Document:

Exhibit
10.4

SECURITIES
PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”)
is dated as of December 5, 2006 among Ceragenix Pharmaceuticals, Inc., a
Delaware corporation (the “Company”), and each purchaser identified on
the signature pages hereto (each, including its successors and assigns, a “Purchaser”
and collectively the “Purchasers”).

WHEREAS, subject to the terms and conditions set forth
in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933,
as amended (the “Securities Act”), and Rule 506 promulgated thereunder,
the Company desires to issue and sell to each Purchaser, and each Purchaser,
severally and not jointly, desires to purchase from the Company, securities of
the Company as more fully described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual
covenants contained in this Agreement, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Company and each Purchaser agree as follows:

ARTICLE
I.

DEFINITIONS

1.1           Definitions.  In addition to the terms defined elsewhere in
this Agreement: (a) capitalized terms that are not otherwise defined herein
have the meanings given to such terms in the Debentures (as defined herein),
and (b) the following terms have the meanings set forth in this Section 1.1:

“Action”
shall have the meaning ascribed to such term in Section 3.1(j).

“Affiliate”
means any Person 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 same investment manager as such Purchaser will be deemed to be an
Affiliate of such Purchaser.

“Business Day”
means any day except Saturday, Sunday, any day which shall be a federal legal
holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental
action to close.

“Class A
Warrants” means those certain Class A Common Stock Purchase Warrants issued
by the Company to the Note Holders on November 28, 2005.

“Closing”
means the closing of the purchase and sale of the Securities pursuant to
Section 2.1.

 

“Closing Date”
means the Trading Day when all of the Transaction Documents have been executed
and delivered by the applicable parties thereto, and all conditions precedent
to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Securities have been satisfied or waived.

“Commission”
means the Securities and Exchange Commission.

“Common Stock”
means the common stock of the Company, par value $0.0001 per share, and any
other class of securities into which such securities may hereafter be
reclassified or changed into.

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

“Company
Counsel” means McKenna, Long & Aldridge LLP, with offices located at
1875 Lawrence Street, Suite 200, Denver, Colorado 80203.

“Conversion
Price” shall have the meaning ascribed to such term in the Debentures.

“Debentures”
means, the 9% Secured Convertible Debentures due, subject to the terms therein,
3 years from their date of issuance, issued by the Company to the Purchasers
hereunder, in the form of Exhibit A attached hereto.

“Disclosure
Schedules” shall have the meaning ascribed to such term in Section 3.1.

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

“Evaluation
Date” shall have the meaning ascribed to such term in Section 3.1(r).

“Exchange Act”
means the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

“Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to
employees, officers or directors of the Company pursuant to any stock or option
plan duly adopted for such purpose by a majority of the non-employee members of
the Board of Directors of the Company or a majority of the members of a
committee of non-employee directors established for the purpose of
administering the Company’s stock and/or option plans including the
Compensation Committee, (b) securities upon the exercise or exchange of or
conversion of any Securities issued hereunder, (c) securities issued pursuant
to acquisitions or strategic transactions approved by a majority of the 

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disinterested
directors of the Company, provided any such issuance shall only be to a Person
which is, itself or through its subsidiaries, an operating company in a
business synergistic with the business of the Company and in which the Company
receives benefits in addition to the investment of funds, but shall not include
a transaction in which the Company is issuing securities primarily for the
purpose of raising capital or to an entity whose primary business is investing
in securities and (d) securities exercisable or exchangeable for or convertible
into shares of Common Stock issued and outstanding on the date of this
Agreement, provided that such securities have not been amended since the date
of this Agreement to increase the number of such securities or to decrease the
exercise, exchange or conversion price of such securities; provided, however,
the term “Exempt Issuance” for purposes of Section 5 of the Debentures and
Section 3 of the Warrants shall not include shares of Common Stock issued or
issuable upon conversion, exchange or exercise of the Notes, the Class A
Warrants or other Common Stock Equivalents outstanding as of the date hereof in
the event there is any adjustment to the conversion, exercise or exchange price
of such Notes, the Class A Warrants or other Common Stock Equivalents.  For clarity, any such adjustment to the
conversion, exercise or exchange price of the Notes, the Class A Warrants or
other Common Stock Equivalents shall be subject to Section 5 of the Debentures
and Section 3 of the Warrants.

“FWS” means
Feldman Weinstein & Smith LLP with offices located at 420 Lexington Avenue,
Suite 2620, New York, New York 10170-0002.

“GAAP”
shall have the meaning ascribed to such term in Section 3.1(h).

“Indebtedness”
shall have the meaning ascribed to such term in Section 3.1(bb).

“Intellectual
Property Rights” shall have the meaning ascribed to such term in Section
3.1(o).

“Intercreditor
Agreement” means that certain Intercreditor Agreement in the Form of Exhibit
H attached hereto, dated as of the date hereof between the Purchasers and
Note Holders.

“Legend Removal
Date” shall have the meaning ascribed to such term in Section 4.1(c).

“Liens”
means a lien, charge, security interest, encumbrance, right of first refusal,
preemptive right or other restriction.

“Material
Adverse Effect” shall have the meaning assigned to such term in Section
3.1(b).

“Material
Permits” shall have the meaning ascribed to such term in Section 3.1(m).

“Maximum Rate”
shall have the meaning ascribed to such term in Section 5.17.

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“Note Holders”
means Longview Equity Fund, LP, Longview Fund, LP, Alpha Capital
Aktiengesellschaft and Iroquois Capital.

“Notes”
means those secured convertible notes issued by the Company to the Note Holders
on November 28, 2005 in the original aggregate principal amount of $3,200,000.

“Participation
Maximum” shall have the meaning ascribed to such term in Section 4.13.

“Permitted Lien”
shall have the meaning set forth in the Debentures.

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

“Pre-Notice”
shall have the meaning ascribed to such term in Section 4.13.

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

“Purchaser
Party” shall have the meaning ascribed to such term in Section 4.11.

“Registration
Rights Agreement” means the Registration Rights Agreement, dated the date
hereof, among the Company and the Purchasers, in the form of Exhibit B
attached hereto.

“Registration
Statement” means a registration statement meeting the requirements set
forth in the Registration Rights Agreement and covering the resale of the
Underlying Shares by each Purchaser as provided for in the Registration Rights
Agreement.

“Required
Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

“Required
Minimum” means, as of any date, the maximum aggregate number of shares of
Common Stock then issued or potentially issuable in the future pursuant to the
Transaction Documents, including any Underlying Shares issuable upon exercise
or conversion in full of all Warrants and Debentures (including Underlying
Shares issuable as payment of interest), ignoring any conversion or exercise
limits set forth therein, and assuming that the Conversion Price is at all
times on and after the date of determination 75% of the then Conversion Price
on the Trading Day immediately prior to the date of determination.

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

“SEC Reports”
shall have the meaning ascribed to such term in Section 3.1(h).

“Securities”
means the Debentures, the Warrants, the Warrant Shares and the Underlying
Shares.

“Securities Act”
means the Securities Act of 1933, as amended, and the rules and regulations
promulgated hereunder.

“Security Agreement”
means the Amended and Restated Security Agreement, dated the date hereof, among
the Company, its Subsidiaries, the Note Holders and the Purchasers, in the form
of Exhibit E attached hereto.

“Security
Documents” shall mean the Security Agreement, the Subsidiary Guarantees and
any other documents and filing required thereunder in order to grant the
Purchasers a security interest in the assets of the Company and the
Subsidiaries as provided in the Security Agreement, including all UCC-1 filing
receipts Collateral. The Purchasers and the Note Holders have agreed to hold
their respective security interests pari passu,
pursuant to the terms of the Intercreditor Agreement.

“Series A
Stockholders” means those holders of the Company’s Series A Convertible
Preferred Stock.

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

“Subscription
Amount” means, as to each Purchaser, the aggregate amount to be paid for
Debentures and Warrants purchased hereunder as specified below such Purchaser’s
name on the signature page of this Agreement and next to the heading “Subscription
Amount”, in United States dollars and in immediately available funds.

“Subsequent
Financing” shall have the meaning ascribed to such term in Section 4.13.

“Subsequent
Financing Notice” shall have the meaning ascribed to such term in Section
4.13.

“Subsidiary”
means any subsidiary of the Company as set forth on Schedule 3.1(a).

“Subsidiary
Guarantee” means the Subsidiary Guarantee, dated the date hereof, by each
Subsidiary in favor of the Purchasers, in the form of Exhibit F attached
hereto.

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“Trading Day”
means a day on which the Common Stock is listed or quoted for trading on a
Trading Market and, if the Common Stock is not then listed or quoted for
trading on a Trading Market, “Trading Day” shall mean a Business Day.

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

“Transaction
Documents” means this Agreement, the Debentures, the Warrants, the
Registration Rights Agreement, the Security Agreement, the Subsidiary
Guarantee, all exhibits and schedules hereto and thereto and any other
documents or agreements executed in connection with the transactions
contemplated hereunder.

“Transfer Agent”
means Corporate Stock Transfer, with a mailing address of 3200 Cherry Creek
Drive South, Suite 430, Denver, Colorado 80209, and a facsimile number of (303)
777-3094, and any successor transfer agent of the Company.

“Underlying
Shares” means the shares of Common Stock issued and issuable upon
conversion or redemption of the Debentures and upon exercise of the Warrants
and issued and issuable in lieu of the cash payment of interest on the
Debentures in accordance with the terms of the Debentures.

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

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

“Warrants”
means collectively the Common Stock purchase warrants delivered to the
Purchasers at the Closing in accordance with Section 2.2(a) hereof, which
Warrants shall be exercisable immediately and have a term of exercise equal to
5 years, in the form of Exhibit C attached hereto.

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“Warrant Shares”
means the shares of Common Stock issuable upon exercise of the Warrants.

ARTICLE
II.

PURCHASE AND SALE

2.1           Closing.  On the Closing Date, upon the terms and
subject to the conditions set forth herein, substantially concurrent with the
execution and delivery of this Agreement by the parties hereto, the Company
agrees to sell, and each Purchaser, severally and not jointly, agrees to
purchase, an aggregate of up to $5,000,000 in principal amount of the
Debentures.  Each Purchaser shall deliver
to the Company, via wire transfer or a certified check, immediately available
funds equal to its Subscription Amount and the Company shall deliver to each
Purchaser its respective Debenture and a Warrant, as determined pursuant to
Section 2.2(a), and the Company and each Purchaser shall deliver the other
items set forth in Section 2.2 deliverable at the Closing.  Upon satisfaction of the conditions set forth
in Sections 2.2 and 2.3, the Closing shall occur at the offices of FWS or such
other location as the parties shall mutually agree.

2.2           Deliveries.

 

(a)           On the Closing Date,
the Company shall deliver or cause to be delivered to each Purchaser the
following:

(i)            this Agreement duly
executed by the Company;

(ii)           a legal opinion of
Company Counsel, in the form of Exhibit D attached hereto;

(iii)          a Debenture with a
principal amount equal to such Purchaser’s Subscription Amount, registered in
the name of such Purchaser;

(iv)          a Warrant registered in
the name of such Purchaser to purchase up to a number of shares of Common Stock
equal to 50% of such Purchaser’s Subscription Amount divided by $2.15107, with
an exercise price equal to $2.37, subject to adjustment therein;

(v)           the Security Agreement,
duly executed by the Company and each Subsidiary, along with all of the
Security Documents, including the Subsidiary Guarantees, duly executed by the
parties thereto; and

(vi)          the Registration Rights
Agreement duly executed by the Company.

(b)           On the Closing Date,
each Purchaser shall deliver or cause to be delivered to the Company the
following:

(i)            this Agreement duly
executed by such Purchaser;

(ii)           such Purchaser’s
Subscription Amount by wire transfer to the 

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account as specified in writing by the
Company;

(iii)          the Security Agreement
duly executed by such Purchaser; and

(iv)          the Registration Rights
Agreement duly executed by such Purchaser.

2.3           Closing
Conditions.

(a)             The obligations of
the Company hereunder in connection with the Closing are subject to the
following conditions being met:

(i)            the accuracy in all
material respects when made and on the Closing Date of the representations and
warranties of the Purchasers contained herein;

(ii)           all obligations,
covenants and agreements of the Purchasers required to be performed at or prior
to the Closing Date shall have been performed; and

(iii)          the delivery by the
Purchasers of the items set forth in Section 2.2(b) of this Agreement.

(b)             The respective
obligations of the Purchasers hereunder in connection with the Closing are
subject to the following conditions being met:

(i)            the accuracy in all
material respects when made and on the Closing Date of the representations and
warranties of the Company contained herein;

(ii)           all obligations,
covenants and agreements of the Company required to be performed at or prior to
the Closing Date shall have been performed;

(iii)          the delivery by the
Company of the items set forth in Section 2.2(a) of this Agreement;

(iv)          there shall have been no
Material Adverse Effect with respect to the Company since the date hereof;

(v)           the Note Holders shall
have executed and delivered the Security Agreement; and

(vi)          from the date hereof to
the Closing Date, trading in the Common Stock shall not have been suspended by
the Commission or the Company’s principal Trading Market (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any time prior to
the Closing Date, trading in securities generally as reported by Bloomberg L.P.
shall not have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are 

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reported by such service, or on any Trading
Market, nor shall a banking moratorium have been declared either by the United
States or New York State authorities nor shall there have occurred any material
outbreak or escalation of hostilities or other national or international
calamity of such magnitude in its effect on, or any material adverse change in,
any financial market which, in each case, in the reasonable judgment of each
Purchaser, makes it impracticable or inadvisable to purchase the Debentures at
the Closing.

ARTICLE
III.

REPRESENTATIONS
AND WARRANTIES

3.1           Representations
and Warranties of the Company. 
Except as set forth under the corresponding section of the disclosure
schedules delivered to the Purchasers concurrently herewith (the “Disclosure
Schedules”), which Disclosure Schedules shall be deemed a part hereof and
to qualify any representation or warranty otherwise made herein to the extent
of such disclosure, the Company hereby makes the following representations and
warranties to each Purchaser:

(a)           Subsidiaries.  All of the direct and indirect subsidiaries
of the Company are set forth on Schedule 3.1(a).  The Company owns, directly or indirectly, all
of the capital stock or other equity interests of each Subsidiary free and
clear of any Liens, other than Permitted Liens, and all of the issued and
outstanding shares of capital stock of each Subsidiary are validly issued and
are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.  If
the Company has no subsidiaries, all other references to the Subsidiaries or
any of them in the Transaction Documents shall be disregarded.

(b)           Organization and Qualification.  The Company and each of the Subsidiaries is
an entity duly incorporated or otherwise organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently
conducted.  Neither the Company nor any
Subsidiary is in violation or default of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. 
Each of the Company and the Subsidiaries is duly qualified to conduct
business and is in good standing as a foreign corporation or other entity in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not have or
reasonably be expected to result in (i) a material adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material
Adverse Effect”) and no Proceeding has been instituted in any such
jurisdiction revoking, 

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limiting or curtailing or seeking to revoke,
limit or curtail such power and authority or qualification.

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

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

(e)           Filings, Consents
and Approvals.  Except as listed on Schedule
3.1(e), the Company is not required to obtain any consent, waiver,
authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than (i) 

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filings required pursuant to
Section 4.6, (ii) the filing with the Commission of the Registration Statement,
(iii) the notice and/or application(s) to each applicable Trading Market for
the issuance and sale of the Securities and the listing of the Underlying
Shares for trading thereon in the time and manner required thereby and (iv) the
filing of Form D with the Commission and such filings as are required to be
made under applicable state securities laws (collectively, the “Required
Approvals”).

(f)            Issuance of the
Securities.  The Securities are duly
authorized and, when issued and paid for in accordance with the applicable
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction Documents.  The Underlying Shares, when issued in accordance
with the terms of the Transaction Documents, will be validly issued, fully paid
and nonassessable, free and clear of all Liens imposed by the Company.  The Company has reserved from its duly
authorized capital stock a number of shares of Common Stock for issuance of the
Underlying Shares at least equal to the Required Minimum on the date hereof.

(g)           Capitalization.  The capitalization of the Company is as set
forth on Schedule 3.1(g).  The
Company has not issued any capital stock since its most recently filed periodic
report under the Exchange Act, other than pursuant to the exercise of employee
stock options under the Company’s stock option plans, the issuance of shares of
Common Stock to employees pursuant to the Company’s employee stock purchase
plan and pursuant to the conversion or exercise of Common Stock Equivalents
outstanding as of the date of the most recently filed periodic report under the
Exchange Act.  No Person has any right of
first refusal, preemptive right, right of participation, or any similar right
to participate in the transactions contemplated by the Transaction
Documents.  Except as set forth on Schedule
3.1(g) or as a result of the purchase and sale of the Securities, there are
no outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or
Common Stock Equivalents. The issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities to any
Person (other than the Purchasers) and will not result in a right of any holder
of Company securities to adjust the exercise, conversion, exchange or reset
price under any of such securities. All of the outstanding shares of capital
stock of the Company are validly issued, fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, and none
of such outstanding shares was issued in violation of any preemptive rights or
similar rights to subscribe for or purchase securities. Except as disclosed in Schedule
3.1(g), no further approval or authorization of any stockholder, the Board
of Directors of the Company or others is required for the issuance and sale of
the Securities.  There are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company’s capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company’s stockholders.

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(h)           SEC Reports; Financial Statements.  Except as listed on Schedule 3.1(h), Company
has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required
by law or regulation to file such material) (the foregoing materials, including
the exhibits thereto and documents incorporated by reference therein, being
collectively referred to herein as the “SEC Reports”) on a timely basis
or has received a valid extension of such time of filing and has filed any such
SEC Reports prior to the expiration of any such extension.  As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act, as applicable, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.  The financial statements
of the Company included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing.  Such financial statements have been prepared
in accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated Subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.

(i)            Material Changes.  Since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in a subsequent SEC Report filed prior to the date hereof, (i) there
has been no event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect, (ii) the Company
has not incurred any liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be reflected
in the Company’s financial statements pursuant to GAAP or disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting, (iv) except as set forth on Schedule 3.1(i), the Company has not
declared or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plans. The Company does not have pending before
the Commission any request for confidential treatment of information.  Except for the issuance of the Securities
contemplated by this Agreement or as set forth on Schedule 3.1(i), no
event, liability or development has occurred or exists with respect to the
Company or its Subsidiaries or their respective business, properties,
operations or financial condition, that would be required to be disclosed by
the Company under applicable securities laws at the time this representation is
made that has not been 

 12
 

 

publicly disclosed at least one
Trading Day prior to the date that this representation is made.

(j)            Litigation.  There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse
Effect.  Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the subject of
any Action involving a claim of violation of or liability under federal or
state securities laws or a claim of breach of fiduciary duty.  There has not been, and to the knowledge of
the Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer
of the Company.  The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the
Exchange Act or the Securities Act.

(k)           Labor Relations.  No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company which could reasonably be expected to result in a Material Adverse
Effect.  None of the Company’s or its
Subsidiaries’ employees is a member of a union that relates to such employee’s
relationship with the Company, and neither the Company or any of its
Subsidiaries is a party to a collective bargaining agreement, and the Company
and its Subsidiaries believe that their relationships with their employees are
good.  No executive officer, to the
knowledge of the Company, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement or non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such executive officer does not subject the Company or any of its
Subsidiaries to any liability with respect to any of the foregoing matters.  The Company and its Subsidiaries are in
compliance with all U.S. federal, state, local and foreign laws and regulations
relating to employment and employment practices, terms and conditions of
employment and wages and hours, except where the failure to be in compliance
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

(l)            Compliance.  Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been 

 13
 

 

in violation of any statute, rule or
regulation of any governmental authority, including without limitation all
foreign, federal, state and local laws applicable to its business and all such
laws that affect the environment, except in each case as could not have or
reasonably be expected to result in a Material Adverse Effect.

(m)          Regulatory Permits.  The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not have or reasonably be expected to result in a
Material Adverse Effect (“Material Permits”), and neither the Company
nor any Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.

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

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

(p)           Insurance.  The Company and the Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which the Company and the Subsidiaries are engaged, including, but not limited
to, directors and officers insurance coverage at 

 14
 

 

least equal to the aggregate
Subscription Amount.  Neither the Company
nor any Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.

(q)           Transactions With Affiliates and Employees.  Except as set forth in the SEC Reports, none
of the officers or directors of the Company and, to the knowledge of the
Company, none of the employees of the Company is presently a party to any
transaction with the Company or any Subsidiary (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner, in each
case in excess of $60,000 other than (i) for payment of salary or consulting
fees for services rendered, (ii) reimbursement for expenses incurred on behalf
of the Company and (iii) for other employee benefits, including stock option
agreements under any stock option plan of the Company.

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

 15
 

 

(s)           Certain Fees.
Except as set forth on Schedule 3.1(s), no brokerage or finder’s fees or
commissions are or will be payable by the Company to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by the Transaction
Documents.  The Purchasers shall have no
obligation with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section that
may be due in connection with the transactions contemplated by the Transaction
Documents.

(t)            Private Placement.  Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Securities by the
Company to the Purchasers as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the
Trading Market.

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

(v)           Registration Rights.  Other than each of the Purchasers and as disclosed
on Schedule 3.1 (v), , no Person has any right to cause the Company to
effect the registration under the Securities Act of any securities of the
Company.

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

(x)            Application of
Takeover Protections.  The Company
and its Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s Certificate of Incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company’s
issuance of the Securities and the Purchasers’ ownership of the Securities.

 16
 

 

(y)           Disclosure.  Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company confirms that neither it nor any other Person acting on its behalf has
provided any of the Purchasers or their agents or counsel with any information
that it believes constitutes or might constitute material, nonpublic
information.  The Company understands and
confirms that the Purchasers will rely on the foregoing representation in
effecting transactions in securities of the Company.  All disclosure furnished by or on behalf of
the Company to the Purchasers regarding the Company, its business and the
transactions contemplated hereby, including the Disclosure Schedules to this
Agreement, is true and correct and does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.   The press releases
disseminated by the Company during the twelve months preceding the date of this
Agreement taken as a whole do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements, in light of the circumstances under
which they were made and when made, not misleading.  The Company acknowledges and agrees that no
Purchaser makes or has made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in
Section 3.2 hereof.

(z)            No Integrated
Offering. Assuming the accuracy of the Purchasers’ representations and
warranties set forth in Section 3.2, neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of
the Securities Act or any applicable shareholder approval provision of any
Trading Market on which any of the securities of the Company are listed or
designated.

(aa)         Solvency.  Based on the financial condition of the Company
as of the Closing Date after giving effect to the receipt by the Company of the
proceeds from the sale of the Securities hereunder, (i) the fair saleable value
of the Company’s assets exceeds the amount that will be required to be paid on
or in respect of the Company’s existing debts and other liabilities (including
known contingent liabilities) as they mature; (ii) the Company’s assets do not
constitute unreasonably small capital to carry on its business as now conducted
and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof; and (iii)
the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into
account all anticipated uses of the cash, would be sufficient to pay all
amounts on or in respect of its liabilities when such amounts are required to be
paid.  The Company does not intend to
incur debts beyond its ability to pay such debts as they mature (taking into
account the timing and amounts of cash to be payable on or in respect of its
debt).  The Company has no knowledge of
any facts or circumstances which lead it to believe that it will file for
reorganization or liquidation under the bankruptcy or reorganization laws of
any 

 17
 

 

jurisdiction within one year from the Closing
Date.  Schedule 3.1(aa) sets forth
as of the dates thereof all outstanding secured and unsecured Indebtedness of
the Company or any Subsidiary, or for which the Company or any Subsidiary has
commitments.  For the purposes of this
Agreement, “Indebtedness” shall mean (a) any liabilities for borrowed
money or amounts owed in excess of $50,000 (other than trade accounts payable
incurred in the ordinary course of business), (b) all guaranties, endorsements
and other contingent obligations in respect of Indebtedness of others, whether
or not the same are or should be reflected in the Company’s balance sheet (or
the notes thereto), except guaranties by endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business; and (c) the present value of any lease payments in excess of $50,000
due under leases required to be capitalized in accordance with GAAP.  Neither the Company nor any Subsidiary is in
default with respect to any Indebtedness.

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

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

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

(ee)         Accountants.  The Company’s accounting firm is set forth on
Schedule 3.1(ee) of the Disclosure Schedule.  To the knowledge and belief of the Company,
such accounting firm (i) is a registered public accounting firm as required by
the Exchange Act and (ii) shall express its opinion with respect to the
financial statements to be included in the Company’s Annual Report on Form
10-KSB for the year ending December 31, 2006.

(ff)           Seniority.  As of the Closing Date, except as set forth
on Schedule 3.1(ff), no Indebtedness or other claim against the Company is
senior to the Debentures in right of payment, whether with respect to interest
or upon liquidation or dissolution, or otherwise, other than indebtedness
secured by purchase money security interests (which 

 18
 

 

is senior only as to underlying
assets covered thereby) and capital lease obligations (which is senior only as
to the property covered thereby).

(gg)         No Disagreements with
Accountants and Lawyers.  There are
no disagreements of any kind presently existing, or reasonably anticipated by
the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company and the Company is current with
respect to any fees owed to its accountants and lawyers.

(hh)         Acknowledgment
Regarding Purchasers’ Purchase of Securities.  The Company acknowledges and agrees that each
of the Purchasers is acting solely in the capacity of an arm’s length purchaser
with respect to the Transaction Documents and the transactions contemplated
thereby.  The Company further
acknowledges that no Purchaser is acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given by any
Purchaser or any of their respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated thereby is
merely incidental to the Purchasers’ purchase of the Securities.  The Company further represents to each
Purchaser that the Company’s decision to enter into this Agreement and the
other Transaction Documents has been based solely on the independent evaluation
of the transactions contemplated hereby by the Company and its representatives.

(ii)           Acknowledgment
Regarding Purchasers Trading Activity. 
Anything in this Agreement or elsewhere herein to the contrary
notwithstanding (except for Sections 3.2(f) and 4.16 hereof), it is understood
and acknowledged by the Company (i) that none of the Purchasers have been asked
to agree, nor has any Purchaser agreed, to desist from purchasing or selling,
long and/or short, securities of the Company, or “derivative” securities based
on securities issued by the Company or to hold the Securities for any specified
term; (ii) that past or future open market or other transactions by any
Purchaser, including Short Sales, and specifically including, without
limitation, Short Sales or “derivative” transactions, before or after the
closing of this or future private placement transactions, may negatively impact
the market price of the Company’s publicly-traded securities; (iii) that any
Purchaser, and counter-parties in “derivative” transactions to which any such
Purchaser is a party, directly or indirectly, presently may have a “short”
position in the Common Stock, and (iv) that each Purchaser shall not be deemed
to have any affiliation with or control over any arm’s length counter-party in
any “derivative” transaction.  The
Company further understands and acknowledges that (a) one or more Purchasers may
engage in hedging activities at various times during the period that the
Securities are outstanding, including, without limitation, during the periods
that the value of the Underlying Shares deliverable with respect to Securities
are being determined and (b) such hedging activities (if any) could reduce the
value of the existing stockholders’ equity interests in the Company at and
after the time that the hedging activities are being conducted.  The
Company acknowledges that such aforementioned hedging activities do not
constitute a breach of any of the Transaction Documents.

 19
 

 

(jj)           Regulation M
Compliance.  The Company has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed to
cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the securities of the Company or (iii) paid or
agreed to pay to any Person any compensation for soliciting another to purchase
any other securities of the Company, other than, in the case of clauses (ii)
and (iii), compensation paid to the Company’s placement agent in connection with
the placement of the Securities

(kk)         FDA.  As
to each product subject to the jurisdiction of the U.S. Food and Drug
Administration (“FDA”) under the Federal Food, Drug and Cosmetic Act, as amended, and
the regulations thereunder (“FDCA”) that is manufactured, packaged, labeled, tested, distributed,
sold, and/or marketed by the Company or any of its Subsidiaries (each such
product, a “Pharmaceutical Product”),
such Pharmaceutical Product is being manufactured, packaged, labeled, tested,
distributed, sold and/or marketed by the Company in compliance with all
applicable requirements under FDCA and similar laws, rules and regulations
relating to registration, investigational use, premarket clearance, licensure,
or application approval, good manufacturing practices, good laboratory
practices, good clinical practices, product listing, quotas, labeling,
advertising, record keeping and filing of reports, except where the failure to
be in compliance would not have a Material Adverse Effect.  There is no pending, completed or, to the
Company’s knowledge, threatened, action (including any lawsuit, arbitration, or
legal or administrative or regulatory proceeding, charge, complaint, or
investigation) against the Company or any of its Subsidiaries, and none of the
Company or any of its Subsidiaries has received any notice, warning letter or
other communication from the FDA or any other governmental entity, which (i)
contests the premarket clearance, licensure, registration, or approval of, the
uses of, the distribution of, the manufacturing or packaging of, the testing
of, the sale of, or the labeling and promotion of any Pharmaceutical Product,
(ii) withdraws its approval of, requests the recall, suspension, or seizure of,
or withdraws or orders the withdrawal of advertising or sales promotional
materials relating to, any Pharmaceutical Product, (iii) imposes a clinical
hold on any clinical investigation by the Company or any of its Subsidiaries,
(iv) enjoins production at any facility of the Company or any of its Subsidiaries,
(v) enters or proposes to enter into a consent decree of permanent injunction
with the Company or any of its Subsidiaries, or (vi) otherwise alleges any
violation of any laws, rules or regulations by the Company or any of its
Subsidiaries, and which, either individually or in the aggregate, would have a
Material Adverse Effect.  The
properties, business and operations of the Company have been and are being
conducted in all material respects in accordance with all applicable laws,
rules and regulations of the FDA.  The Company has not been informed by
the FDA that the FDA will prohibit the marketing, sale, license or use in the
United States of any product proposed to be developed, produced or marketed by
the Company nor has the FDA expressed any concern as to approving or clearing
for marketing any product being developed or proposed to be developed by the
Company.

 20

 

 

3.2           Representations
and Warranties of the Purchasers.   
Each Purchaser hereby, for itself and for no other Purchaser, represents
and warrants as of the date hereof and as of the Closing Date to the Company as
follows:

(a)           Organization; Authority.  Such Purchaser is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with full right, corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution, delivery and performance by such Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all necessary corporate
or similar action on the part of such Purchaser.  Each Transaction Document to which it is a
party has been duly executed by such Purchaser, and when delivered by such
Purchaser in accordance with the terms hereof, will constitute the valid and
legally binding obligation of such Purchaser, enforceable against it in
accordance with its terms, except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors’
rights generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and (iii)
insofar as indemnification and contribution provisions may be limited by applicable
law.

(b)           Own Account.  Such Purchaser understands that the
Securities are “restricted securities” and have not been registered under the
Securities Act or any applicable state securities law and is acquiring the
Securities as principal for its own account and not with a view to or for
distributing or reselling such Securities or any part thereof in violation of
the Securities Act or any applicable
state securities law, has no present intention of distributing any of
such Securities in violation of the Securities Act or any applicable state securities law and has no direct or
indirect arrangement or understandings with any other persons to distribute or
regarding the distribution of such Securities (this representation and warranty
not limiting such Purchaser’s right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal and
state securities laws) in violation of the Securities Act or any applicable state securities law.  Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business.

(c)           Purchaser Status.  At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on which it
exercises any Warrants or converts any Debentures it will be either: (i) an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under
the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule
144A(a) under the Securities Act.  Such
Purchaser is not required to be registered as a broker-dealer under Section 15
of the Exchange Act.

(d)           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 

 21
 

 

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.

(e)           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.

(f)            Short Sales and
Confidentiality Prior To The Date Hereof. 
Other than the transaction contemplated hereunder, such Purchaser has
not directly or indirectly, nor has any Person acting on behalf of or pursuant
to any understanding with such Purchaser, executed any transaction, including
Short Sales, in the securities of the Company during the period commencing
from the time that such Purchaser first received a term sheet (written or oral)
from the Company or any other Person setting forth the material terms of the
transactions contemplated hereunder until the date hereof (“Discussion Time”).  Notwithstanding the foregoing, in the case of
a Purchaser that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchaser’s assets and the
portfolio managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser’s assets, the
representation set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement.  Other than to other Persons party to this
Agreement, such Purchaser has maintained the confidentiality of all disclosures
made to it in connection with this transaction (including the existence and
terms of this transaction).

ARTICLE
IV.

OTHER AGREEMENTS OF THE PARTIES

4.1           Transfer
Restrictions.

(a)           The Securities may only
be disposed of in compliance with state and federal securities laws.  In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to the
Company or to an Affiliate of a Purchaser or in connection with a pledge as
contemplated in Section 4.1(b), the Company may require the transferor thereof
to provide to the Company an opinion of counsel selected by the transferor and
reasonably acceptable to the Company, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities under the
Securities Act.  As a condition of
transfer, any such transferee shall agree in writing to be bound by the terms
of this Agreement and shall have the rights of a Purchaser under this Agreement
and the Registration Rights Agreement.

(b)           The Purchasers agree to the imprinting, so
long as is required by this Section 4.1, of a legend on any of the Securities
in the following form:

 22
 

 

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

The Company acknowledges
and agrees that a Purchaser may from time to time pledge pursuant to a bona
fide margin agreement with a registered broker-dealer or grant a security
interest in some or all of the Securities to a financial institution that is an
“accredited investor” as defined in Rule 501(a) under the Securities Act and
who agrees to be bound by the provisions of this Agreement and the Registration
Rights Agreement and, if required under the terms of such arrangement, such
Purchaser may transfer pledged or secured Securities to the pledgees or secured
parties.  Such a pledge or transfer would
not be subject to approval of the Company and no legal opinion of legal counsel
of the pledgee, secured party or pledgor shall be required in connection
therewith.  Further, no notice shall be
required of such pledge.  At the
appropriate Purchaser’s expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the Securities,
including, if the Securities are subject to registration pursuant to the
Registration Rights Agreement, the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) under the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list of
Selling Stockholders thereunder.

(c)           Certificates evidencing
the Underlying Shares shall not contain any legend (including the legend set
forth in Section 4.1(b) hereof): (i) while a registration statement (including
the Registration Statement) covering the resale of such security is effective
under the Securities Act, or (ii) following any sale of such Underlying Shares
pursuant to Rule 144, or (iii) if such Underlying Shares are eligible for sale
under Rule 144(k), or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company shall cause
its counsel to issue a legal opinion to the Transfer Agent promptly after the
Effective Date if required by the Transfer Agent to effect the removal of the
legend hereunder.  If all or any portion
of a Debenture or 

 23
 

 

Warrant is converted or
exercised (as applicable) at a time when there is an effective registration
statement to cover the resale of the Underlying Shares, or if such Underlying Shares
may be sold under Rule 144(k) or if such legend is not otherwise required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission) then
such Underlying Shares shall be issued free of all legends.  The Company agrees that following the
Effective Date or at such time as such legend is no longer required under this
Section 4.1(c), it will, no later than three Trading Days following the
delivery by a Purchaser to the Company or the Transfer Agent of a certificate
representing Underlying Shares, as applicable, issued with a restrictive legend
(such third Trading Day, the “Legend Removal Date”), deliver or cause to
be delivered to such Purchaser a certificate representing such shares that is
free from all restrictive and other legends. 
The Company may not make any notation on its records or give
instructions to the Transfer Agent that enlarge the restrictions on transfer
set forth in this Section.  Certificates
for Underlying Shares subject to legend removal hereunder shall be transmitted
by the Transfer Agent to the Purchasers by crediting the account of the
Purchaser’s prime broker with the Depository Trust Company System.

(d)           In addition to such
Purchaser’s other available remedies, the Company shall pay to a Purchaser, in
cash, as partial liquidated damages and not as a penalty, for each $1,000 of
Underlying Shares (based on the VWAP of the Common Stock on the date such
Securities are submitted to the Transfer Agent) delivered for removal of the
restrictive legend and subject to Section 4.1(c), $10 per Trading Day
(increasing to $20 per Trading Day 5 Trading Days after such damages have begun
to accrue) for each Trading Day after the Legend Removal Date until such certificate
is delivered without a legend.  Nothing
herein shall limit such Purchaser’s right to pursue actual damages for the
Company’s failure to deliver certificates representing any Securities as
required by the Transaction Documents, and such Purchaser shall have the right
to pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.

(e)           Each Purchaser,
severally and not jointly with the other Purchasers, agrees that the removal of
the restrictive legend from certificates representing Securities as set forth
in this Section 4.1 is predicated upon the Company’s reliance that the
Purchaser will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus
delivery requirements, or an exemption therefrom, and that if Securities are
sold pursuant to a Registration Statement, they will be sold in compliance with
the plan of distribution set forth therein.

4.2           Acknowledgment
of Dilution.  The Company
acknowledges that the issuance of the Securities may result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions.  The Company
further acknowledges that its obligations under the Transaction Documents,
including without limitation its obligation to issue the Underlying Shares
pursuant to the Transaction Documents, are unconditional and absolute and not
subject to any right of set off, counterclaim, delay or reduction, regardless
of the effect of any such dilution or any claim the Company may have against
any Purchaser and regardless of 

 24
 

 

the dilutive
effect that such issuance may have on the ownership of the other stockholders
of the Company.

4.3           Furnishing
of Information.  As long as any
Purchaser owns Securities, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to
the Exchange Act.  As long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144.  The Company further covenants that it will
take such further action as any holder of Securities may reasonably request, to
the extent required from time to time to enable such Person to sell such
Securities without registration under the Securities Act within the
requirements of the exemption provided by Rule 144.

4.4           Integration.  The Company shall not sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Trading Market.

4.5           Conversion
and Exercise Procedures.  The form of
Notice of Exercise included in the Warrants and the form of Notice of
Conversion included in the Debentures set forth the
totality of the procedures required of the Purchasers in order to exercise the
Warrants or convert the Debentures.  No
additional legal opinion or other information or instructions shall be required
of the Purchasers to exercise their Warrants or convert their Debentures.  The Company shall honor exercises of the
Warrants and conversions of the Debentures and shall deliver Underlying Shares
in accordance with the terms, conditions and time periods set forth in the
Transaction Documents.

4.6           Securities Laws
Disclosure; Publicity.  The Company
shall, by 8:30 a.m. New York City time on the Trading Day following the date
hereof, issue a Current Report on Form 8-K disclosing the material terms of the
transactions contemplated hereby and attaching the Transaction Documents
thereto.  The Company and each Purchaser
shall consult with each other in issuing any other press releases with respect
to the transactions contemplated hereby, and neither the Company nor any
Purchaser shall issue any such press release or otherwise make any such public
statement without the prior consent of the Company, with respect to any press
release of any Purchaser, or without the prior consent of each Purchaser, with
respect to any press release of the Company, which consent shall not
unreasonably be withheld or delayed, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication.  Notwithstanding the foregoing, the Company
shall not publicly disclose the name of any Purchaser, or include the name of
any Purchaser in any filing with the Commission or any regulatory agency or
Trading Market, without the prior written consent of such Purchaser, except (i)
as required by federal securities law in connection with (A) any registration
statement 

 25
 

 

contemplated
by the Registration Rights Agreement and (B) the filing of final Transaction
Documents (including signature pages thereto) with the Commission and (ii) to
the extent such disclosure is required by law or Trading Market regulations, in
which case the Company shall provide the Purchasers with prior notice of such
disclosure permitted under this subclause (ii).

4.7           Shareholder
Rights Plan.  No claim will be made
or enforced by the Company or, with the consent of the Company, any other
Person, that any Purchaser is an “Acquiring Person” under any control share
acquisition, business combination, poison pill (including any distribution
under a rights agreement) or similar anti-takeover plan or arrangement in
effect or hereafter adopted by the Company, or that any Purchaser could be
deemed to trigger the provisions of any such plan or arrangement, by virtue of
receiving Securities under the Transaction Documents or under any other
agreement between the Company and the Purchasers.

4.8           Non-Public
Information.  Except with respect to
the material terms and conditions of the transactions contemplated by the
Transaction Documents, the Company covenants and agrees that neither it nor any
other Person acting on its behalf will provide any Purchaser or its agents or
counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto such Purchaser shall have executed
a written agreement regarding the confidentiality and use of such
information.  The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.

4.9           Use
of Proceeds.  Except as set forth on Schedule
4.9 attached hereto, the Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes and shall not use such
proceeds for the satisfaction of any portion of the Company’s debt (other than
payment of trade payables in the ordinary course of the Company’s business and
prior practices), or redeem any Common Stock, or Common Stock Equivalents or to
settle any outstanding litigation.

4.10         Reimbursement.  If any Purchaser becomes involved in any
capacity in any Proceeding by or against any Person who is a stockholder of the
Company (except as a result of sales, pledges, margin sales and similar
transactions by such Purchaser to or with any other stockholder), solely as a
result of such Purchaser’s acquisition of the Securities under this Agreement,
the Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation preparation and travel in
connection therewith) incurred in connection therewith, as such expenses are
incurred.  The reimbursement obligations
of the Company under this paragraph shall be in addition to any liability which
the Company may otherwise have, shall extend upon the same terms and conditions
to any Affiliates of the Purchasers who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees and
controlling persons (if any), as the case may be, of the Purchasers and any such
Affiliate, and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company, the
Purchasers and any such Affiliate and any such Person.  The Company also agrees that neither the
Purchasers nor any such Affiliates, partners, directors, agents, employees or
controlling persons shall have any liability to the Company or any Person
asserting claims on behalf of or in right of the Company solely as a result of
acquiring the Securities under this Agreement.

 26
 

 

4.11         Indemnification of
Purchasers.   Subject to the
provisions of this Section 4.11, the Company will indemnify and hold each
Purchaser and its directors, officers, shareholders, members, partners,
employees and agents (and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such title or any
other title), each Person who controls such Purchaser (within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, shareholders, agents, members, partners or employees (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title) of such
controlling person (each, a “Purchaser Party”) harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements, court costs and
reasonable attorneys’ fees and costs of investigation that any such Purchaser
Party may suffer or incur as a result of or relating to (a) any breach of any
of the representations, warranties, covenants or agreements made by the Company
in this Agreement or in the other Transaction Documents or (b) any action
instituted against a Purchaser, or any of them or their respective Affiliates,
by any stockholder of the Company who is not an Affiliate of such Purchaser,
with respect to any of the transactions contemplated by the Transaction
Documents (unless such action is based upon a breach of such Purchaser’s
representations, warranties or covenants under the Transaction Documents or any
agreements or understandings such Purchaser may have with any such stockholder
or any violations by the Purchaser of state or federal securities laws or any
conduct by such Purchaser which constitutes fraud, gross negligence, willful
misconduct or malfeasance).  If any
action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing reasonably
acceptable to the Purchaser Party.  Any
Purchaser Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such Purchaser Party except to the
extent that (i) the employment thereof has been specifically authorized by the
Company in writing, (ii) the Company has failed after a reasonable period of
time to assume such defense and to employ counsel or (iii) in such action there
is, in the reasonable opinion of such separate counsel, a material conflict on
any material issue between the position of the Company and the position of such
Purchaser Party, in which case the Company shall be responsible for the
reasonable fees and expenses of no more than one such separate counsel.  The Company will not be liable to any
Purchaser Party under this Agreement (i) for any settlement by a Purchaser
Party effected without the Company’s prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party’s
breach of any of the representations, warranties, covenants or agreements made
by such Purchaser Party in this Agreement or in the other Transaction
Documents.

4.12         Reservation
and Listing of Securities.

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

 27
 

 

(b)           If, on any date, the
number of authorized but unissued (and otherwise unreserved) shares of Common
Stock is less than the Required Minimum on such date, then the Board of
Directors of the Company shall use commercially reasonable efforts to amend the
Company’s certificate or articles of incorporation to increase the number of
authorized but unissued shares of Common Stock to at least the Required Minimum
at such time, as soon as possible and in any event not later than the 75th day
after such date.

(c)           The Company shall, if
applicable: (i) in the time and manner required by the principal Trading
Market, prepare and file with such Trading Market an additional shares listing
application covering a number of shares of Common Stock at least equal to the
Required Minimum on the date of such application, (ii) take all steps necessary
to cause such shares of Common Stock to be approved for listing on such Trading
Market as soon as possible thereafter, (iii) provide to the Purchasers evidence
of such listing, and (iv) maintain the listing of such Common Stock on any date
at least equal to the Required Minimum on such date on such Trading Market or
another Trading Market.

4.13         Participation
in Future Financing.

(a)           From the date hereof
until the date that the Debentures are no longer outstanding, upon any issuance
by the Company or any of its Subsidiaries of Common Stock or Common Stock
Equivalents (a “Subsequent Financing”), each Purchaser shall have the
right to participate in up to an amount of the Subsequent Financing equal to
the lesser of (a) 100% of the aggregate amount of the Subsequent Financing and
(b) the aggregate principal amount then outstanding of all Debentures issued
pursuant to this Agreement at the Closing (the “Participation Maximum”)
on the same terms, conditions and price provided for in the Subsequent
Financing.

(b)           At least 5 Trading Days
prior to the closing of the Subsequent Financing, the Company shall deliver to
each Purchaser a written notice of its intention to effect a Subsequent
Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaser if
it wants to review the details of such financing (such additional notice, a “Subsequent
Financing Notice”).  Upon the request
of a Purchaser, and only upon a request by such Purchaser, for a Subsequent
Financing Notice, the Company shall promptly, but no later than 1 Trading Day
after such request, deliver a Subsequent Financing Notice to such
Purchaser.  The Subsequent Financing
Notice shall describe in reasonable detail the proposed terms of such
Subsequent Financing, the amount of proceeds intended to be raised thereunder
and the Person or Persons through or with whom such Subsequent Financing is
proposed to be effected and shall include a term sheet or similar document
relating thereto as an attachment.

(c)           Any Purchaser desiring
to participate in such Subsequent Financing must provide written notice to the
Company by not later than 5:30 p.m. (New York City time) on the 5th Trading Day after all of the Purchasers have
received the Pre-Notice that the Purchaser is willing to participate in the
Subsequent Financing, the amount of the Purchaser’s participation, and that the
Purchaser has such funds ready, willing, and available for investment on the
terms set forth in the Subsequent Financing Notice.  If the 

 28
 

 

Company receives no notice from
a Purchaser as of such 5th Trading Day, such Purchaser shall be deemed to
have notified the Company that it does not elect to participate.

(d)           If by 5:30 p.m. (New
York City time) on the 5th Trading
Day after all of the Purchasers have received the Pre-Notice, notifications by
the Purchasers of their willingness to participate in the Subsequent Financing
(or to cause their designees to participate) is, in the aggregate, less than
the total amount of the Subsequent Financing, then the Company may effect the
remaining portion of such Subsequent Financing on the terms and with the
Persons set forth in the Subsequent Financing Notice.

(e)           If by 5:30 p.m. (New
York City time) on the 5th Trading Day after all of the Purchasers have
received the Pre-Notice, the Company receives responses to a Subsequent
Financing Notice from Purchasers seeking to purchase more than the aggregate
amount of the Participation Maximum, each such Purchaser shall have the right to
purchase the greater of (a) their Pro Rata Portion (as defined below) of the
Participation Maximum and (b) the difference between the Participation Maximum
and the aggregate amount of participation by all other Purchasers.  “Pro
Rata Portion” is the ratio of (x) the Subscription Amount of Securities
purchased on the Closing Date by a Purchaser participating under this Section
4.13 and (y) the sum of the aggregate Subscription Amounts of Securities
purchased on the Closing Date by all Purchasers participating under this
Section 4.13.

(f)            The Company must
provide the Purchasers with a second Subsequent Financing Notice, and the
Purchasers will again have the right of participation set forth above in this
Section 4.13, if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth in
such Subsequent Financing Notice within 60 Trading Days after the date of the
initial Subsequent Financing Notice.

(g)           Notwithstanding the
foregoing, this Section 4.13 shall not apply in respect of (i) an Exempt
Issuance or (ii) an underwritten public offering of Common Stock.

4.14         Subsequent
Equity Sales.

(a)           From the date hereof
until 90 days after the Effective Date, neither the Company nor any Subsidiary
shall issue shares of Common Stock or Common Stock Equivalents; provided,
however, the 90 day period set forth in this Section 4.14 shall be
extended for the number of Trading Days during such period in which (i) trading
in the Common Stock is suspended by any Trading Market, or (ii) following the
Effective Date, the Registration Statement is not effective or the prospectus
included in the Registration Statement may not be used by the Purchasers for
the resale of the Underlying Shares.

(b)           From the date hereof
until such time as no Purchaser holds any of the Securities, the Company shall
be prohibited from effecting or entering into an agreement to effect any
Subsequent Financing involving a “Variable Rate Transaction” without the prior
written consent of the Purchasers.  The
term “Variable Rate Transaction” shall 

 29
 

 

mean a transaction in which the
Company issues or sells (i) any debt or equity securities that are convertible
into, exchangeable or exercisable for, or include the right to receive
additional shares of Common Stock either (A) at a conversion, exercise or
exchange rate or other price that is based upon and/or varies with the trading
prices of or quotations for the shares of Common Stock at any time after the
initial issuance of such debt or equity securities, or (B) with a conversion,
exercise or exchange price that is subject to being reset at some future date
after the initial issuance of such debt or equity security or upon the
occurrence of specified or contingent events directly or indirectly related to
the business of the Company or the market for the Common Stock or (ii) enters
into any agreement, including, but not limited to, an equity line of credit,
whereby the Company may sell securities at a future determined price.

(c)           Notwithstanding the foregoing,
this Section 4.14 shall not apply in respect of an Exempt Issuance, except that
no Variable Rate Transaction shall be an Exempt Issuance.

4.15         Equal Treatment of
Purchasers.  No consideration shall
be offered or paid to any Person to amend or consent to a waiver or
modification of any provision of any of the Transaction Documents unless the
same consideration is also offered to all of the parties to the Transaction
Documents. Further, the Company shall not make any payment of principal or
interest on the Debentures in amounts which are disproportionate to the
respective principal amounts outstanding on the Debentures at any applicable
time.  For clarification purposes, this
provision constitutes a separate right granted to each Purchaser by the Company
and negotiated separately by each Purchaser, and is intended for the Company to
treat the Purchasers as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.

4.16         Short Sales and
Confidentiality After The Date Hereof. Each Purchaser severally and not
jointly with the other Purchasers covenants that neither it nor any Affiliate
acting on its behalf or pursuant to any understanding with it will execute any
Short Sales during the period commencing at the Discussion Time and ending at
the time that the transactions contemplated by this Agreement are first
publicly announced as described in Section 4.6. 
Each Purchaser, severally and not jointly with the other Purchasers,
covenants that until such time as the transactions contemplated by this
Agreement are publicly disclosed by the Company as described in Section 4.6,
such Purchaser will maintain the confidentiality of all disclosures made to it
in connection with this transaction (including the existence and terms of this
transaction).  Each Purchaser understands
and acknowledges, severally and not jointly with any other Purchaser, that the
Commission currently takes the position that coverage of short sales of shares
of the Common Stock “against the box” prior to the Effective Date of the
Registration Statement with the Securities is a violation of Section 5 of the
Securities Act, as set forth in Item 65, Section A, of the Manual of Publicly
Available Telephone Interpretations, dated July 1997, compiled by the Office of
Chief Counsel, Division of Corporation Finance. 
Notwithstanding the foregoing, no Purchaser makes any representation,
warranty or covenant hereby that it will not engage in Short Sales in the
securities of the Company after the time that the transactions contemplated by
this Agreement are first publicly announced as described in Section 4.6 except as specifically set forth in the
following sentence.  Until the earliest of (i) March 31, 2008, (ii) as 

 30
 

 

to each Purchaser, the date such Purchaser’s Debenture is no longer
outstanding, (iii) the date the Notes are no longer outstanding or (iv) the
date the Company files its Form 10-K (or Form 10-KSB) for the year ending
December 31, 2007, each Purchaser severally and not jointly agrees that it will
not engage in any Restricted Short Sales (as defined below) during a Restricted
Period (as defined below).  As used
herein, “Restricted Short Sales” means Short Sales of the Common Stock on a
Trading Day during a Restricted Period (a) at sale prices less than $2.05 (subject to adjustment for forward and
reverse stock splits, stock dividends, recapitalizations and the like) and (b)
that are, in the aggregate during such day, in excess of 15% of the average
trading volume of the Common Stock during the five Trading Days immediately
prior to the date of such Short Sale.  By
way of an example, if a Purchaser engages in Short Sales of the Common Stock at
prices below $2.05 (subject to
adjustment for forward and reverse stock splits, stock dividends,
recapitalizations and the like) on a Trading Day during a Restricted Period,
such sales shall be limited to 15% of the average trading volume of the Common
Stock for the five Trading Days immediately prior to the date of such sales. As
used herein, Restricted Period means the following periods only:  the five
Trading Days immediately prior to the date the Company is required to file
(without extension) the following periodic reports: (1) Form 10-K or Form
10-KSB for the year ending December 31, 2006, (2) Form 10-Q or Form 10-QSB for
the quarter ending March 31, 2007, (3) Form 10-Q or Form 10-QSB for the quarter
ending June 30, 2007, (4) Form 10-Q or Form 10-QSB for the quarter ending
September 30, 2007 and (5) Form 10-K or Form 10-KSB for the year ending
December 31, 2007.  The restrictions in the preceding four sentences shall
not apply in the event the Company files an applicable periodic report with the
Commission more than 5 Trading Days prior to the date such report is required
to be filed with the Commission (without extension).  Notwithstanding the foregoing, in the
case of a Purchaser that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchaser’s assets and the
portfolio managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser’s assets, the
covenant set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement.

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

4.18         Capital Changes.  Until the one year anniversary of the Effective
Date, the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of the
Purchasers holding a majority in principal amount outstanding of the
Debentures.

4.19         Partnership Agreement.  The Company agrees to use its best efforts to
enter into a partnership agreement for the sales, marketing and distribution of
its “EpiCeram” products as soon as practicable following the date hereof, and
in any event on or before June 30, 2007, with a 

 31
 

 

nationally recognized pharmaceutical company with a
minimum up front royalty payment of $2,000,000 (a “Partnership Agreement”).  In addition, the Company agrees to use its
commercially reasonable best efforts to ensure that such Partnership Agreement
yields cash payments to the Company of at least an additional $3,000,000 during
the 6 month period immediately following the date of such agreement (for a
total of $5,000,000 when added with the up front royalty payment).

ARTICLE
V.

MISCELLANEOUS

5.1           Termination. 
This Agreement may be terminated by any Purchaser, as to such Purchaser’s
obligations hereunder only and without any effect whatsoever on the obligations
between the Company and the other Purchasers, by written notice to the other
parties, if the Closing has not been consummated on or before December 6, 2006;
provided, however, that such termination will not affect the
right of any party to sue for any breach by the other party (or parties).

5.2           Fees
and Expenses.  At the Closing, the
Company has agreed to reimburse              
(“        ”) the non-accountable sum of
$40,000, for its legal fees and expenses, $20,000 of which has been paid prior
to the Closing. The Company shall deliver to each Purchaser, prior to the
Closing, a completed and executed copy of the Closing Statement attached hereto
as Annex A.  Except as expressly
set forth in the Transaction Documents to the contrary, each party shall pay
the fees and expenses of its advisers, counsel, accountants and other experts,
if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this
Agreement.  The Company shall pay all
transfer agent fees, stamp taxes and other taxes and duties levied in
connection with the delivery of any Securities to the Purchasers.

5.3           Entire
Agreement.  The Transaction
Documents, together with the exhibits and schedules thereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with
respect to such matters, which the parties acknowledge have been merged into
such documents, exhibits and schedules.

5.4           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 set forth on the signature pages attached hereto prior to
5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature pages attached
hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York
City time) on any Trading Day, (c) the 2nd Trading Day
following the date of mailing, if sent by U.S. nationally recognized overnight
courier service, or (d) upon actual receipt by the party to whom such notice is
required to be given.  The address for
such notices and communications shall be as set forth on the signature pages
attached hereto.

 32
 

 

5.5           Amendments;
Waivers.  No provision of this
Agreement may be waived, modified, supplemented or amended except in a written
instrument signed, in the case of an amendment, by the Company and each
Purchaser or, in the case of a waiver, by the party against whom enforcement of
any such waived provision is sought.  No
waiver of any default with respect to any provision, condition or requirement
of this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any subsequent default or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right.

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

5.7           Successors
and Assigns.  This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
permitted assigns.  The Company may not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of each Purchaser (other than by merger).  Any Purchaser may assign any or all of its
rights under this Agreement to any Person to whom such Purchaser assigns or
transfers any Securities, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions of the
Transaction Documents that apply to the “Purchasers”.

5.8           No
Third-Party Beneficiaries.  This
Agreement is intended for the benefit of the parties hereto and their
respective successors and permitted assigns and is not for the benefit of, nor
may any provision hereof be enforced by, any other Person, except as otherwise
set forth in Section 4.11.

5.9           Governing
Law.  All questions concerning the
construction, validity, enforcement and interpretation of the Transaction
Documents shall be governed by and construed and enforced in accordance with
the internal laws of the State of New York, without regard to the principles of
conflicts of law thereof.  Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of
New York.  Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting
in the City of New York, borough of Manhattan for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the
enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or is an inconvenient venue for
such proceeding.  Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any other manner permitted by law. 
The parties hereby waive all rights to a trial by jury.  If either party 

 33
 

 

shall commence
an action or proceeding to enforce any provisions of the Transaction Documents,
then the prevailing party in such action or proceeding shall be reimbursed by
the other party for its reasonable attorneys’ fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such action or
proceeding.

5.10         Survival.  The representations and warranties shall
survive the Closing and the delivery of the Securities for the applicable
statue of limitations.

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

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

5.13         Rescission
and Withdrawal Right. 
Notwithstanding anything to the contrary contained in (and without limiting
any similar provisions of) any of the other Transaction Documents, whenever any
Purchaser exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related obligations within
the periods therein provided, then such Purchaser may rescind or withdraw, in
its sole discretion from time to time upon written notice to the Company, any
relevant notice, demand or election in whole or in part without prejudice to
its future actions and rights; provided, however, in the case of
a rescission of a conversion of a Debenture or exercise of a Warrant, the
Purchaser shall be required to return any shares of Common Stock delivered in
connection with any such rescinded conversion or exercise notice.

5.14         Replacement
of Securities.  If any certificate or
instrument evidencing any Securities is mutilated, lost, stolen or destroyed,
the Company shall issue or cause to be issued in exchange and substitution for
and upon cancellation thereof (in the case of mutilation), or in lieu of and
substitution therefor, a new certificate or instrument, but only upon receipt
of evidence reasonably satisfactory to the Company of such loss, theft or
destruction.  The applicant for a new certificate
or instrument under such circumstances shall also pay any reasonable
third-party costs (including customary indemnity) associated with the issuance
of such replacement Securities.

 34
 

 

5.15         Remedies.  In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, each
of the Purchasers and the Company will be entitled to specific performance
under the Transaction Documents.  The
parties agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any breach of obligations contained in the
Transaction Documents and hereby agrees to waive and not to assert in any
action for specific performance of any such obligation the defense that a
remedy at law would be adequate.

5.16         Payment
Set Aside. To the extent that the Company makes a payment or payments to
any Purchaser pursuant to any Transaction Document or a Purchaser enforces or
exercises its rights thereunder, and such payment or payments or the proceeds
of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law (including,
without limitation, any bankruptcy law, state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.

5.17         Usury.  To the extent it may lawfully do so, the
Company hereby agrees not to insist upon or plead or in any manner whatsoever
claim, and will resist any and all efforts to be compelled to take the benefit
or advantage of, usury laws wherever enacted, now or at any time hereafter in
force, in connection with any claim, action or proceeding that may be brought
by any Purchaser in order to enforce any right or remedy under any Transaction
Document.  Notwithstanding any provision
to the contrary contained in any Transaction Document, it is expressly agreed
and provided that the total liability of the Company under the Transaction
Documents for payments in the nature of interest shall not exceed the maximum
lawful rate authorized under applicable law (the “Maximum Rate”), and,
without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. 
It is agreed that if the maximum contract rate of interest allowed by
law and applicable to the Transaction Documents is increased or decreased by
statute or any official governmental action subsequent to the date hereof, the
new maximum contract rate of interest allowed by law will be the Maximum Rate
applicable to the Transaction Documents from the effective date forward, unless
such application is precluded by applicable law.  If under any circumstances whatsoever,
interest in excess of the Maximum Rate is paid by the Company to any Purchaser
with respect to indebtedness evidenced by the Transaction Documents, such excess
shall be applied by such Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at such Purchaser’s election.

5.18         Independent
Nature of Purchasers’ Obligations and Rights.  The obligations of each Purchaser under any
Transaction Document are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the
performance or non-performance of the obligations of any other Purchaser under
any Transaction Document.  Nothing
contained herein or in any other Transaction Document, and no action taken by
any 

 35
 

 

Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by
the Transaction Documents.  Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose.  Each Purchaser has been
represented by its own separate legal counsel in their review and negotiation
of the Transaction Documents.  For reasons
of administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FWS.  FWS does not represent all of the Purchasers
but only        .  The Company has elected to provide all
Purchasers with the same terms and Transaction Documents for the convenience of
the Company and not because it was required or requested to do so by the
Purchasers.

5.19         Liquidated
Damages.  The Company’s obligations
to pay any partial liquidated damages or other amounts owing under the
Transaction Documents is a continuing obligation of the Company and shall not
terminate until all unpaid partial liquidated damages and other amounts have
been paid notwithstanding the fact that the instrument or security pursuant to
which such partial liquidated damages or other amounts are due and payable
shall have been canceled.

5.20         Construction.
The parties agree that each of them and/or their respective counsel has
reviewed and had an opportunity to revise the Transaction Documents and,
therefore, the normal rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be employed in the
interpretation of the Transaction Documents or any amendments hereto.

(Signature Pages Follow)

 36
 

 

 

IN WITNESS
WHEREOF, the parties hereto have caused this Securities Purchase Agreement to
be duly executed by their respective authorized signatories as of the date
first indicated above.

	
  CERAGENIX PHARMACEUTICALS, INC.

  	
  Address for
  Notice:

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  
	
  With a copy to
  (which shall not constitute notice):

  
				

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 37
 

 

 

[PURCHASER SIGNATURE PAGES TO CGXP SECURITIES PURCHASE
AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this
Securities Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.

	
  Name of Purchaser:

  	
   

  	
   

  
	
   

  	
   

  
	
  Signature
  of Authorized Signatory of Purchaser:

  	
   

  	
   

  
	
   

  	
   

  
	
  Name of
  Authorized Signatory:

  	
   

  	
   

  
	
   

  	
   

  
	
  Title of
  Authorized Signatory:

  	
   

  	
   

  
	
   

  	
   

  
	
  Email Address of
  Purchaser:

  	
   

  	
   

  
	
   

  	
   

  
	
  Facsimile Number
  of Purchaser:

  	
   

  	
   

  
													

 

Address for Notice
of Purchaser:

Address for
Delivery of Securities for Purchaser (if not same as above):

	
  Subscription Amount:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Warrant Shares:

  	
   

  	
   

  
							

 

EIN Number:  [PROVIDE THIS UNDER
SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

 38
 

 

 

Annex A

CLOSING STATEMENT

Pursuant
to the attached Securities Purchase Agreement, dated as of the date hereto, the
purchasers shall purchase up to $5,000,000 of Debentures and Warrants from
Ceragenix Pharmaceuticals, Inc. (the “Company”).  All funds will be wired into a trust account
maintained by McKenna, Long & Aldridge LLP, counsel to the Company.  All funds will be disbursed in accordance
with this Closing Statement.

Disbursement
Date:    December     , 2006

	
  I.       PURCHASE PRICE

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Gross Proceeds to be Received in Trust

  	
   

  	
  $

  	
   

  	
   

  
					

 

	
  II.     DISBURSEMENTS

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total
  Amount Disbursed:

  	
   

  	
  $

  	
   

  	
   

  

 

	
  WIRE INSTRUCTIONS:

  
	
   

  
	
   

  
	
  To:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  To:

  	
   

  	
   

  

 

 39Exhibit
10.5

EXHIBIT B

REGISTRATION
RIGHTS AGREEMENT

This Registration Rights Agreement (this “Agreement”)
is made and entered into as of December 5, 2006, among Ceragenix
Pharmaceuticals, Inc., a Delaware corporation (the “Company”) and the
several purchasers signatory hereto (each such purchaser, a “Purchaser”
and, collectively, the “Purchasers”).

This Agreement is made pursuant to the Securities
Purchase Agreement, dated as of the date hereof, between the Company and each
Purchaser (the “Purchase Agreement”).

The Company and each Purchaser hereby agrees as
follows:

1.             Definitions

Capitalized terms used and not
otherwise defined herein that are defined in the Purchase Agreement shall have
the meanings given such terms in the Purchase Agreement. As
used in this Agreement, the following terms shall have the following meanings:

“Advice”
shall have the meaning set forth in Section 6(d).

“Effectiveness
Date” means, with respect to the initial Registration Statement required to
be filed hereunder, the 90th calendar day
following the date hereof (or the 120th calendar day following the date hereof in the
event of a “full review” by the Commission of the initial Registration
Statement) and, with respect to any additional Registration Statements which
may be required pursuant to Section 3(c), the 90th calendar day (or the 120th calendar day in the event of a “full review”
by the Commission of such additional Registration Statement) following the date
on which the Company first knows, or reasonably should have known, that such
additional Registration Statement is required hereunder; provided, however,
that in the event the Company is notified by the Commission that one of the
above Registration Statements will not be reviewed or is no longer subject to
further review and comments, then the Effectiveness Date as to such
Registration Statement shall be the fifth Trading Day following the date on
which the Company is so notified if such date precedes the dates required
above; provided,  further,
if any such Effectiveness Date falls on a day that is not a Trading Day, then
such Effectiveness Date shall be the Trading Day immediately prior to such
date.

“Effectiveness
Period” shall have the meaning set forth in Section 2(a).

“Event”
shall have the meaning set forth in Section 2(b).

“Event Date”
shall have the meaning set forth in Section 2(b).

“Filing Date”
means, with respect to the initial Registration Statement required hereunder,
the 30th calendar day following the date hereof and,
with respect to any 

 1
 

 

additional Registration
Statements which may be required pursuant to Section 3(c), the 30th calendar day following the date on which the
Company first knows, or reasonably should have known, that such additional
Registration Statement is required hereunder (but in no event sooner than the
180th calendar day following the date the initial
Registration Statement is first declared effective by the Commission unless the
filing of such additional Registration Statement sooner than such 180th calendar is permitted pursuant to Rule 415); provided,
however, if any such Filing Date falls on a day that is not a Trading
Day, then such Filing Date shall be the Trading Day immediately prior to such
date.

“Holder” or
“Holders” means the holder or holders, as the case may be, from time to
time of Registrable Securities.

“Indemnified
Party” shall have the meaning set forth in Section 5(c).

“Indemnifying
Party” shall have the meaning set forth in Section 5(c).

“Losses”
shall have the meaning set forth in Section 5(a).

“Plan of
Distribution” shall have the meaning set forth in Section 2(a).

“Prospectus”
means the prospectus included in a Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from
a prospectus filed as part of an effective registration statement in reliance
upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by a Registration
Statement, and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.

“Registrable
Securities” means (i) all of the shares of Common Stock issuable upon
conversion in full of the Debentures, (ii) all shares of Common Stock issuable
as interest or principal on the Debentures assuming all permissible interest
and principal payments are made in shares of Common Stock and the Debentures
are held until maturity, (iii) all Warrant Shares, (iv) any additional shares
of Common Stock issuable in connection with any anti-dilution provisions in the
Debentures or the Warrants (in each case, without giving effect to any limitations
on conversion set forth in the Debenture or limitations on exercise set forth
in the Warrant) and (v) any securities issued or issuable upon any stock split,
dividend or other distribution, 
recapitalization or similar event with respect to the foregoing.

“Registration
Statement” means the registration statements required to be filed hereunder
and any additional registration statements contemplated by Section 3(c),
including (in each case) the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits 

 2
 

 

thereto, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.

“Rule 415”
means Rule 415 promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same purpose and
effect as such Rule.

“Rule 424”
means Rule 424 promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same purpose and
effect as such Rule.

“Selling Shareholder
Questionnaire” shall have the meaning set forth in Section 3(a).

2.             Shelf Registration

(a)           On or prior to each Filing Date, the
Company shall prepare and file with the Commission a “Shelf” Registration
Statement covering the resale of 130% of the Registrable Securities on such
Filing Date for an offering to be made on a continuous basis pursuant to Rule
415; provided, however, that if 130% of the Registrable
Securities hereunder shall equal or exceed 30% of the issued and outstanding
Common Stock of the Company (less any shares of Common Stock held by Affiliates
of the Company) on the actual filing date of the initial Registration
Statement, the initial Registration Statement shall register a number of shares
of Common Stock which is equal to 30% of the issued and outstanding shares of
Common Stock of the Company (less any shares of Common Stock held by Affiliates
of the Company) on such actual filing date minus 10,000 shares of Common Stock
(the “Registration Cap”), and the remaining Registrable Securities shall
be subject to Section 3(c).  In such
event, the number of Registrable Securities to be registered for each Holder
shall be reduced pro-rata among all Holders and each Holder shall have the
right to designate which of its Registrable Securities shall be omitted from
the initial Registration Statement.   The
Registration Statement shall be on Form S-3 (except if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3, in
which case such registration shall be on another appropriate form in accordance
herewith) and shall contain (unless otherwise directed by at least an 85%
majority in interest of the Holders) substantially the “Plan of Distribution”
attached hereto as Annex A. 
Notwithstanding anything herein to the contrary, the Company shall
continue to use best efforts to register all Registrable Securities as promptly
as possible and if requested by Holders holding at least 50% of the then
outstanding Registrable Securities not registered, shall seek to promptly
register Registrable Securities in excess of the Registration Cap. Subject to
the terms of this Agreement, the Company shall use its best efforts to cause a
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event prior to the
applicable Effectiveness Date, and shall use its best efforts to keep such
Registration Statement continuously effective under the Securities Act until
all Registrable Securities 

 3
 

 

covered by such Registration
Statement have been sold, or may be sold without volume restrictions pursuant
to Rule 144(k), as determined by the counsel to the Company pursuant to a
written opinion letter to such effect, addressed and acceptable to the Company’s
transfer agent and the affected Holders (the “Effectiveness Period”).  The Company shall telephonically request
effectiveness of a Registration Statement as of 5:00 p.m. New York City time on
a Trading Day.   The Company shall
immediately notify the Holders via facsimile of the effectiveness of a
Registration Statement on the same Trading Day that the Company telephonically
confirms effectiveness with the Commission, which shall be the date requested
for effectiveness of a Registration Statement. 
The Company shall, by 9:30 a.m. New York City time on the Trading Day
after the Effective Date (as defined in the Purchase Agreement), file a final
Prospectus with the Commission as required by Rule 424.  Failure to so notify the Holder within 1
Trading Day of such notification of effectiveness or failure to file a final
Prospectus as foresaid shall be deemed an Event under Section 2(b).

(b)           If: (i) a Registration Statement is
not filed on or prior to its Filing Date (if the Company files a Registration
Statement without affording the Holders the opportunity to review and comment
on the same as required by Section 3(a) herein, the Company shall be deemed to
have not satisfied this clause (i)), or (ii) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 461 promulgated
under the Securities Act, within five Trading Days of the date that the Company
is notified (orally or in writing, whichever is earlier) by the Commission that
a Registration Statement will not be “reviewed,” or not subject to further
review, or (iii) prior to its Effectiveness Date, the Company fails to file a
pre-effective amendment and otherwise respond in writing to comments made by
the Commission in respect of such Registration Statement within 10 calendar
days after the receipt of comments by or notice from the Commission that such
amendment is required in order for a Registration Statement to be declared
effective, or (iv) a Registration Statement filed or required to be filed
hereunder is not declared effective by the Commission by its Effectiveness
Date, or (v) after the Effectiveness Date, a Registration Statement ceases for
any reason to remain continuously effective as to all Registrable Securities
for which it is required to be effective, or the Holders are otherwise not
permitted to utilize the Prospectus therein to resell such Registrable
Securities, for more than 15 consecutive calendar days or more than an
aggregate of 30 calendar days during any 12-month period (which need not be
consecutive calendar days) (any such failure or breach being referred to as an “Event”, and for purposes of
clause (i) or (iv) the date on which such Event occurs, or for purposes of
clause (ii) the date on which such five Trading Day period is exceeded, or for
purposes of clause (iii) the date which such 10 calendar day period is
exceeded, or for purposes of clause (v) the date on which such 15 or 30
calendar day period, as applicable, is exceeded being referred to as “Event Date”), then, in
addition to any other rights the Holders may have hereunder or under applicable
law, on each such Event Date and on each monthly anniversary of each such Event
Date (if the applicable Event shall not have been cured by such date) until the
applicable Event is cured, the Company shall pay to each Holder an amount in
cash, as partial liquidated damages and not as a penalty, equal to 2% of the
aggregate purchase price paid by such Holder pursuant to the Purchase Agreement
for any Registrable Securities then held by such Holder (calculated as if all convertible

 4
 

 

securities had been fully
converted).  The parties agree that (1)
the Company shall not be liable for liquidated damages under this Agreement
with respect to any Warrants or Warrant Shares, (2) in no event shall the Company
be liable for liquidated damages under this Agreement in excess of 2% of the
aggregate Subscription Amount of the Holders in any 30-day period and (3) the
maximum aggregate liquidated damages payable to a Holder under this Agreement
shall be 24% of the aggregate Subscription Amount paid by such Holder pursuant
to the Purchase Agreement.  If the
Company fails to pay any partial liquidated damages pursuant to this Section in
full within seven days after the date payable, the Company will pay interest
thereon at a rate of 18% per annum (or such lesser maximum amount that is
permitted to be paid by applicable law) to the Holder, accruing daily from the
date such partial liquidated damages are due until such amounts, plus all such
interest thereon, are paid in full. The partial liquidated damages pursuant to
the terms hereof shall apply on a daily pro-rata basis for any portion of a
month prior to the cure of an Event.

3.             Registration Procedures.

In connection with the
Company’s registration obligations hereunder, the Company shall:

(a)           Not less than five Trading Days prior
to the filing of each Registration Statement and not less than one Trading Day
prior to the filing of any related Prospectus or any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall (i) furnish to each
Holder copies of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated by reference) will
be subject to the review of such Holders and (ii) cause its officers and
directors, counsel and independent certified public accountants to respond to
such inquiries as shall be necessary, in the reasonable opinion of respective
counsel to each Holder, to conduct a reasonable investigation within the
meaning of the Securities Act. The Company shall not file a Registration
Statement or any such Prospectus or any amendments or supplements thereto to
which the Holders of a majority of the Registrable Securities shall reasonably
object in good faith, provided that the Company is notified of such objection
in writing no later than four (4) Trading Days after the Holders have been so
furnished copies of a Registration Statement or 1 Trading Day after the Holders
have been so furnished copies of any related Prospectus or amendments or
supplements thereto. Each Holder agrees to furnish to the Company a completed
questionnaire in the form attached to this Agreement as Annex B (a “Selling
Shareholder Questionnaire”) not less than two Trading Days prior to the
Filing Date or by the end of the fourth Trading Day following the date on which
such Holder receives draft materials in accordance with this Section.

(b)           (i) Prepare and file
with the Commission such amendments, including post-effective amendments, to a
Registration Statement and the Prospectus used in connection therewith as may
be necessary to keep a Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to 

 5
 

 

register for
resale under the Securities Act all of the Registrable Securities; (ii) cause
the related Prospectus to be amended or supplemented by any required Prospectus
supplement (subject to the terms of this Agreement), and, as so supplemented or
amended, to be filed pursuant to Rule 424; (iii) respond as promptly as
reasonably possible to any comments received from the Commission with respect
to a Registration Statement or any amendment thereto and provide as promptly as
reasonably possible to the Holders true and complete copies of all
correspondence from and to the Commission relating to a Registration Statement
(provided that the Company may excise any information contained therein which
would constitute material non-public information as to any Holder which has not
executed a confidentiality agreement with the Company); and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange
Act with respect to the disposition of all Registrable Securities covered by a
Registration Statement during the applicable period in accordance (subject to
the terms of this Agreement) with the intended methods of disposition by the
Holders thereof set forth in such Registration Statement as so amended or in
such Prospectus as so supplemented.

(c)           If during the
Effectiveness Period, the number of Registrable Securities at any time exceeds
75% of the number of shares of Common Stock then registered in a Registration
Statement, then the Company shall file as soon as reasonably practicable, but
in any case prior to the applicable Filing Date, an additional Registration
Statement covering the resale by the Holders of not less than 130% of the
number of such Registrable Securities. 
In addition, in the event that 130% of the Registrable Securities are
not included in the initial Registration Statement as contemplated by the
proviso regarding Registrable Securities in Section 2(a) above, then, upon the
written request of Holders holding at least 50% of the then outstanding
Registrable Securities, the Company shall file as soon as reasonably
practicable, but in no event later than the applicable Filing Date, an
additional Registration Statement covering the resale by the Holders of not
less than the difference between 130% of the Registrable Securities and the
number of Registrable Securities in the initial Registration Statement.

(d)           Notify the Holders
of Registrable Securities to be sold (which notice shall, pursuant to clauses
(iii) through (vi) hereof, be accompanied by an instruction to suspend the use
of the Prospectus until the requisite changes have been made) as promptly as
reasonably possible (and, in the case of (i)(A) below, not less than one Trading
Day prior to such filing) and (if requested by any such Person) confirm such
notice in writing no later than one Trading Day following the day (i)(A) when a
Prospectus or any Prospectus supplement or post-effective amendment to a
Registration Statement is proposed to be filed; (B) when the Commission
notifies the Company whether there will be a “review” of such Registration
Statement and whenever the Commission comments in writing on such Registration
Statement; and (C) with respect to a Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other federal or state governmental authority
for amendments or supplements to a Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission or any other
federal or state governmental authority of any stop order suspending the
effectiveness of a Registration Statement covering any or all of the
Registrable Securities or the initiation of any Proceedings for that purpose; 

 6
 

 

(iv) of the
receipt by the Company of any notification with respect to the suspension of
the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of
any Proceeding for such purpose; (v) of the occurrence of any event or passage
of time that makes the financial statements included in a Registration
Statement ineligible for inclusion therein or any statement made in a
Registration Statement or Prospectus or any document incorporated or deemed to
be incorporated therein by reference untrue in any material respect or that
requires any revisions to a Registration Statement, Prospectus or other
documents so that, in the case of a Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; and (vi) the occurrence or existence of any pending
corporate development with respect to the Company that the Company believes may
be material and that, in the determination of the Company, makes it not in the
best interest of the Company to allow continued availability of a Registration
Statement or Prospectus, provided that any and all of such information shall
remain confidential to each Holder until such information otherwise becomes
public, unless disclosure by a Holder is required by law; provided, further,
that notwithstanding each Holder’s agreement to keep such information
confidential, the Holders make no acknowledgement that any such information is
material, non-public information.

(e)           Use its best efforts
to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order
suspending the effectiveness of a Registration Statement, or (ii) any
suspension of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the earliest
practicable moment.

(f)            Furnish to each
Holder, without charge, at least one conformed copy of each such Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference to the extent requested by such Person, and all exhibits to the
extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.

(g)           Subject to the terms
of this Agreement, the Company hereby consents to the use of such Prospectus
and each amendment or supplement thereto by each of the selling Holders in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto, except after the
giving of any notice pursuant to Section 3(d).

(h)           If NASD Rule 2710
requires any broker-dealer to make a filing prior to executing a sale by a Holder,
the Company shall (i) make an Issuer Filing with the NASD, Inc. Corporate
Financing Department pursuant to proposed NASD Rule 2710(b)(10)(A)(i), (ii)
respond within five Trading Days to any comments received from NASD in
connection therewith, (iii) and pay the filing fee required in connection
therewith.

 7
 

 

(i)            Prior to any resale
of Registrable Securities by a Holder, use its commercially reasonable efforts
to register or qualify or cooperate with the selling Holders in connection with
the registration or qualification (or exemption from the Registration or
qualification) of such Registrable Securities for the resale by the Holder
under the securities or Blue Sky laws of such jurisdictions within the United
States as any Holder reasonably requests in writing, to keep each registration
or qualification (or exemption therefrom) effective during the Effectiveness
Period and to do any and all other acts or things reasonably necessary to
enable the disposition in such jurisdictions of the Registrable Securities
covered by each Registration Statement; provided, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is
not then so qualified, subject the Company to any material tax in any such
jurisdiction where it is not then so subject or file a general consent to
service of process in any such jurisdiction.

(j)            If requested by the
Holders, cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be delivered to
a transferee pursuant to a Registration Statement, which certificates shall be
free, to the extent permitted by the Purchase Agreement, of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any such Holders may request.

(k)           Upon the occurrence
of any event contemplated by this Section 3, as promptly as reasonably possible
under the circumstances taking into account the Company’s good faith assessment
of any adverse consequences to the Company and its stockholders of the
premature disclosure of such event, prepare a supplement or amendment,
including a post-effective amendment, to a Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither a Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.  If the Company notifies
the Holders in accordance with clauses (iii) through (vi) of Section 3(d) above
to suspend the use of any Prospectus until the requisite changes to such
Prospectus have been made, then the Holders shall suspend use of such
Prospectus.  The Company will use its
best efforts to ensure that the use of the Prospectus may be resumed as
promptly as is practicable.  The Company
shall be entitled to exercise its right under this Section 3(k) to suspend the
availability of a Registration Statement and Prospectus, subject to the payment
of partial liquidated damages pursuant to Section 2(b), for a period not to
exceed 60 calendar days (which need not be consecutive days) in any 12 month
period.

(l)            Comply with all
applicable rules and regulations of the Commission.

(m)          The Company may
require each selling Holder to furnish to the Company a certified statement as
to the number of shares of Common Stock beneficially owned by such Holder and,
if required by the Commission, the natural persons thereof that have 

 8
 

 

voting and
dispositive control over the Shares. During any periods that the Company is
unable to meet its obligations hereunder with respect to the registration of
the Registrable Securities solely because any Holder fails to furnish such
information within three Trading Days of the Company’s request, any liquidated
damages that are accruing at such time as to such Holder only shall be tolled
and any Event that may otherwise occur solely because of such delay shall be
suspended as to such Holder only, until such information is delivered to the
Company.

4.             Registration Expenses. All fees and expenses
incident to the performance of or compliance with this Agreement by the Company
shall be borne by the Company whether or not any Registrable Securities are
sold pursuant to a Registration Statement. The fees and expenses referred to in
the foregoing sentence shall include, without limitation, (i) all registration
and filing fees (including, without limitation, fees and expenses) (A) with
respect to filings required to be made with any Trading Market on which the
Common Stock is then listed for trading, (B) in compliance with applicable
state securities or Blue Sky laws reasonably agreed to by the Company in
writing (including, without limitation, fees and disbursements of counsel for
the Company in connection with Blue Sky qualifications or exemptions of the
Registrable Securities) and (C) if not previously paid by the Company in
connection with an Issuer Filing, with respect to any filing that may be
required to be made by any broker through which a Holder intends to make sales
of Registrable Securities with NASD Regulation, Inc. pursuant to the NASD Rule
2710, so long as the broker is receiving no more than a customary brokerage
commission in connection with such sale, (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable
Securities), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company, (v) Securities Act liability
insurance, if the Company so desires such insurance, and (vi) fees and expenses
of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement.  In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation
of the transactions contemplated by this Agreement (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit and the fees and
expenses incurred in connection with the listing of the Registrable Securities
on any securities exchange as required hereunder.  In no event shall the Company be responsible
for any broker or similar commissions of any Holder or, except to the extent
provided for in the Transaction Documents, any legal fees or other costs of the
Holders.

5.             Indemnification.

(a)           Indemnification by the Company.
The Company shall, notwithstanding any termination of this Agreement, indemnify
and hold harmless each Holder, the officers, directors, members, partners,
agents, brokers (including brokers who offer and sell Registrable Securities as
principal as a result of a pledge or any failure to perform under a margin call
of Common Stock), investment advisors and employees (and any other Persons with
a functionally equivalent role of a Person holding such titles, notwithstanding
a lack of such title or any other title) of each of them, each Person who
controls any such Holder (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) and the officers, directors, members,
shareholders, 

 9
 

 

partners, agents
and employees (and any other Persons with a functionally equivalent role of a
Person holding such titles, notwithstanding a lack of such title or any other
title) of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, reasonable attorneys’ fees)
and expenses (collectively, “Losses”), as incurred, arising out of or
relating to (1) any untrue or alleged untrue statement of a material fact
contained in a Registration Statement, any Prospectus or any form of prospectus
or in any amendment or supplement thereto or in any preliminary prospectus, or
arising out of or relating to any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
(in the case of any Prospectus or form of prospectus or supplement thereto, in
light of the circumstances under which they were made) not misleading or (2)
any violation or alleged violation by the Company of the Securities Act, the
Exchange Act or any state securities law, or any rule or regulation thereunder,
in connection with the performance of its obligations under this Agreement,
except to the extent, but only to the extent, that (i) such untrue statements
or omissions are based solely upon information regarding such Holder furnished
in writing to the Company by such Holder expressly for use therein, or to the
extent that such information relates to such Holder or such Holder’s proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in a Registration Statement,
such Prospectus or such form of Prospectus or in any amendment or supplement
thereto (it being understood that the Holder has approved the Plan of
Distribution set forth in Annex A hereto for this purpose) or (ii) in
the case of an occurrence of an event of the type specified in Section
3(d)(iii)-(vi), the use by such Holder of an outdated or defective Prospectus
after the Company has notified such Holder in writing that the Prospectus is
outdated or defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(d).  The
Company shall notify the Holders promptly of the institution, threat or
assertion of any Proceeding arising from or in connection with the transactions
contemplated by this Agreement of which the Company is aware.

(b)           Indemnification by Holders. Each
Holder shall, severally and not jointly, indemnify and hold harmless the
Company, its directors, officers, agents and employees, each Person who
controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, agents or
employees of such controlling Persons, to the fullest extent permitted by
applicable law, from and against all Losses, as incurred, to the extent arising
out of or based solely upon: (x) such Holder’s failure to comply with the
prospectus delivery requirements of the Securities Act or (y) any untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, any Prospectus, or any form of prospectus, or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading (i)
to the extent, but only to the extent, that such untrue statement or omission
is contained in any information so furnished in writing by such Holder to the
Company specifically for inclusion in such Registration Statement or such
Prospectus or (ii) to the extent that such information relates to such Holder’s
proposed method of distribution of Registrable Securities and 

 10
 

 

was reviewed and
expressly approved in writing by such Holder expressly for use in a
Registration Statement (it being understood that the Holder has approved Annex
A hereto for this purpose), such Prospectus or such form of Prospectus or in
any amendment or supplement thereto or (ii) in the case of an occurrence of an
event of the type specified in Section 3(d)(iii)-(vi), the use by such Holder
of an outdated or defective Prospectus after the Company has notified such
Holder in writing that the Prospectus is outdated or defective and prior to the
receipt by such Holder of the Advice contemplated in Section 6(d). In no event
shall the liability of any selling Holder hereunder be greater in amount than
the dollar amount of the net proceeds received by such Holder upon the sale of
the Registrable Securities giving rise to such indemnification obligation.

(c)           Conduct of Indemnification Proceedings.
If any Proceeding shall be brought or asserted against any Person entitled to
indemnity hereunder (an “Indemnified Party”), such Indemnified Party
shall promptly notify the Person from whom indemnity is sought (the “Indemnifying
Party”) in writing, and the Indemnifying Party shall have the right to
assume the defense thereof, including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of all fees and expenses
incurred in connection with defense thereof; provided, that the failure of any
Indemnified Party to give such notice shall not relieve the Indemnifying Party
of its obligations or liabilities pursuant to this Agreement, except (and only)
to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have prejudiced the Indemnifying Party.

An Indemnified
Party shall have the right to employ separate counsel in any such Proceeding
and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party or Parties
unless:  (1) the Indemnifying Party has
agreed in writing to pay such fees and expenses; (2) the Indemnifying Party
shall have failed promptly to assume the defense of such Proceeding and to
employ counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and counsel to the Indemnified Party shall reasonably believe that a
material conflict of interest is likely to exist if the same counsel were to
represent such Indemnified Party and the Indemnifying Party (in which case, if
such Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
the reasonable fees and expenses of no more than one separate counsel shall be
at the expense of the Indemnifying Party). 
The Indemnifying Party shall not be liable for any settlement of any
such Proceeding effected without its written consent, which consent shall not be
unreasonably withheld or delayed.  No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that are the
subject matter of such Proceeding.

 11
 

 

Subject to the
terms of this Agreement, all reasonable fees and expenses of the Indemnified
Party (including reasonable fees and expenses to the extent incurred in
connection with investigating or preparing to defend such Proceeding in a
manner not inconsistent with this Section) shall be paid to the Indemnified
Party, as incurred, within ten Trading Days of written notice thereof to the
Indemnifying Party; provided, that the Indemnified Party shall promptly
reimburse the Indemnifying Party for that portion of such fees and expenses
applicable to such actions for which such Indemnified Party is judicially
determined to be not entitled to indemnification hereunder.

(d)           Contribution. If the
indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified
Party or insufficient to hold an Indemnified Party harmless for any Losses,
then each Indemnifying Party shall contribute to the amount paid or payable by
such Indemnified Party, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions, statements or omissions that resulted in such Losses as well
as any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of
a material fact, has been taken or made by, or relates to information supplied
by, such Indemnifying Party or Indemnified Party, and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such action, statement or omission.  The
amount paid or payable by a party as a result of any Losses shall be deemed to
include, subject to the limitations set forth in this Agreement, any reasonable
attorneys’ or other fees or expenses incurred by such party in connection with
any Proceeding to the extent such party would have been indemnified for such
fees or expenses if the indemnification provided for in this Section was
available to such party in accordance with its terms.

The parties hereto
agree that it would not be just and equitable if contribution pursuant to this
Section 5(d) were determined by pro rata allocation or by any other method of
allocation that does not take into account the equitable considerations
referred to in the immediately preceding paragraph.  Notwithstanding the provisions of this
Section 5(d), no Holder shall be required to contribute, in the aggregate, any
amount in excess of the amount by which the net proceeds actually received by
such Holder from the sale of the Registrable Securities subject to the
Proceeding exceeds the amount of any damages that such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.

The indemnity and
contribution agreements contained in this Section are in addition to any
liability that the Indemnifying Parties may have to the Indemnified Parties.

6.             Miscellaneous.

(a)           Remedies.  In the event of a breach by the Company or by
a Holder of any of their respective obligations under this Agreement, each
Holder or the Company, as the case may be, in 

 12
 

 

addition to being entitled to exercise all rights
granted by law and under this Agreement, including recovery of damages, shall
be entitled to specific performance of its rights under this Agreement.  The Company and each Holder agree that
monetary damages would not provide adequate compensation for any losses
incurred by reason of a breach by it of any of the provisions of this Agreement
and hereby further agrees that, in the event of any action for specific
performance in respect of such breach, it shall not assert or shall waive the
defense that a remedy at law would be adequate.

(b)           No Piggyback on Registrations.
Except as set forth on Schedule 6(b) attached hereto, neither the
Company nor any of its security holders (other than the Holders in such
capacity pursuant hereto) may include securities of the Company in the
Registration Statements other than the Registrable Securities.  The Company shall not file any other
registration statements until all Registrable Securities are registered
pursuant to a Registration Statement that is declared effective by the
Commission, provided that this Section 6(b) shall not prohibit the Company from
filing amendments to registration statements filed prior to the date of this
Agreement.

(c)           Compliance. Each Holder covenants
and agrees that it will comply with the prospectus delivery requirements of the
Securities Act as applicable to it in connection with sales of Registrable
Securities pursuant to a Registration Statement.

(d)           Discontinued Disposition.  By its acquisition of Registrable Securities,
each Holder agrees that, upon receipt of a notice from the Company of the
occurrence of any event of the kind described in Section 3(d)(iii) through
(vi), such Holder will forthwith discontinue disposition of such Registrable
Securities under a Registration Statement until it is advised in writing (the “Advice”)
by the Company that the use of the applicable Prospectus (as it may have been
supplemented or amended) may be resumed. 
The Company will use its best efforts to ensure that the use of the
Prospectus may be resumed as promptly as it practicable.  The Company agrees and acknowledges that any
periods during which the Holder is required to discontinue the disposition of
the Registrable Securities hereunder shall be subject to the provisions of
Section 2(b).

(e)           Piggy-Back Registrations. If at
any time during the Effectiveness Period there is not an effective Registration
Statement covering all of the Registrable Securities and the Company shall
determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form S-4 or Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with the stock option or other employee benefit plans, then the
Company shall send to each Holder a written notice of such determination and,
if within fifteen days after the date of such notice, any such Holder shall so request
in writing, the Company shall include in such registration statement all or any
part of such Registrable Securities such Holder requests to be registered; provided,
however, that the Company shall not be required to register any
Registrable Securities pursuant to this Section 6(e) that are eligible for
resale pursuant to Rule 144(k) 

 13
 

 

promulgated under the Securities Act or that are the
subject of a then effective Registration Statement.

(f)            Amendments and Waivers. The
provisions of this Agreement, including the provisions of this sentence, may
not be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given, unless the same shall be in
writing and signed by the Company and each Holder of the then outstanding
Registrable Securities.  Notwithstanding
the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders and that
does not directly or indirectly affect the rights of other Holders may be given
by Holders of all of the Registrable Securities to which such waiver or consent
relates; provided, however, that the provisions of this sentence
may not be amended, modified, or supplemented except in accordance with the
provisions of the immediately preceding sentence.

(g)           Notices. Any and all notices or
other communications or deliveries required or permitted to be provided
hereunder shall be delivered as set forth in the Purchase Agreement.

(h)           Successors and Assigns. This
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of each of the parties and shall inure to the benefit of each
Holder. The Company may not assign (except by merger) its rights or obligations
hereunder without the prior written consent of all of the Holders of the
then-outstanding Registrable Securities. Each Holder may assign their
respective rights hereunder in the manner and to the Persons as permitted under
the Purchase Agreement.

(i)            No Inconsistent Agreements.
Neither the Company nor any of its Subsidiaries has entered, as of the date
hereof, nor shall the Company or any of its Subsidiaries, on or after the date
of this Agreement, enter into any agreement with respect to its securities,
that would have the effect of impairing the rights granted to the Holders in
this Agreement or otherwise conflicts with the provisions hereof.  Except as set forth on Schedule 6(i),
neither the Company nor any of its subsidiaries has previously entered into any
agreement granting any registration rights with respect to any of its
securities to any Person that have not been satisfied in full.

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

(k)           Governing Law.  All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be determined in accordance with the provisions of the Purchase Agreement.

 14
 

 

(l)            Cumulative Remedies. The remedies
provided herein are cumulative and not exclusive of any other remedies provided
by law.

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

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

(o)           Independent Nature of Holders’ Obligations
and Rights. The obligations of each Holder hereunder are several and
not joint with the obligations of any other Holder hereunder, and no Holder
shall be responsible in any way for the performance of the obligations of any
other Holder hereunder. Nothing contained herein or in any other agreement or document
delivered at any closing, and no action taken by any Holder pursuant hereto or
thereto, shall be deemed to constitute the Holders as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Holders are in any way acting in concert with respect to
such obligations or the transactions contemplated by this Agreement. Each
Holder shall be entitled to protect and enforce its rights, including without
limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Holder to be joined as an additional party in any
proceeding for such purpose.

********************

 15
 

 

 

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

	
  

  	
  CERAGENIX
  PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

 16
 

 

 

[SIGNATURE PAGE OF HOLDERS TO CGXP RRA]

	
  Name of Holder:

  	
   

  	
   

  
	
  Signature
  of Authorized Signatory of Holder:

  	
   

  	
   

  
	
  Name of
  Authorized Signatory:

  	
   

  	
   

  
	
  Title of
  Authorized Signatory:

  	
   

  	
   

  
									

 

[SIGNATURE PAGES CONTINUE]

 17
 

 

 

Annex A

Plan of Distribution

Each Selling
Stockholder (the “Selling Stockholders”) of the common stock and any of
their pledgees, assignees and successors-in-interest may, from time to time,
sell any or all of their shares of common stock on the OTC Bulletin Board or
any other stock exchange, market or trading facility on which the shares are
traded or in private transactions.  These
sales may be at fixed or negotiated prices. 
A Selling Stockholder may use any one or more of the following methods
when selling shares:

·                  ordinary
brokerage transactions and transactions in which the broker-dealer solicits
purchasers;

·                  block trades in
which the broker-dealer will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction;

·                  purchases by a
broker-dealer as principal and resale by the broker-dealer for its account;

·                  an exchange
distribution in accordance with the rules of the applicable exchange;

·                  privately
negotiated transactions;

·                  settlement of
short sales entered into after the effective date of the registration statement
of which this prospectus is a part;

·                  broker-dealers
may agree with the Selling Stockholders to sell a specified number of such
shares at a stipulated price per share;

·                  through the
writing or settlement of options or other hedging transactions, whether through
an options exchange or otherwise;

·                  a combination of
any such methods of sale; or

·                  any other method
permitted pursuant to applicable law.

The Selling
Stockholders may also sell shares under Rule 144 under the Securities Act of
1933, as amended (the “Securities Act”), if available, rather than under
this prospectus.

Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to
participate in sales.  Broker-dealers may
receive commissions or discounts from the Selling Stockholders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated, but, except as set forth in a supplement to this
Prospectus, in the case of an agency transaction not in excess of a customary
brokerage 

 18
 

 

commission in compliance with NASD Rule 2440; and in
the case of a principal transaction a markup or markdown in compliance with
NASD IM-2440.

In connection with
the sale of the common stock or interests therein, the Selling Stockholders may
enter into hedging transactions with broker-dealers or other financial
institutions, which may in turn engage in short sales of the common stock in
the course of hedging the positions they assume.  The Selling Stockholders may also sell shares
of the common stock short and deliver these securities to close out their short
positions, or loan or pledge the common stock to broker-dealers that in turn
may sell these securities.  The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).

The Selling
Stockholders and any broker-dealers or agents that are involved in selling the
shares may be deemed to be “underwriters” within the meaning of the Securities
Act in connection with such sales.  In
such event, any commissions received by such broker-dealers or agents and any
profit on the resale of the shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.  Each Selling Stockholder has informed the
Company that it does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock. In no
event shall any broker-dealer receive fees, commissions and markups which, in
the aggregate, would exceed eight percent (8%).

The Company is
required to pay certain fees and expenses incurred by the Company incident to
the registration of the shares.  The
Company has agreed to indemnify the Selling Stockholders against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act.

Because Selling
Stockholders may be deemed to be “underwriters” within the meaning of the
Securities Act, they will be subject to the prospectus delivery requirements of
the Securities Act including Rule 172 thereunder.  In addition, any securities covered by this
prospectus which qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather than under this prospectus.  There is no underwriter or coordinating
broker acting in connection with the proposed sale of the resale shares by the
Selling Stockholders.

We agreed to keep
this prospectus effective until the earlier of (i) the date on which the shares
may be resold by the Selling Stockholders without registration and without
regard to any volume limitations by reason of Rule 144(k) under the Securities
Act or any other rule of similar effect or (ii) all of the shares have been
sold pursuant to this prospectus or Rule 144 under the Securities Act or any
other rule of similar effect.  The resale
shares will be sold only through registered or licensed brokers or dealers if
required under applicable state securities laws. In addition, in certain
states, the resale shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.

 19
 

 

Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the resale shares may not simultaneously
engage in market making activities with respect to the common stock for the
applicable restricted period, as defined in Regulation M, prior to the
commencement of the distribution.  In
addition, the Selling Stockholders will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, including Regulation
M, which may limit the timing of purchases and sales of shares of the common
stock by the Selling Stockholders or any other person.  We will make copies of this prospectus
available to the Selling Stockholders and have informed them of the need to
deliver a copy of this prospectus to each purchaser at or prior to the time of
the sale (including by compliance with Rule 172 under the Securities Act).

 20
 

 

Annex B

CERAGENIX PHARMACEUTICALS, INC.

Selling Securityholder Notice and Questionnaire

The undersigned beneficial owner of common stock (the “Registrable
Securities”) of Ceragenix Pharmaceuticals, Inc., a Delaware corporation
(the “Company”), understands that the Company has filed or intends to
file with the Securities and Exchange Commission (the “Commission”) a
registration statement (the “Registration Statement”) for the
registration and resale under Rule 415 of the Securities Act of 1933, as
amended (the “Securities Act”), of the Registrable Securities, in
accordance with the terms of the Registration Rights Agreement (the “Registration
Rights Agreement”) to which this document is annexed.  A copy of the Registration Rights Agreement
is available from the Company upon request at the address set forth below.  All capitalized terms not otherwise defined
herein shall have the meanings ascribed thereto in the Registration Rights
Agreement.

Certain legal consequences arise from being named as a
selling securityholder in the Registration Statement and the related
prospectus.  Accordingly, holders and
beneficial owners of Registrable Securities are advised to consult their own
securities law counsel regarding the consequences of being named or not being
named as a selling securityholder in the Registration Statement and the related
prospectus.

NOTICE

The undersigned beneficial owner (the “Selling
Securityholder”) of Registrable Securities hereby elects to include the
Registrable Securities owned by it in the Registration Statement.

 21
 

 

The undersigned
hereby provides the following information to the Company and represents and
warrants that such information is accurate:

QUESTIONNAIRE

1.             Name.

(a)           Full Legal Name of Selling
Securityholder

(b)                                 Full Legal Name of Registered Holder (if
not the same as (a) above) through which Registrable Securities are held:

(c)                                  Full Legal Name of Natural Control Person
(which means a natural person who directly or indirectly alone or with others
has power to vote or dispose of the securities covered by the questionnaire):

2.             Address for Notices to Selling
Securityholder:

	
  

  
	
  Telephone:

  
	
  Fax:

  
	
  Contact Person:

  

 

3.             Broker-Dealer Status:

(a)                                  Are you a broker-dealer?

	
  

  	
  Yes   o

  	
  No   o

  

 

(b)                                 If “yes” to Section 3(a), did you receive
your Registrable Securities as compensation for investment banking services to
the Company.

	
  

  	
  Yes   o

  	
  No   o

  

 

Note:                   If no, the Commission’s staff has indicated that you
should be identified as an underwriter in the Registration Statement.

 22
 

 

(c)                                  Are you an affiliate of a broker-dealer?

	
  

  	
  Yes   o

  	
  No   o

  

 

(d)                                 If you are an affiliate of a
broker-dealer, do you certify that you bought the Registrable Securities in the
ordinary course of business, and at the time of the purchase of the Registrable
Securities to be resold, you had no agreements or understandings, directly or
indirectly, with any person to distribute the Registrable Securities?

	
  

  	
  Yes   o

  	
  No   o

  

 

Note:                   If no, the Commission’s staff has indicated that you
should be identified as an underwriter in the Registration Statement.

4.             Beneficial
Ownership of Securities of the Company Owned by the Selling Securityholder.

Except as set forth below in this
Item 4, the undersigned is not the beneficial or registered owner of any
securities of the Company other than the securities issuable pursuant to the
Purchase Agreement.

(a)                                  Type and Amount of other securities
beneficially owned by the Selling Securityholder:

 23
 

 

5.             Relationships
with the Company:

Except as set forth below, neither
the undersigned nor any of its affiliates, officers, directors or principal
equity holders (owners of 5% of more of the equity securities of the undersigned)
has held any position or office or has had any other material relationship with
the Company (or its predecessors or affiliates) during the past three years.

State any exceptions
here:

The undersigned agrees to promptly notify the Company
of any inaccuracies or changes in the information provided herein that may
occur subsequent to the date hereof at any time while the Registration
Statement remains effective.

By signing below, the undersigned consents to the
disclosure of the information contained herein in its answers to Items 1
through 5 and the inclusion of such information in the Registration Statement
and the related prospectus and any amendments or supplements thereto.  The undersigned understands that such
information will be relied upon by the Company in connection with the
preparation or amendment of the Registration Statement and the related
prospectus.

IN WITNESS WHEREOF the undersigned, by authority duly
given, has caused this Notice and Questionnaire to be executed and delivered
either in person or by its duly authorized agent.

	
  Dated:

  	
   

  	
   

  	
   

  	
  Beneficial Owner:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
   

  
								

 

PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND
QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 24

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