      supplier, trading company, shipping company, governmental employee or other
      Person with whom the Seller has done business directly or indirectly; or (b)
      directly or indirectly, given or agreed to give any gift or similar benefit
      to
      any customer, supplier, trading company, shipping company, governmental employee
      or other Person who is or may be in a position to help or hinder the business
      of
      the Seller (or assist the Seller in connection with any actual or proposed
      transaction) which (i) may subject the Seller to any damage or penalty in any
      civil, criminal or governmental litigation or proceeding, (ii) if not given
      in
      the past, may have had an adverse effect on the Seller or (iii) if not continued
      in the future, may adversely affect the assets, business, operations or
      prospects of the Seller or subject the Seller to suit or penalty in any private
      or governmental litigation or proceeding.

     

    
      
        
        

      

      
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    3.24 Products
      and Services.
      To the
      knowledge of the Seller and except as disclosed in the Recent Reports, there
      exists no set of facts (i) which could furnish a basis for the withdrawal,
      suspension or cancellation of any registration, license, permit or other
      governmental approval or consent of any governmental or regulatory agency with
      respect to any product or service developed or provided by the Seller or any
      of
      its Subsidiaries, (ii) which could furnish a basis for the withdrawal,
      suspension or cancellation by order of any state, federal or foreign court
      of
      law of any product or service, or (iii) which could have a Material Adverse
      Effect on the continued operation of any facility of the Seller or any of its
      Subsidiaries or which could otherwise cause the Seller or any of its
      Subsidiaries to withdraw, suspend or cancel any such product or service from
      the
      market or to change the marketing classification of any such product or service.
      Each product or service provided by Seller and its Subsidiaries has been
      provided in accordance in all material respects with the specifications under
      which such product or service normally is and has been provided and the
      provisions of all applicable laws or regulations. 

     

    3.25 Environmental
      Matters.
      None of
      the premises or any properties owned, occupied or leased by the Seller or any
      of
      its Subsidiaries (the “Premises”)
      has
      been used by the Seller or the Subsidiaries or, to the Seller’s knowledge, by
      any other Person, to manufacture, treat, store, or dispose of any substance
      that
      has been designated to be a “hazardous substance” under applicable Environmental
      Laws (hereinafter defined) (“Hazardous
      Substances”)
      in
      violation of any applicable Environmental Laws. To its knowledge, the Seller
      has
      not disposed of, discharged, emitted or released any Hazardous Substances which
      would require, under applicable Environmental Laws, remediation, investigation
      or similar response activity. To the Seller’s knowledge, no Hazardous Substances
      are present as a result of the actions of the Seller or, to the Seller’s
      knowledge, any other Person, in, on or under the Premises which would give
      rise
      to any liability or clean-up obligations of the Seller under applicable
      Environmental Laws. The Seller and, to the Seller’s knowledge, any other Person
      for whose conduct it may be responsible pursuant to an agreement or by operation
      of law, are in material compliance with all laws, regulations and other federal,
      state or local governmental requirements, and all applicable judgments, orders,
      writs, notices, decrees, permits, licenses, approvals, consents or injunctions
      in effect on the date of this Agreement relating to the generation, management,
      handling, transportation, treatment, disposal, storage, delivery, discharge,
      release or emission of any Hazardous Substance (the “Environmental
      Laws”).
      Neither the Seller nor, to the Seller’s knowledge, any other Person for whose
      conduct it may be responsible pursuant to an agreement or by operation of law
      has received any written complaint, notice, order, or citation of any actual,
      threatened or alleged noncompliance with any of the Environmental Laws, and
      there is no proceeding, suit or investigation pending or, to the Seller’s
      knowledge, threatened against the Seller or, to the Seller’s knowledge, any such
      Person with respect to any violation or alleged violation of the Environmental
      Laws, and, to the knowledge of the Seller, there is no basis for the institution
      of any such proceeding, suit or investigation. 

     

    3.26 Licenses;
      Compliance With FDA and Other Regulatory Requirements.
      

     

    (a) General.
      Except
      as disclosed in the Recent Reports, the Seller holds all material
      authorizations, consents, approvals, franchises, licenses and permits required
      under applicable law or regulation for the operation of the business of the
      Seller and its Subsidiaries as presently operated (the “Governmental
      Authorizations”).
      All
      the Governmental Authorizations have been duly issued or obtained and are in
      full force and effect, and the Seller and its Subsidiaries are in material
      compliance with the terms of all the Governmental Authorizations. The Seller
      and
      its Subsidiaries have not engaged in any activity that, to their knowledge,
      would cause revocation or suspension of any such Governmental Authorizations.
      The Seller has no knowledge of any facts which could reasonably be expected
      to
      cause the Seller to believe that the Governmental Authorizations will not be
      renewed by the appropriate governmental authorities in the ordinary course.
      Neither the execution, delivery nor performance of this Agreement or any other
      Transaction Document shall adversely affect the status of any of the
      Governmental Authorizations.

     

    
      
        
        

      

      
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    (b) FDA.
      Without
      limiting the generality of the representations and warranties made in paragraph
      (a) above, the Seller represents and warrants that (i) the Seller and each
      of
      its Subsidiaries is in material compliance with all applicable provisions of
      the
      United States Federal Food, Drug, and Cosmetic Act (the “FDC
      Act”),
      (ii)
      its products and those of each of its Subsidiaries that are in the Seller’s
      control are not adulterated or misbranded and are in lawful distribution, (iii)
      all adverse events that were known to and required to be reported by Seller
      to
      the United States Food and Drug Administration (“FDA”)
      have
      been reported to the FDA in a timely manner, (iv) neither the Seller nor any
      of
      its Subsidiaries is, to their knowledge, employing or utilizing the services
      of
      any individual who has been debarred under the FDC Act, and (v) the Seller
      and
      its Subsidiaries are in compliance in all material respects with all applicable
      provisions of the Controlled Substances Act.

     

    3.27 Sarbanes-Oxley;
      Disclosure Controls and Procedures.
      The
      Seller and each of its Subsidiaries are in compliance in all material respects
      with all of the applicable provisions of the Sarbanes-Oxley Act of 2002 to
      the
      extent required by law. Expect as disclosed in the SEC Documents, the Seller
      has
      established and maintains disclosure controls and procedures (as defined in
      Exchange Act Rules 13a-15(e) and 15d-15(e)) that are effective in all material
      respects to ensure that material information relating to the Seller and its
      Subsidiaries is made known to the Seller’s chief executive officer and chief
      financial officer by others within the Seller and each of its Subsidiaries,
      respectively. The Seller’s certifying officers have evaluated the effectiveness
      of the Seller’s disclosure controls and procedures as of the end of the period
      covered by the Seller’s most recently filed quarterly or annual periodic report
      under the Exchange Act (such date, the “Evaluation
      Date”).
      The
      Seller has presented in its most recently filed quarterly or annual periodic
      report under the Exchange Act the conclusions of its certifying officers about
      the effectiveness of its disclosure controls and procedures based on their
      evaluations as of the Evaluation Date. Since the Evaluation Date, there has
      been
      no change in the Seller’s internal control over financial reporting (as defined
      in Exchange Act Rules 13a-15(f) and 15d-15(f)) that has materially affected,
      or
      is reasonably likely to materially affect, the Seller’s internal control over
      financial reporting. 

     

    3.28 Brokers.
      Except
      as set forth on Schedule
      3.28,
      no
      broker, finder or investment banker is entitled to any brokerage, finder’s or
      other fee or commission in connection with the transactions contemplated by
      this
      Agreement or any other Transaction Document, based upon any arrangement made
      by
      or on behalf of the Seller, which would make a Purchaser liable for any fees
      or
      commissions. 

     

    
      
        
        

      

      
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    3.29 Securities
      Laws.
      To the
      knowledge of the Seller, neither the Seller nor its Subsidiaries nor any agent
      acting on behalf of the Seller or its Subsidiaries has taken or will take any
      action which might cause this Agreement, the Notes, or the Warrants to violate
      the Securities Act or the Exchange Act or any rules or regulations promulgated
      thereunder, as in effect on the Closing Date. Assuming that all of the
      representations and warranties of the Purchasers set forth in Article IV are
      true, the offer and sale of the Notes and the Warrants were conducted and
      completed in compliance with the Securities Act. All shares of capital stock
      and
      other securities issued by the Seller and its Subsidiaries prior to the date
      hereof have been issued in transactions that were either registered offerings
      or
      were exempt from the registration requirements under the Securities Act and
      all
      applicable state securities or “blue sky” laws and in compliance with all
      applicable corporate laws.

     

    3.30 Disclosure.
      No
      representation or warranty made by the Seller in this Agreement or any other
      Transaction Document contains or will contain any untrue statement of a material
      fact, or omits to state a material fact necessary to make the statements or
      facts contained herein or therein not misleading in light of the circumstances
      under which they were furnished.

     

    ARTICLE
      IV - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

     

    Each
      Purchaser represents and warrants to the Seller with respect to itself as
      follows:

     

    4.1 Existence
      and Power.
      Such
      Purchaser is duly organized, validly existing and in good standing under the
      laws of the jurisdiction of its organization. Such Purchaser has all power
      and
      authority required to enter into and to perform its obligations under this
      Agreement in accordance with its terms and to carry on its business as now
      conducted. Such Purchaser has not been organized, reorganized or recapitalized
      specifically for the purpose of investing in the Company.

     

    4.2 Authorization.
      The
      execution, delivery and performance by such Purchaser of this Agreement, the
      Transaction Documents to which such Purchaser is a party, and the consummation
      by such Purchaser of the transactions contemplated hereby and thereby have
      been
      duly authorized by all necessary action, and no additional action by such
      Purchaser is required for the approval of this Agreement or the other
      Transaction Documents. This Agreement and the other Transaction Documents to
      which such Purchaser is a party have been or, to the extent contemplated hereby,
      will be duly executed and delivered and constitute valid and binding agreements
      of such Purchaser, enforceable against such Purchaser in accordance with their
      respective terms, except as may be limited by bankruptcy, reorganization,
      insolvency, moratorium and similar laws of general application relating to
      or
      affecting the enforcement of rights of creditors, and except as enforceability
      of its obligations thereunder are subject to general principles of equity
      (regardless of whether such enforceability is considered in a proceeding in
      equity or at law).

     

    
      
        
        

      

      
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    4.3 Investment.
      Such
      Purchaser is acquiring the Securities for its own account and not with a view
      to, or for sale in connection with, any distribution thereof, nor with the
      intention of distributing or reselling the same and such Purchaser has no
      present or contemplated agreement, undertaking, arrangement, obligation,
      indebtedness or commitment providing for the deposition thereof; provided,
      however, that by making the representation herein, such Purchaser does not
      agree
      to hold any of the securities for any minimum or other specific term and
      reserves the right to dispose of the securities at any time in accordance with
      or pursuant to a registration statement or an exemption under the Securities
      Act. Such Purchaser is aware that none of the Securities have been registered
      under the Securities Act or under applicable state securities or blue sky laws.
      Such Purchaser is an “Accredited Investor” as such term is defined in Rule 501
      of Regulation D, as promulgated under the Securities Act.

     

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

     

    4.5 Experience
      of Such Purchaser.
      Such
      Purchaser, either alone or together with its representatives, has such
      knowledge, sophistication and experience in business and financial matters
      so as
      to be capable of evaluating the merits and risks of the prospective investment
      in the Securities, and has so evaluated the merits and risks of such investment.
      Such Purchaser is able to bear the economic risk of an investment in the
      Securities and, at the present time, is able to afford a complete loss of such
      investment.

     

    4.6 General
      Solicitation.
      Such
      Purchaser is not purchasing the Securities as a result of any advertisement,
      article, notice or other communication regarding the Securities published in
      any
      newspaper, magazine or similar media or broadcast over television or radio
      or
      presented at any seminar or any other general solicitation or general
      advertisement.

     

    4.7 Access
      to Information.
      Such
      Purchaser acknowledges that it has been afforded (i) the opportunity to ask
      questions as it has deemed necessary of, and to receive answers from,
      representatives of the Seller concerning the terms and conditions of the
      offering of the Securities and the merits and risks of investing in the
      Securities; (ii) access to information about the Seller and its Subsidiaries
      and
      their respective financial condition, results of operations, businesses,
      properties, management and prospects sufficient to enable it to evaluate its
      investment; and (iii) the opportunity to obtain such additional information
      that
      the Seller possesses or can acquire without unreasonable effort or expense
      that
      is necessary to make an informed investment decision with respect to the
      investment.

     

    
      
        
        

      

      
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    ARTICLE
      V
      - COVENANTS OF THE SELLER AND PURCHASER

     

    5.1 Insurance.
      So long
      as any amounts payable under any of the Notes remain unpaid, the Seller and
      its
      Subsidiaries shall, from time to time upon the written request of a Purchaser,
      promptly furnish or cause to be furnished to the Seller evidence, in form and
      substance reasonably satisfactory to such Purchaser, of the maintenance of
      all
      insurance maintained by it for loss or damage by fire and other hazards, damage
      or injury to persons and property, including from product liability, and under
      workmen’s compensation laws. 

     

    5.2 Reporting
      Obligations.
      So long
      as any portion of the Warrants has not been exercised and has not expired by
      its
      terms, the Seller shall furnish to the Purchasers, or any other persons who
      hold
      any of the Warrants (provided that such subsequent holders give notice to the
      Seller that they hold Warrants and furnish their addresses) promptly upon their
      becoming available one copy of (A) each report, notice or proxy statement sent
      by the Seller to its stockholders generally, and of each periodic report
      (pursuant to the Exchange Act) and (B) any registration statement, prospectus
      or
      written communication pursuant to the Securities Act relating to the issuance
      or
      registration of the Warrant Stock and filed by the Seller with the Commission
      or
      any securities market or exchange on which shares of Common Stock are listed;
      provided, however, that the Company shall have no obligation to deliver periodic
      reports (pursuant to the Exchange Act) under this Section 5.2 to the extent
      such
      reports are publicly available.

     

    Each
      Purchaser is hereby authorized to deliver a copy of any financial statement
      or
      any other information relating to the business, operations or financial
      condition of the Seller which may have been furnished to such Purchaser
      hereunder, to any regulatory body or agency having jurisdiction over the
      Purchaser or to any Person which shall, or shall have right or obligation to,
      succeed to all or any part of such Purchaser’s interest in the Seller or this
      Agreement or any other Transaction Document.

     

    5.3 Investigation.
      The
      representations, warranties, covenants and agreements set forth in this
      Agreement and the other Transaction Documents shall not be affected or
      diminished in any way by any investigation (or failure to investigate) at any
      time by or on behalf of the party for whose benefit such representations,
      warranties, covenants and agreements were made. Without limiting the generality
      of the foregoing, the inability or failure of Purchasers to discover any breach,
      default or misrepresentation by the Seller under this Agreement or the
      Transaction Documents (including under any certificate furnished pursuant to
      this Agreement or any other Transaction Document), notwithstanding the exercise
      by Purchasers or other holders of the Notes or Warrants of their rights
      hereunder to conduct an investigation shall not in any way diminish any
      liability hereunder.

     

    5.4 Further
      Assurances.
      The
      Seller shall, at its cost and expense, upon written request of a Purchaser,
      duly
      execute and deliver, or cause to be duly executed and delivered, such Purchaser
      such further instruments and do and cause to be done such further acts as may
      be
      necessary, advisable or proper, in the reasonable discretion of such Purchaser,
      to carry out more effectually the provisions and purposes of this Agreement
      and
      the other Transaction Documents. The parties shall use their reasonable best
      efforts to timely satisfy each of the conditions described in Article VI of
      this
      Agreement.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    5.5 Use
      of
      Proceeds.
      The
      Seller covenants and agrees that the proceeds of the Purchase Price shall be
      used by the Seller exclusively to repay all amounts owing by Seller and its
      Affiliates to AmerisourceBergen Drug Corporation (“ABDC”).

     

    5.6 Corporate
      Existence.
      So long
      as a Purchaser owns a Note, the Seller shall preserve and maintain and cause
      its
      Subsidiaries to preserve and maintain their corporate existence and good
      standing in the jurisdiction of their incorporation and the rights, privileges
      and franchises of the Seller and its Subsidiaries (except, in each case, in
      the
      event of a reincorporation of the Seller or merger or consolidation in which
      the
      Seller or its Subsidiaries, as applicable, is not the surviving entity) in
      each
      case where failure to so preserve or maintain could have a Material Adverse
      Effect.

     

    5.7 Licenses.
      The
      Seller shall, and shall cause its Subsidiaries to, maintain at all times all
      material licenses or permits necessary to the conduct of its business and as
      required by any governmental agency or instrumentality thereof. 

     

    5.8 Taxes
      and Claims.
      The
      Seller and its Subsidiaries shall duly pay and discharge (a) all material taxes,
      assessments and governmental charges upon or against the Seller or its
      properties or assets prior to the date on which penalties attach thereto, unless
      and to the extent that such taxes are being diligently contested in good faith
      and by appropriate proceedings, and appropriate reserves therefor have been
      established, and (b) all material lawful claims, whether for labor, materials,
      supplies, services or anything else which might or could, if unpaid, become
      a
      lien or charge upon the properties or assets of the Seller or its Subsidiaries
      unless and to the extent only that the same are being diligently contested
      in
      good faith and by appropriate proceedings and appropriate reserves therefor
      have
      been established.

     

    5.9 Perform
      Covenants.
      The
      Seller shall duly comply with all the terms and covenants contained herein,
      in
      any other Transaction Document, and in each of the instruments and documents
      given to a Purchaser in connection with or pursuant to this Agreement, or the
      Transaction Documents all at the times and places and in the manner set forth
      herein or therein.

     

    5.10 Additional
      Covenants.
      

     

    (a) Except
      for transactions approved by a majority of the disinterested directors of the
      Board of Directors, neither the Seller nor any of its Subsidiaries shall enter
      into any transaction with any director, officer, employee or holder of more
      than
      5% of the outstanding capital stock of any class or series of capital stock
      of
      the Seller or any of its Subsidiaries, member of the family of any such person,
      or any corporation, partnership, trust or other entity in which any such person,
      or member of the family of any such person, is a director, officer, trustee,
      partner or holder of more than 5% of the outstanding capital stock thereof,
      with
      the exception of transactions which are consummated upon terms that are no
      less
      favorable than would be available if such transaction had been effected at
      arms-length, in the reasonable judgment of the Board of Directors.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    (b) The
      Seller shall timely prepare and file such applications, consents to service
      of
      process (but not including a general consent to service of process) and similar
      documents and take such other steps and perform such further acts as shall
      be
      required by the state securities law requirements of each jurisdiction where
      a
      Purchaser resides with respect to the sale of the Notes and Warrants under
      this
      Agreement.

     

    (c) Neither
      the Company nor any of its Affiliates, nor any Person acting on its or their
      behalf, shall directly or indirectly make any offers or sales of any securities
      or solicit any offers to buy any securities under circumstances that would
      cause
      the loss of the 4(2) exemption under the Securities Act for the transactions
      contemplated hereby. Subject to any consent or approval rights of the Purchasers
      hereunder, in the event the Company contemplates an offering of its equity
      or
      debt securities within six months following the Closing Date, the Company agrees
      that it shall notify the Purchasers of such offering (without providing any
      material non-public information to any Purchaser without its prior approval)
      ,
      and upon the reasonable request of a Purchaser, the Company shall first disclose
      the terms and conditions and other relevant facts of such proposed transaction
      to the Nasdaq Stock Market (“Nasdaq”)
      and
      obtain from Nasdaq its assurance that such transaction will not be integrated
      with the offering which is the subject of this Agreement for purposes of the
      Nasdaq rules requiring shareholder approval of the issuance of 20% or more
      of an
      issuer’s outstanding common stock. In the event the Company fails to obtain such
      assurance, then the Company shall not issue or sell any such securities without
      the prior written consent of the requesting Purchaser, provided that the Company
      may sell or issue securities without such consent (i) it obtains prior
      shareholder approval for such sale or issuance in compliance with National
      Association of Securities Dealers (“NASD”).
      In
      the event that the transactions contemplated under this Agreement are deemed
      integrated with any other transaction(s) by the NASD, then the Company shall
      as
      soon as possible seek the approval of its stockholders and take such other
      action to authorize the issuance of the full number of Warrant Stock and the
      full amount of securities issued and/or to be issued in such other
      transaction.

     

    5.11 Securities
      Laws Disclosure; Publicity.
      The
      Seller may (i) on or promptly after the Closing Date, issue a press release
      acceptable to Purchasers disclosing the transactions contemplated hereby, and
      (ii) after the Closing Date, file with the Commission a Report on Form 8-K
      disclosing the transactions contemplated hereby. Except as provided in the
      preceding sentence, neither the Seller nor the Purchasers shall make any press
      release or other publicity about the terms of this Agreement, the other
      Transaction Documents, or the transactions contemplated hereby without the
      prior
      approval of the other unless otherwise required by law or the rules of the
      Commission or Nasdaq. 

     

    5.12 Negative
      Covenants.
      So
      long
      as any amounts payable under any of the Notes remain unpaid, the Seller
      covenants and agrees that the Seller shall not, and shall not permit any of
      its
      Subsidiaries to, directly or indirectly:

     

    (a)Limitation
      on Debt.
      Create,
      incur, assume or suffer to exist any Debt (as defined below), except Debt in
      respect of the Notes and the Debt of Seller to Wells Fargo Retail Finance
      (“WFRF”)
      or any
      one senior secured lender that replaces WFRF with a lending facility that does
      not exceed $65 million (a “Senior Lender”) and such other Debt described on
Schedule
      5.12(a);

     

    (b)Limitation
      on Liens.
      Create,
      incur, assume or suffer to exist any Lien (as defined below) upon any of its
      property, assets or revenues, whether now owned or hereafter acquired, except
      for:

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    (i)Liens
      created pursuant to the Security Agreement or in favor of WFRF to secure the
      Debt described on Schedule
      5.12(b);

     

    (ii)Liens
      for
      taxes not yet due or which are being contested in good faith by appropriate
      proceedings, provided that adequate reserves with respect thereto are maintained
      on the books of the Seller or its Subsidiaries, as the case may be, in
      conformity with U.S. generally accepted accounting principles consistently
      applied;

     

    (iii)carriers’,
      warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens
      arising in the ordinary course of business which secure amounts not overdue
      for
      a period of more than sixty (60) days or which are being contested in good
      faith
      by appropriate proceedings;

     

    (iv)pledges
      or deposits in connection with workers’ compensation, unemployment insurance and
      other social security legislation and deposits securing liability to insurance
      carriers under insurance or self-insurance arrangements;

     

    (v)deposits
      to secure the performance of bids, trade contracts (other than for borrowed
      money), leases, statutory obligations, surety and appeal bonds, performance
      bonds and other obligations of a like nature incurred in the ordinary course
      of
      business; and

     

    (vi)easements,
      rights-of-way, restrictions and other similar encumbrances imposed by applicable
      law or incurred in the ordinary course of business which, in the aggregate,
      are
      not substantial in amount and which do not in any case materially detract from
      the value of the property subject thereto or materially interfere with the
      ordinary conduct of the business of the Seller or such Subsidiary; and


     

    (vii)
      Liens
      described on Schedule
      5.12(b).

     

    (c)Limitations
      on Fundamental Changes.
      Enter
      into any merger or consolidation or liquidate, wind up or dissolve itself (or
      suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
      or otherwise dispose of, all or substantially all of its property, business
      or
      assets, or make any material change in its present method of conducting
      business, except:

     

    (i)any
      Subsidiary of the Seller may be merged or consolidated with or into the Seller
      (provided that the Seller shall be the continuing or surviving corporation)
      or
      with or into any one or more wholly-owned Subsidiaries of the Seller (provided
      that the wholly-owned Subsidiary or Subsidiaries shall be the continuing or
      surviving corporation) and after giving effect to any of such transactions,
      no
      Event of Default (as defined in the Notes) shall exist; 

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    (ii)the
      Seller may merge into another entity in a transaction intended to accomplish
      a
“reincorporation” of the Seller in another jurisdiction; and 

     

    (iii)any
      wholly-owned Subsidiary may sell, lease, transfer or otherwise dispose of any
      or
      all of its assets (upon voluntary liquidation or otherwise) to the Seller or
      any
      other wholly-owned Subsidiary of the Seller.

     

    (d)Limitation
      on Dividends.
      Declare
      or pay any dividend (other than dividends payable solely in common stock of
      the
      Seller) on, or make any payment on account of, or set apart assets for a sinking
      or other analogous fund for, the purchase, redemption, defeasance, retirement
      or
      other acquisition of, any shares of any class of capital stock of the Seller
      or
      any Subsidiary or any warrants or options to purchase any such capital stock,
      whether now or hereafter outstanding, or make any other distribution in respect
      thereof, either directly or indirectly, whether in cash or property or in
      obligations of the Seller or any Subsidiary, except that any wholly-owned
      Subsidiary may declare and pay dividends to the Seller or, in the case of any
      Subsidiary that is wholly-owned by any other Subsidiary, to such
      Subsidiary.

     

    (e)Limitation
      on Negative Pledge Clauses.
      Enter
      into any agreement with any Person other than the Purchasers, WFRF or any other
      Senior Lender which prohibits or limits the ability of the Seller or any of
      its
      Subsidiaries to create, incur, assume or suffer to exist any Lien upon any
      of
      its property, assets or revenues, whether now owned or hereafter
      acquired.

     

    (f) As
      used
      in this Section 5.12, the following capitalized terms shall have the meanings
      assigned to them below:

     

    “Debt”
of
      any
      Person means (a) indebtedness of such Person for borrowed money, (b) obligations
      of such Person evidenced by bonds, debentures, notes or other similar
      instruments, (c) obligations of such Person to pay the deferred purchase price
      of property or services (excluding trade payables and other accounts payable
      incurred in the ordinary course of business of such Person), (d) capital lease
      obligations of such Person, (e) Debt of others secured by a Lien on the property
      of such Person, whether or not the respective indebtedness so secured has been
      assumed by such Person, (f) the maximum amount available to be drawn under
      all
      letters of credit issued for the account of such Person and all unpaid drawings
      in respect of such letters of credit, (g) all obligations of such Person created
      or arising under any conditional sale or other title retention agreement or
      incurred as financing, (h) the net obligations of such Person under derivative
      transactions or commodity transactions; and (i) obligations of such Person
      under
      a Guaranty of Debt of others of the kinds referred to in clauses (a) through
      (h)
      above.

     

    “Guaranty”
by
      any
      Person means any obligation of such Person guaranteeing or in effect
      guaranteeing any Debt of another Person, including, but not limited to, any
      obligation of such Person to purchase or pay (or supply advance funds for the
      purchase or payment of) such Debt (whether arising by virtue of a partnership
      agreement, agreement to keep-well, to purchase property or assets or services,
      to take-or-pay, or to maintain financial statement conditions or otherwise),
      or
      any obligation incurred for the purpose of assuring the holder of such Debt
      of
      the payment thereof in whole or in part; provided that the term “Guaranty” shall
      not include any endorsement of an instrument for deposit or collection in the
      ordinary course of business.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    “Lien”
means
      any lien, pledge, security interest or other charge or encumbrance of any kind,
      or any other type of preferential arrangement, including, but not limited to,
      the lien or retained security title of a conditional vendor and the interest
      of
      a lessor under a lease intended as security.

     

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

     

    5.13 Subordination
      Agreement.
      The
      Purchasers hereby agree, at the request of the Seller, to enter into an
      Intercreditor and Subordination Agreement with any Senior Lender containing
      terms and conditions substantially similar to the Subordination Agreement (as
      defined below).

     

    ARTICLE
      VI - CONDITIONS TO CLOSING

     

    6.1 Conditions
      to Obligations of Purchasers to Effect the Closing.
      The
      obligations of the Purchasers to effect the Closing and the transactions
      contemplated by this Agreement or the other Transaction Documents shall be
      subject to the satisfaction at or prior to the Closing, of each of the following
      conditions, any of which may be waived, in writing, by the
      Purchasers:

     

    (a) The
      Seller shall deliver or cause to be delivered to the Purchasers the following:
      

     

    1.     (i) The
      Notes
      (in the respective principal amounts set forth on Schedule
      1.1)
      payable
      to the order of Purchasers duly executed by Seller; and

     

    (ii) The
      certificates evidencing the Warrants (exercisable into such number of shares
      of
      Common Stock as set forth on Schedule
      1.1)
      ,
      registered in the name of the applicable Purchaser. 

     

    2. The
      Investor Rights Agreement, in the form attached hereto as Exhibit
      C
      (the
“Investor
      Rights Agreement”),
      duly
      executed by the Seller.

     

    3. The
      Security Agreement, in the form attached hereto as Exhibit
      D
      (the
“Security
      Agreement”),
      duly
      executed by the Seller in favor of Deerfield Special Situations Fund, L.P.,
      as
      agent.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    4. A
      legal
      opinion of Robinson & Cole LLP (“Seller’s Counsel”), counsel to the Seller,
      in the form attached hereto as Exhibit
      E.

     

    5. A
      certificate of the Secretary of the Seller (the “Secretary’s Certificate”), in
      form and substance satisfactory to the Purchasers, certifying as follows:


     

    (i) that
      attached to the Secretary’s Certificate is a true and complete copy of the
      Articles of Incorporation of the Seller, as amended, including any and all
      certificates of designation;

     

    (ii) that
      a
      true copy of the Bylaws of the Seller, as amended to the Closing Date, is
      attached to the Secretary’s Certificate;

     

    (iii) that
      attached thereto are true and complete copies of the resolutions of the Board
      of
      Directors of the Seller authorizing the execution, delivery and performance
      of
      this Agreement and the other Transaction Documents, instruments and certificates
      required to be executed by it in connection herewith and approving the
      consummation of the transactions in the manner contemplated hereby including,
      but not limited to, the authorization and issuance of the Notes and Warrants;
      

     

    (iv) the
      names
      and true signatures of the officers of the Seller signing this Agreement, the
      other Transaction Documents, and all other documents to be delivered in
      connection with this Agreement and the other Transaction Documents;

     

    (v) such
      other matters as required by this Agreement and the other Transaction Documents;
      and

     

    (vi) such
      other matters as the Purchasers may reasonably request.

     

    6. A
      copy of
      a full written release signed by ABDC with respect to all amounts owed to ABDC
      by Seller and its Affiliates, in form and substance satisfactory to the
      Purchasers (the “ABDC
      Release”).

     

    7. A
      consent
      by WFRF to this Agreement, the other Transaction Documents and the transactions
      contemplated hereby and thereby, in form and substance satisfactory to the
      Purchasers (the “WFRF
      Consent”).

     

    8. The
      Intercreditor and Subordination Agreement among the Seller, the Purchasers
      and
      WFRF (the “Subordination
      Agreement”),
      duly
      executed by the Seller and WFRF.

     

    9. Such
      other documents as the Purchasers shall reasonably request including, without
      limitation, guaranties by certain Subsidiaries of Seller’s obligations under the
      Notes, and security agreements by such Subsidiaries to secure their obligations
      under those guaranties, each in form and substance satisfactory to
      Purchasers.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    10. The
      representations and warranties of the Seller contained in this Agreement shall
      be true on and as of the Closing Date with the same force and effect as though
      made on and as of the Closing Date. The Seller shall have performed and complied
      with all covenants and agreements required by this Agreement to be performed
      or
      complied with by the Seller on or prior to the Closing Date.

     

    11. No
      action, suit or proceeding shall have been instituted before any court or
      governmental body or instituted or threatened by any governmental agency or
      body
      to restrain or prevent the carrying out of the transactions contemplated hereby,
      or which has or may have, in the reasonable opinion of the Purchasers, a
      materially adverse effect on the assets, properties, business or condition,
      financial or otherwise, of the Seller.

     

    6.2 Conditions
      to Obligations of the Seller to Effect the Closing.
      The
      obligations of the Seller to effect the Closing and the transactions
      contemplated by this Agreement shall be subject to the satisfaction at or prior
      to the Closing of each of the following conditions, any of which may be waived,
      in writing, by the Seller:

     

    (a) The
      Purchasers shall deliver or cause to be delivered to the Seller (i) payment
      of
      the Purchase Price in cash by either (x) wire transfer of immediately available
      funds to an account designated in writing by Seller prior to the date hereof,
      or
      (y) certified or cashier’s check; (ii) an executed copy of this Agreement; (iii)
      an executed copy of the Investor Rights Agreement; (iv) an executed copy of
      the
      Subordination Agreement; and (v) such other documents as the Seller shall
      reasonably request.

     

    (b) The
      representations and warranties of the Purchasers contained in this Agreement
      shall be true on and as of the Closing Date with the same force and effect
      as
      though made on and as of the Closing Date. The Purchasers shall have performed
      and complied with all covenants and agreements required by this Agreement to
      be
      performed or complied with by the Purchasers on or prior to the Closing
      Date.

     

    (c) No
      action, suit or proceeding shall have been instituted before any court or
      governmental body or instituted or threatened by any governmental agency or
      body
      to restrain or prevent the carrying out of the transactions contemplated
      hereby.

     

    (d) Seller
      shall have received the ABDC Release and the WFRF Consent.

     

    ARTICLE
      VII - INDEMNIFICATION, TERMINATION AND DAMAGES

     

    7.1 Survival
      of Representations.
      Except
      as otherwise provided herein, the representations and warranties of the Seller
      and the Purchasers contained in or made pursuant to this Agreement shall survive
      the execution and delivery of this Agreement and the Closing Date. 

     

    
      
        
        

      

      
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    7.2 Indemnification.
      

     

    (a) The
      Seller agrees to indemnify and hold harmless the Purchasers, their Affiliates,
      each of their officers, directors, employees and agents and their respective
      successors and assigns, from and against any losses, damages, or expenses which
      are caused by or arise out of (i) any breach or default in the performance
      by
      the Seller of any covenant or agreement made by the Seller in this Agreement
      or
      in the other Transaction Documents; (ii) any breach of warranty or
      representation made by the Seller in this Agreement or in the other Transaction
      Documents; and (iii) any and all third party actions, suits, proceedings,
      claims, demands, judgments, costs and expenses (including reasonable legal
      fees
      and expenses) incident to any of the foregoing.

     

    (b) Each
      Purchaser agrees to indemnify and hold harmless the Seller, its Affiliates,
      each
      of their officers, directors, employees and agents and their respective
      successors and assigns, from and against any losses, damages, or expenses which
      are caused by or arise out of (A) any breach or default in the performance
      by
      such Purchaser of any covenant or agreement made by such Purchaser in this
      Agreement or in the other Transaction Documents; (B) any breach of warranty
      or
      representation made by such Purchaser in this Agreement or in the other
      Transaction Documents; and (C) any and all third party actions, suits,
      proceedings, claims, demands, judgments, costs and expenses (including
      reasonable legal fees and expenses) incident to any of the foregoing; provided,
      however, that such Purchaser’s liability under this Section 7.2(b) shall not
      exceed the Purchase Price paid by such Purchaser hereunder.

     

    7.3 Indemnity
      Procedure.
      A party
      or parties hereto agreeing to be responsible for or to indemnify against any
      matter pursuant to this Agreement is referred to herein as the “Indemnifying
      Party” and the other party or parties claiming indemnity is referred to as the
“Indemnified Party”. An Indemnified Party under this Agreement shall, with
      respect to claims asserted against such party by any third party, give written
      notice to the Indemnifying Party of any liability which might give rise to
      a
      claim for indemnity under this Agreement within twenty (20) days of the receipt
      of any written claim from any such third party, but not later than fifteen
      (15)
      days prior to the date any answer or responsive pleading is due, and with
      respect to other matters for which the Indemnified Party may seek
      indemnification, give prompt written notice to the Indemnifying Party of any
      liability which might give rise to a claim for indemnity; provided, however,
      that any failure to give such notice will not waive any rights of the
      Indemnified Party except to the extent the rights of the Indemnifying Party
      are
      materially prejudiced thereby.

     

    The
      Indemnifying Party shall have the right, at its election, to take over the
      defense or settlement of such claim by giving written notice to the Indemnified
      Party at least ten (10) days prior to the time when an answer or other
      responsive pleading or notice with respect thereto is required. If the
      Indemnifying Party makes such election, it may conduct the defense of such
      claim
      through counsel of its choosing (subject to the Indemnified Party’s approval of
      such counsel, which approval shall not be unreasonably withheld), shall be
      solely responsible for the expenses of such defense and shall be bound by the
      results of its defense or settlement of the claim. The Indemnifying Party shall
      not settle any such claim without prior notice to and consultation with the
      Indemnified Party, and no such settlement involving any equitable relief or
      which might have an adverse effect on the Indemnified Party may be agreed to
      without the written consent of the Indemnified Party (which consent shall not
      be
      unreasonably withheld). So long as the Indemnifying Party is diligently
      contesting any such claim in good faith, the Indemnified Party may pay or settle
      such claim only at its own expense and the Indemnifying Party will not be
      responsible for the fees of separate legal counsel to the Indemnified Party,
      unless the named parties to any proceeding include both parties or
      representation of both parties by the same counsel would be inappropriate due
      to
      conflicts of interest or otherwise. If the Indemnifying Party does not make
      such
      election, or having made such election does not, in the reasonable opinion
      of
      the Indemnified Party proceed diligently to defend such claim, then the
      Indemnified Party may (after written notice to the Indemnifying Party), at
      the
      expense of the Indemnifying Party, elect to take over the defense of and proceed
      to handle such claim in its discretion and the Indemnifying Party shall be
      bound
      by any defense or settlement that the Indemnified Party may make in good faith
      with respect to such claim; provided, however, that the Indemnified Party may
      not settle any such claims without the written consent of the Indemnifying
      Party
      (which consent shall not be unreasonably withheld). In connection therewith,
      the
      Indemnifying Party will fully cooperate with the Indemnified Party should the
      Indemnified Party elect to take over the defense of any such claim. The parties
      agree to cooperate in defending such third party claims and the Indemnified
      Party shall provide such cooperation and such access to its books, records
      and
      properties as the Indemnifying Party shall reasonably request with respect
      to
      any matter for which indemnification is sought hereunder; and the parties hereto
      agree to cooperate with each other in order to ensure the proper and adequate
      defense thereof.

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    With
      regard to claims of third parties for which indemnification is payable
      hereunder, such indemnification shall be paid by the Indemnifying Party upon
      the
      earlier to occur of: (i) the entry of a judgment against the Indemnified Party
      and the expiration of any applicable appeal period, or if earlier, five (5)
      days
      prior to the date that the judgment creditor has the right to execute the
      judgment; (ii) the entry of an unappealable judgment or final appellate decision
      against the Indemnified Party; or (iii) a settlement of the claim.
      Notwithstanding the foregoing, subject to this Section 7.3, the reasonable
      expenses of counsel to the Indemnified Party shall be reimbursed on a current
      basis by the Indemnifying Party. 

     

    ARTICLE
      VIII - MISCELLANEOUS

     

    8.1 Further
      Assurances.
      Each
      party agrees to cooperate fully with the other parties and to execute such
      further instruments, documents and agreements and to give such further written
      assurances as may be reasonably requested by the other party hereto to better
      evidence and reflect the transactions described herein and contemplated hereby
      and to carry into effect the intents and purposes of this Agreement and the
      other Transaction Documents, and further agrees to take promptly, or cause
      to be
      taken, all actions, and to do promptly, or cause to be done, all things
      necessary, proper or advisable under applicable law to consummate and make
      effective the transactions contemplated hereby, to obtain all necessary waivers,
      consents and approvals, to effect all necessary registrations and filings,
      and
      to remove any injunctions or other impediments or delays, legal or otherwise,
      in
      order to consummate and make effective the transactions contemplated by this
      Agreement and the other Transaction Documents for the purpose of securing to
      the
      parties hereto the benefits contemplated by this Agreement and the other
      Transaction Documents.

     

    8.2 Fees
      and Expenses.
      Each
      party hereto shall pay its own costs and expenses incurred in connection with
      this Agreement, the other Transaction Documents and the transactions
      contemplated hereby and thereby.

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

    8.3 Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be in writing and shall be deemed given and effective
      on the earliest of (a) the date of transmission, if such notice or communication
      is delivered via facsimile at the facsimile number specified in this Section
      8.3
      prior to 5:00 p.m. (New York City time) on a business day, (b) the next business
      day after the date of transmission, if such notice or communication is delivered
      via facsimile at the facsimile number specified in this Section 8.3 on a day
      that is not a business day or later than 5:00 p.m. (New York City time) on
      any
      business day, or (c) the business day following the date of mailing, if sent
      by
      U.S. nationally recognized overnight courier service such as Federal Express.
      The address for such notices and communications shall be as
      follows:

     

    If
      to a
      Purchaser, addressed to: 

     

    c/o
      Deerfield Management Company, L.P.

    780
      Third
      Avenue, 37th Floor

    New
      York,
      New York 10017

    Attention:
      James E. Flynn

    Facsimile
      No.: (212) 573-8111

    


     

    If
      to the
      Seller, addressed to: 

     

    DrugMax,
      Inc.

    312
      Farmington Avenue

    Farmington,
      CT 06032-1968

    Attention:
      General Counsel

    Facsimile
      No.: (860) 676-8764

     

    or
      to
      such other address or addresses or facsimile number or numbers as any such
      party
      may most recently have designated in writing to the other parties hereto by
      such
      notice. Copies of notices to a Purchaser shall be sent to Katten Muchin
      Rosenman, 575 Madison Avenue, New York, NY 10022, Attn: Robert Weiss, Esq.,
      Facsimile No. (212) 940-8776. Copies of notices to the Seller shall be sent
      to
      Robinson & Cole LLP, 200 Trumbull Street, Hartford, CT. 06103, Attn: John B.
      Lynch, Jr., Esq., Facsimile No. (860) 275-8299.

     

    Unless
      otherwise stated above, such communications shall be effective when they are
      received by the addressee thereof in conformity with this Section 8.3. Any
      party
      may change its address for such communications by giving notice thereof to
      the
      other parties in conformity with this Section 8.3.

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

    8.4 Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be governed by and enforced in accordance with the
      laws
      of the State of New York without reference to the conflicts of laws principles
      thereof other than Section 5-1401 of the New York General Obligations
      Law.

     

    8.5 Jurisdiction
      and Venue.
      This
      Agreement and the other Transaction Documents shall be subject to the exclusive
      jurisdiction of the Federal District Court, Southern District of New York and
      if
      such court does not have proper jurisdiction, the State Courts of New York
      County, New York. The parties to this Agreement irrevocably and expressly agree
      to submit to the jurisdiction of the aforementioned courts for the purpose
      of
      resolving any disputes among the parties relating to this Agreement, the other
      Transaction Documents or the transactions contemplated hereby or thereby. The
      parties irrevocably waive, to the fullest extent permitted by law, any objection
      which they may now or hereafter have to the laying of venue of any suit, action
      or proceeding arising out of or relating to this Agreement, the other
      Transaction Documents, or any judgment entered by any court in respect hereof
      or
      thereof brought in New York County, New York, and further irrevocably waive
      any
      claim that any suit, action or proceeding brought in Federal District Court,
      Southern District of New York and if such court does not have proper
      jurisdiction, the State Courts of New York County, New York has been brought
      in
      an inconvenient forum. 

     

    8.6 Successors
      and Assigns.
      This
      Agreement is personal to each of the parties and may not be assigned without
      the
      written consent of the other parties; provided, however, that a Purchaser shall
      be permitted to assign any portion of this Agreement to any Person to whom
      it
      assigns or transfers Securities issued or issuable pursuant to this Agreement
      in
      accordance with their respective terms. Notwithstanding anything to the contrary
      set forth in this Agreement, in the event of any transfer of any Warrants to
      a
      person or entity that does not hold a Note, the covenants in Article V of this
      Agreement shall not inure to the benefit of such transferee.

     

    8.7 Severability.
      If any
      provision of this Agreement, or the application thereof, shall for any reason
      or
      to any extent be invalid or unenforceable, the remainder of this Agreement
      and
      application of such provision to other persons or circumstances shall continue
      in full force and effect and in no way be affected, impaired or
      invalidated.

     

    8.8 Entire
      Agreement.
      This
      Agreement and the other agreements and instruments referenced herein constitute
      the entire understanding and agreement of the parties with respect to the
      subject matter hereof and supersedes all prior agreements and
      understandings.

     

    8.9 Other
      Remedies.
      Except
      as otherwise provided herein, any and all remedies herein expressly conferred
      upon a party shall be deemed cumulative with and not exclusive of any other
      remedy conferred hereby or by law, or in equity on such party, and the exercise
      of any one remedy shall not preclude the exercise of any other.

     

    8.10 Amendment
      and Waivers.
      Any
      term or provision of this Agreement may be amended, and the observance of any
      term of this Agreement may be waived (either generally or in a particular
      instance and either retroactively or prospectively) only by a writing signed
      by
      the Seller and the Purchasers. The waiver by a party of any breach hereof or
      default in the performance hereof shall not be deemed to constitute a waiver
      of
      any other default or any succeeding breach or default. This Agreement may not
      be
      amended or supplemented by any party hereto except pursuant to a written
      amendment executed by the Seller and the Purchasers. 

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

    8.11 No
      Waiver.
      The
      failure of any party to enforce any of the provisions hereof shall not be
      construed to be a waiver of the right of such party thereafter to enforce such
      provisions.

     

    8.12 Construction
      of Agreement; Knowledge.
      For
      purposes of this Agreement, the term “knowledge,” when used in reference to a
      corporation means the knowledge of the executive officers of such corporation
      assuming such persons shall have made inquiry that is customary and appropriate
      under the circumstances to which reference is made, and when used in reference
      to an individual means the knowledge of such individual assuming the individual
      shall have made inquiry that is customary and appropriate under the
      circumstances to which reference is made.

     

    8.13 Counterparts.
      This
      Agreement may be executed in any number of counterparts, each of which shall
      be
      an original as against any party whose signature appears thereon and all of
      which together shall constitute one and the same instrument. This Agreement
      shall become binding when one or more counterparts hereof, individually or
      taken
      together, shall bear the signatures of all of the parties reflected hereon
      as
      signatories. In the event that any signature is delivered by facsimile
      transmission, 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 signature page were an original
      thereof.

     

    8.14 No
      Third Party Beneficiary.
      Nothing
      expressed or implied in this Agreement is intended, or shall be construed,
      to
      confer upon or give any person other than the parties hereto and their
      respective heirs, personal representatives, legal representatives, successors
      and permitted assigns, any rights or remedies under or by reason of this
      Agreement.

     

    8.15 Waiver
      of Trial by Jury.
      THE
      PARTIES HERETO IRREVOCABLY WAIVE TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING
      RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

     

    [Signature
      Page Follows]

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    



    
 

    Schedule
      1.1

     

    


    
      	
              NOTES

            	
               

            	
              Principal
                Amount

            	 
	 	 	 	 
	
              Deerfield
                Special Situations Fund, L.P.

            	 	
              $

            	
              3,320,000

            	 
	
              Deerfield
                Special Situations Fund International, Limited

            	 	 	
              6,680,000

            	 
	
              Total

            	 	
              $

            	
              10,000,000

            	 
	 	 	 	 	 


    

     

     

    
      	 	 	Exercisable
              into Number of Shares
              of Common Stock	 
	
              WARRANTS
                - Series A

            	 	 	 
	 	 	 	 
	
              Deerfield
                Special Situations Fund, L.P.

            	 	
              $

            	
              996,000

            	 
	
              Deerfield
                Special Situations Fund International, Limited

            	 	 	
              2,004,000

            	 
	
              Total

            	 	
              $

            	
              3,000,000

            	 
	 	 	 	 	 
	
              WARRANTS
                - Series B

            	 	 	 	 
	 	 	 	 	 
	
              Deerfield
                Special Situations Fund, L.P.

            	 	
              $

            	
              1,826,000

            	 
	
              Deerfield
                Special Situations Fund International, Limited

            	 	 	
              3,674,000

            	 
	
              Total

            	 	
              $

            	
              5,500,000

            	 
	 	 	 	 	 
	
              WARRANTS
                - Series C

            	 	 	 	 
	 	 	 	 	 
	
              Deerfield
                Special Situations Fund, L.P.

            	 	
              $

            	
              1,826,000

            	 
	
              Deerfield
                Special Situations Fund International, Limited

            	 	 	
              3,674,000

            	 
	
              Total

            	 	
              $

            	
              5,500,000

            	 
	 	 	 	 	 
	 	 	 	 	 
	
              WARRANTS
                - Series D

            	 	 	 	 
	 	 	 	 	 
	
              Deerfield
                Special Situations Fund, L.P.

            	 	
              $

            	
              830,000

            	 
	
              Deerfield
                Special Situations Fund International, Limited

            	 	 	
              1,670,000

            	 
	
              Total

            	 	
              $

            	
              2,500,000