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Unassociated Document

    EXHIBIT
      10.19

    
      

      

    

    

     

    CONVERTIBLE
      NOTE AND WARRANT PURCHASE AGREEMENT

     

    by
      and
      among

     

    Access
      Pharmaceuticals, Inc.

     

    and

     

    the
      parties named herein on Schedule 1, as Purchasers

     

    

     

    

     

    

     

    

     

    

     

    February
      16,
      2006

     

    

    

     

    

     

    
      
        
          

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    

    This
      CONVERTIBLE
      NOTE AND WARRANT PURCHASE AGREEMENT
      (this “Agreement”)
      is dated as of February 16,
      2006, among Access Pharmaceuticals, Inc., a Delaware corporation (the
“Company”),
      and the purchasers identified on Schedule
      1
      hereto (each 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 (as defined below), and Rule 506 promulgated
      thereunder, the Company desires to issue and sell to the Purchasers, and the
      Purchasers, severally and not jointly, desire to purchase from the Company
      (i)
      up to an aggregate original principal amount of $5,000,000 of Secured
      Convertible Promissory Notes (the “Notes”)
      and (ii) Common Stock Purchase Warrants (the “Warrants”)
      entitling the holders thereof to purchase up to 17,045,456 shares
      of the Company’s Common Stock as more fully set forth herein.

     

    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
      AND TERMS OF NOTES AND WARRANTS

     

    1.1 Definitions.
      

     

    In
      addition to the terms defined elsewhere in this Agreement, for all purposes
      of
      this Agreement, the following terms have the meanings indicated 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. 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.

     

    “Agreement”
      shall have the meaning ascribed to such term in the Preamble.

     

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

     

    “Closing”
      shall have the meaning ascribed to such term in Section 2.1(a). 

     

    “Closing
      Date”
      shall have the meaning ascribed to such term in Section 2.1(a).

     

    “Commission”
      means the Securities and Exchange Commission. 

     

    “Common
      Stock”
      means the common stock of the Company, $0.01 par value per share, and any
      securities into which such common stock may hereafter be reclassified.

     

    
      
         

        

        
        

      

      
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    “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 exchangeable for, or
      otherwise entitles the holder thereof to receive, Common Stock. 

     

    “Company”
      shall have the meaning ascribed to such term in the Preamble.

     

    “Conversion
      Shares”
      means the shares of Common Stock issuable upon conversion of the
      Notes.

     

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

     

    “Effective
      Date”
      means the date that the Registration Statement is first declared effective
      by
      the Commission. 

     

    “Environmental
      Laws”
      shall have the meaning ascribed to such term in Section 3.1(y).

     

    “Exchange
      Act”
      means the Securities Exchange Act of 1934, as amended.

     

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

     

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

     

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

     

    “Hazardous
      Substances”
      shall have the meaning ascribed to such term in Section 3.1(y).

     

    “Indemnified
      Party”
      shall have the meaning ascribed to such term in Section 5.3.

     

    “Indemnifying
      Party”
      shall have the meaning ascribed to such term in Section 5.3.

     

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

     

    “Investor
      Rights Agreement”
      means the Investor Rights Agreement, dated as of the date of this Agreement,
      between the Company and each of the Purchasers, in the form of Exhibit
      A
      hereto.

     

    “Lien”
      means a lien, charge, security interest, encumbrance, right of first refusal
      or
      other restriction, except for a lien for current taxes not yet due and payable
      and a minor imperfection of title, if any, not material in nature or amount
      and
      not materially detracting from the value or impairing the use of the property
      subject thereto or impairing the operations or proposed operations of the
      Company. 

     

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

     

    
      
        
        

      

      
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    “Notes”
      shall have the meaning ascribed to such term in the recitals
      hereto.

     

    “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. 

     

    “Placement
      Agent Warrants”
      shall mean the common stock purchase warrants to be issued to SCO Securities
      LLC
      and/or its designees as compensation for services rendered in connection with
      the transaction set forth herein as provided on Schedule
      1
      attached hereto, which warrants shall be in the form of Exhibit
      D
      hereto.

     

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

     

    “Purchaser”
      shall have the meaning ascribed to such term in the Preamble.

     

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

     

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

     

    “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 Notes, the Conversion Shares, the Warrants and the Warrant
      Shares.

     

    “Securities
      Act”
      means the Securities Act of 1933, as amended.

     

    “Security
      Agreement”
      means the Security Agreement, dated as of the date of this Agreement, between
      the Company and each of the Purchasers, in the form of Exhibit
      B
      hereto.

     

    “Subscription
      Amount”
      means, as to each Purchaser, the amount set forth beside such Purchaser's name
      on Schedule
      1
      hereto, in United States dollars and in immediately available
      funds.

     

    “Subsidiary”
      means, with respect to any entity, any corporation or other organization of
      which securities or other ownership interest having ordinary voting power to
      elect a majority of the board of directors or other persons performing similar
      functions, are directly or indirectly owned by such entity or of which such
      entity is a partner or is, directly or indirectly, the beneficial owner of
      50%
      or more of any class of equity securities or equivalent profit participation
      interests.

     

    “Trading
      Day”
      means (i) a day on which the Common Stock is traded on a Trading Market, or
      (ii)
      if the Common Stock is not listed on a Trading Market, a day on which the Common
      Stock is traded on the over-the-counter market, as reported by the OTC Bulletin
      Board,

     

    
      
        
        

      

      
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    or
      (iii) if the Common Stock is not quoted on the OTC Bulletin Board, a day on
      which the Common Stock is quoted in the over-the-counter market as reported
      by
      Pink Sheets LLC (or any similar organization or agency succeeding to its
      functions of reporting prices); provided, that in the event that the Common
      Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then
      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
      New
      York Stock Exchange, the Nasdaq National Market or the Nasdaq Capital
      Market.

     

    “Transaction
      Documents”
      means this Agreement, the Notes, the Security Agreement, the Investor Rights
      Agreement, the Warrants and any other documents or agreements executed in
      connection with the transactions contemplated hereunder. 

     

    “Warrants”
      shall have the meaning ascribed to such term in the recitals hereto. The
      Placement Agent Warrants shall also constitute “Warrants” for all purposes
      hereunder and SCO Securities LLC and/or its designees and such other persons
      or
      entities shall constitute “Purchasers” for all purposes hereunder.

    

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

     

    1.2 Terms
      of the Notes and Warrants.
      The terms and provisions of the Notes are set forth in the form of Secured
      Convertible Promissory Note, attached hereto as Exhibit
      C.
      The terms and provisions of the Warrants are more fully set forth in the form
      of
      Warrant, attached hereto as Exhibit
      D.

     

    ARTICLE
      II

     

    PURCHASE
      AND SALE

     

    2.1 Closing.

     

    (a) The
      closing of the transactions contemplated under this Agreement (the “Closing”)
      will take place upon the execution of this Agreement by the Company and the
      Purchasers immediately following satisfaction or waiver of the conditions set
      forth in Sections 2.2 and 2.3 (other than those conditions which by their terms
      are not to be satisfied or waived until the Closing), at the offices of Wiggin
      and Dana LLP, 400 Atlantic Street, Stamford, CT 06901 (or remotely via exchange
      of documents and signatures) or at such other place or day as may be mutually
      acceptable to the Purchasers and the Company. The date on which the Closing
      occurs is the “Closing
      Date”.

     

    (b) At
      the Closing, the Purchasers shall purchase, severally and not jointly, and
      the
      Company shall issue and sell, (i) up to an aggregate original principal amount
      of $5,000,000 of Notes and (ii) Warrants to purchase up to 17,045,456 shares
      of Common Stock. Each Purchaser shall purchase from the Company, and the Company
      shall issue and sell to each Purchaser, a Note in such principal amount and
      a
      Warrant to purchase such number of Warrant Shares, in each case, as is set
      forth
      next to such Purchaser’s name on Schedule
      1.
      The Subscription Amount paid by each Purchaser shall be placed in escrow pending
      the Closing pursuant to a 

     

    
      
        
        

      

      
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    Closing
      Escrow Agreement among the Company, SCO Securities LLC and Wiggin and Dana
      LLP
      (the “Escrow
      Agent”),
      which agreement shall be in the form attached hereto as Exhibit
      E
      (the “Closing
      Escrow Agreement”).

     

    2.2 Conditions
      to Obligations of Purchasers to Effect the Closing.

     

    The
      obligations of each Purchaser to effect the Closing and the transactions
      contemplated by this Agreement shall be subject to the satisfaction at or prior
      to the Closing of each of the following conditions, any of which may be waived,
      in writing, by such Purchaser:

     

    (a) At
      the Closing (unless otherwise specified below) the Company shall deliver or
      cause to be delivered to each Purchaser the following: 

     

    (i)
      this Agreement, duly executed by the Company;

     

    (ii)
      an original Note for such Purchaser in the principal amount that is set forth
      on
Schedule
      1
      hereto next to such Purchaser’s name;

     

    (iii)
      an original Warrant, registered in the name of such Purchaser, pursuant to
      which
      such Purchaser shall have the right to acquire up to the number of shares of
      Common Stock, as set forth next to such Purchaser’s name on Schedule
      1
      hereto;

     

    (iv)
      the Investor Rights Agreement, duly executed by the Company;

     

    (v)
      the Security Agreement, duly executed by the Company;

     

    (vi)
      a legal opinion of Bingham McCutchen LLP, counsel
      to the Company, in the form of Exhibit
      F
      hereto; 

     

    (vii)
      a certificate of the Secretary of the Company (the “Secretary’s
      Certificate”),
      attaching a true copy of the Certificate of Incorporation and Bylaws of the
      Company, as amended to the Closing Date, and attaching true and complete copies
      of the resolutions of the Board of Directors of the Company authorizing the
      execution, delivery and performance of this Agreement and the other Transaction
      Documents; and

    

    (viii)
      Evidence satisfactory to the Purchasers that the Board of Directors of the
      Company has approved the 1 for 5 Split to become effective as soon as
      practicable following receipt of stockholder approval thereof.

    

    (b) All
      representations and warranties of the Company contained herein shall remain
      true
      and correct in all material respects as of the Closing Date as though such
      representations and warranties were made on such date (except those
      representations and warranties that address matters only as of a particular
      date
      will remain true and correct as of such date).

    

    (c) As
      of the Closing Date, there shall have been no Material Adverse Effect with
      respect to the Company since the date hereof.

     

    (d) From
      the date hereof to the Closing Date, trading in the Common Stock shall not
      have
      been suspended by the Commission (except for any suspension of trading of
      limited 

     

    
      
        
        

      

      
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    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 Financial Markets shall not have been
      suspended or limited, or minimum prices shall not have been established on
      securities whose trades are 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.

     

    (e) The
      Company shall have de-listed the Common Stock from the American Stock Exchange
      and shall have provided evidence satisfactory to the Purchasers to such
      effect.

     

    2.3. Conditions
      to Obligations of the Company to Effect the Closing.

     

    (a) The
      obligations of the Company to effect the Closing and the transactions
      contemplated by this Agreement shall be subject to the satisfaction at or prior
      to the Closing of each of the following conditions, any of which may be waived,
      in writing, by the Company. At the Closing, 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 of immediately available
      funds as provided in the Closing Escrow Agreement; 

     

    (iii)
      the Investor Rights Agreement, duly executed by such Purchaser; and

     

    (iv)
      the Security Agreement, duly executed by such Purchaser.

     

    (b) All
      representations and warranties of each of the Purchasers contained herein shall
      remain true and correct as of the Closing Date as though such representations
      and warranties were made on such date.

     

    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 concurrently herewith and except as provided in the SEC Reports,
      the
      Company hereby makes the following representations and warranties as of the
      date
      hereof and as of the Closing Date to each Purchaser:

     

    (a)
       Subsidiaries.
      Except as listed in Schedule 3.1(a), the Company has no direct or indirect
      Subsidiaries. 

     

    (b)
       Organization
      and Qualification.
      Each of the Company and 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 corporate 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 of any 

     

    
      
        
        

      

      
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    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, would not have or result in (i) a material adverse effect
      on
      the legality, validity or enforceability of any Transaction Document, (ii)
      a
      material adverse effect on the business or financial condition 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”).

     

    (c)
       Authorization;
      Enforceability.
      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 thereunder. The execution and
      delivery of each of the Transaction Documents by the Company and the
      consummation by it of the transactions contemplated thereby have been duly
      authorized by all necessary action on the part of the Company and no further
      action is required by the Company in connection therewith. 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, will constitute the
      valid and binding obligation of the Company enforceable against the Company
      in
      accordance with its terms, subject to laws of general application relating
      to
      bankruptcy, insolvency, reorganization, moratorium or other similar laws
      affecting creditors’ rights generally and rules of law governing specific
      performance, injunctive relief, or other equitable remedies.

     

    (d)
       No
      Conflicts.
      The execution, delivery and performance of the Transaction Documents by the
      Company and the consummation by the Company of the transactions contemplated
      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, 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) 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 cases of clause (ii), where such conflict,
      default or violation would not have or result in a Material Adverse
      Effect.

     

    (e)
       Filings,
      Consents and Approvals.
      The Company is not required to obtain any consent, waiver, authorization or
      order of, give any notice to, or make any filing or registration with, any
      court
      or other federal, state, local or other governmental authority or other Person
      in connection with the execution, delivery and performance by the Company of
      the
      Transaction Documents, other than (a) the filing with the Commission of the
      Registration Statement, the application(s) to each Trading Market for the
      listing of the Conversion Shares and Warrant Shares for trading thereon in
      the
      time and manner required thereby, Form D and applicable Blue 

     

    
      
        
        

      

      
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    Sky
      filings and (b) such as have already been obtained or such exemptive filings
      as
      are required to be made under applicable securities laws.

     

    (f)
       Issuance
      of the Securities.
      The Securities are duly authorized and, when issued and paid for in accordance
      with the Transaction Documents, will be duly and validly issued, fully paid
      and
      nonassessable, free and clear of all Liens, other than any Liens created by
      or
      imposed on the holders thereof through no action of the Company. The Company
      has
      reserved from its duly authorized capital stock the maximum number of shares
      of
      Common Stock issuable upon conversion of the Notes and exercise of the
      Warrants.

     

    (g)
       Capitalization.
      

     

    (i) The
      authorized and outstanding capitalization of the Company is set forth on
      Schedule 3.1(g) hereto. All shares of the Company’s issued and outstanding
      capital stock have been duly authorized, are validly issued and outstanding,
      and
      are fully paid and nonassessable. No securities issued by the Company from
      March
      1, 2002 to the date hereof were issued in violation of any statutory or common
      law preemptive rights. There are no dividends which have accrued or been
      declared but are unpaid on the capital stock of the Company. All taxes required
      to be paid by the Company in connection with the issuance and any transfers
      of
      the Company’s capital stock have been paid. The holders of the Company’s Common
      Stock have certain rights under the company’s Rights Agreement dated as of
      October 31, 2001 by and between the Company and American Stock Transfer as
      Rights Agent. All outstanding securities of the Company have been issued in
      all
      material respects in accordance with the provisions of all applicable securities
      and other laws.

     

    (ii) 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 a result of the purchase and sale of the
      Securities and except for employee and director stock options under the
      Company's equity compensation plans and as set forth on Schedule 3.1(h)(ii)
      hereto, there are no outstanding options, warrants, rights to subscribe to,
      calls or commitments of any character whatsoever relating to, or securities,
      rights or obligations convertible into 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
      securities or rights convertible or exchangeable into shares of Common Stock.
      The issue 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 such
      securities.

     

    (h) SEC
      Reports; Financial Statements; Liabilities.
      

     

    (i) The
      Company has filed all reports required to be filed by it under the Securities
      Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) of the
      Exchange Act, for the 12 months preceding the date hereof (or such shorter
      period as the Company was required by law to file such material) (the foregoing
      materials, including the exhibits thereto, 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 

     

    
      
        
        

      

      
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    the
      expiration of any such extension. As of their respective filing dates, the
      SEC
      Reports complied
      in all material respects with the requirements of the Securities Act and the
      Exchange Act, as the case may be, and the rules and regulations of the
      Commission promulgated thereunder, as applicable, and none of the SEC Reports,
      as of their respective filing dates, 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 light of the
      circumstances under which they were made, not misleading.

     

    (ii) The
      Company’s (A) audited financial statements for the fiscal years ended December
      31, 2004 and 2003 included in the Company’s annual reports on Form 10-K filed
      with the Commission and (B) the financial statements included in the Company’s
      quarterly reports on Form 10-Q filed with the Commission for the first three
      fiscal quarters of 2005 comply with applicable accounting requirements and
      the
      rules and regulations of the Commission with respect thereto as in effect at
      the
      time of filing of such reports. Such financial statements have been prepared
      in
      accordance with generally accepted accounting principles in the United States,
      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, subject to normal year-end audit adjustments. Such
      financial statements fairly present in all material respects the financial
      position of the Company and its consolidated subsidiaries, if any, 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 year-end
      audit adjustments.

     

    (iii) Except
      as set forth in the SEC Reports, and except for liabilities and obligations
      incurred since September 30, 2005 in the ordinary course of business, consistent
      with past practice, as of the date hereof: (i) the Company and its Subsidiaries
      do not have any material liabilities or obligations (absolute, accrued,
      contingent or otherwise) and (ii) there has not been any aspect of the prior
      or
      current conduct of the business of the Company or its Subsidiaries which may
      form the basis for any material claim by any third party which if asserted
      could
      result in a Material Adverse Effect.

     

    (i)
       Material
      Changes.
      Except as set forth in the SEC Reports or on Schedule 3.1(i), since September
      30, 2005, the Company has conducted its business only in the ordinary course,
      consistent with past practice, and since such date there has not
      occurred:

     

    (i) any
      event, occurrence or development that has had or that could reasonably be
      expected to result in a Material Adverse Effect on the Company or any of its
      Subsidiaries;

     

    (ii) any
      amendments or changes in the charter documents of the Company and its
      Subsidiaries;

     

    (iii) any:

     

    (A)
      incurrence, assumption or guarantee by the Company or its Subsidiaries of any
      debt for borrowed money other than (i) equipment leases made in the ordinary
      course of business, consistent with past practice and (ii) any such incurrence,
      assumption or guarantee with respect to an amount of $25,000 or less that has
      been disclosed in the SEC Reports; 

     

    
      
        
        

      

      
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    (B)
      other than as set forth on Schedule 3.1(i)(iii)(A) hereto, issuance or sale
      of
      any securities convertible into or exchangeable for securities of the Company
      other than to directors, employees and consultants pursuant to existing equity
      compensation or stock purchase plans of the Company; 

     

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

     

    (D)
      issuance or sale of any stock, bond or other corporate security other than
      to
      directors, employees and consultants pursuant to existing equity compensation
      or
      stock purchase plans of the Company;

     

    (E)
      discharge or satisfaction of any material Lien; 

     

    (F)
      declaration or making any payment or distribution to stockholders or purchase
      or
      redemption of any share of its capital stock or other security other than to
      directors, officers and employees of the Company or its Subsidiaries as
      compensation for services rendered to the Company or its Subsidiary (as
      applicable) or for reimbursement of expenses incurred on behalf of the Company
      or its Subsidiary (as applicable); 

     

    (G)
      sale, assignment or transfer of any of its intangible assets except in the
      ordinary course of business, consistent with past practice, or cancellation
      of
      any debt or claim except in the ordinary course of business, consistent with
      past practice;

     

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

     

    (I)
      material change in officer compensation, except in the ordinary course of
      business and consistent with past practice; or 

     

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

     

    (iv) other
      than as set forth on Schedule 3(i)(iv) hereto, any creation, sufferance or
      assumption by the Company or any of its Subsidiaries of any Lien on any asset
      or
      any making of any loan, advance or capital contribution to or investment in
      any
      Person, in an aggregate amount which exceeds $25,000 outstanding at any
      time;

     

    (v) any
      entry into, amendment of, relinquishment, termination or non-renewal by the
      Company or its Subsidiaries of any material contract, license, lease,
      transaction, commitment or other right or obligation, other than in the ordinary
      course of business, consistent with past practice; or

     

    (vi)
      other than as set forth on Schedule 3(i)(vi) hereto, any transfer or grant
      of a
      right with respect to the patents, trademarks, trade names, service marks,
      trade
      secrets, copyrights or other intellectual property rights owned or licensed
      by
      the Company or its Subsidiaries, except as among the Company and its
      Subsidiaries.

     

    
      
        
        

      

      
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    (j)
       Litigation.
      There is no action, suit, inquiry, notice of violation, proceeding or, to the
      knowledge of the Company, investigation pending nor, to the knowledge of the
      Company, is any of the above threatened against 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 result in a Material
      Adverse Effect. Neither the Company nor any Subsidiary, nor, to the knowledge
      of
      the Company, 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 within the past five
      (5)
      years. To the knowledge of the Company, there has not been and 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 within the past eight
      (8) years.

     

    (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 have
      or
      result in 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 currently in default under or that it is in violation of,
      any
      indenture, loan or credit agreement or any other agreement or instrument to
      which it is a party or by which it or any of its properties is bound (whether
      or
      not such default or violation has been waived), (ii) is in violation of any
      order of any court, arbitrator or governmental body, or (iii) is or has been
      in
      violation of any statute, rule or regulation of any governmental authority,
      including without limitation all foreign, federal, state and local laws
      applicable to its business, except in the case of clauses (i) and (iii) as
      would
      not have or reasonably be expected to result in a Material Adverse
      Effect.

     

    (m)
       Licenses;
      Compliance With FDA and Other Regulatory Requirements.

     

    (i)
       The
      Company holds all material authorizations, consents, approvals, franchises,
      licenses and permits required under applicable law or regulation for the
      operation of the business of the Company and its Subsidiaries as presently
      operated (the “Governmental
      Authorizations”).
      All the Governmental Authorizations have been duly issued or obtained and are
      in
      full force and effect, and the Company and its Subsidiaries are in material
      compliance with the terms of all the Governmental Authorizations. The Company
      and its Subsidiaries have not engaged in any activity that, to their knowledge,
      would cause revocation or suspension of any such Governmental Authorizations.
      Neither the execution, delivery nor performance of this Agreement shall
      adversely affect the status of any of the Governmental
      Authorizations.

     

    (ii) Without
      limiting the generality of the representations and warranties made in
      sub-paragraph (i) above, the Company represents and warrants that (i) the
      Company and each of its Subsidiaries is in material compliance with all
      applicable provisions of the United States 

     

    
      
        
        

      

      
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    Federal
      Food, Drug, and Cosmetic Act and the rules and regulations promulgated
      thereunder (the “FDC
      Act”)
      and equivalent laws, rules and regulations in jurisdictions outside the United
      States in
      which the Company or its Subsidiaries do business, (ii) its products and those
      of each of its Subsidiaries that are in the Company’s control are not
      adulterated or misbranded and are in lawful distribution, (iii) all of the
      products marketed by and within the control of the Company comply in all
      material respects with any conditions of approval and the terms of the
      application by the Company to the appropriate Regulatory Authorities, (iv)
      no
      Regulatory Authority has initiated legal action with respect to the
      manufacturing of the Company’s products, such as seizures or required recalls,
      and the Company is in compliance with applicable good manufacturing practice
      regulations, (v) its products are labeled and promoted by the Company and its
      representatives in substantial compliance with the applicable terms of the
      marketing applications submitted by the Company to the Regulatory Authorities
      and the provisions of the FDC Act and foreign equivalents, (vi) all adverse
      events that were known to and required to be reported by Company to the
      Regulatory Authorities have been reported to the Regulatory Authorities in
      a
      timely manner, (vii) neither the Company nor any of its Subsidiaries is, to
      their knowledge, employing or utilizing the services of any individual who
      has
      been debarred under the FDC Act or foreign equivalents, (viii) all stability
      studies required to be performed for products distributed by the Company or
      any
      of its Subsidiaries have been completed or are ongoing in material compliance
      with the applicable Regulatory Authority requirements, (ix) any products
      exported by the Company or any of its Subsidiaries have been exported in
      compliance with the FDC Act and (x) the Company and its Subsidiaries are in
      compliance in all material respects with all applicable provisions of the
      Controlled Substances Act. For purposes of this Section 3.1(m), “Regulatory
      Authority”
      means any governmental authority in a country or region that regulates the
      manufacture or sale of Company’s products, including, but not limited to, the
      United States Food and Drug Administration.

     

    (n)
       Title
      to Assets.
      The Company and the Subsidiaries do not own any real property, and have good
      and
      marketable title to all personal property owned by them that is material to
      the
      business of the Company and the Subsidiaries, taken as a whole, in each case
      free and clear of all Liens, except those, if any, reflected in the Company’s
      financial statements or incurred in the ordinary course of business consistent
      with past practice or which would not cause a Material Adverse Effect. Any
      real
      property and facilities held under lease by the Company and the Subsidiaries
      are
      held by them under valid, subsisting and enforceable leases (subject to laws
      of
      general application relating to bankruptcy, insolvency, reorganization,
      moratorium or other similar laws affecting creditors’ rights generally and rules
      of law governing specific performance, injunctive relief, or other equitable
      remedies) with which the Company and the Subsidiaries are in material
      compliance.

     

    (o) Intellectual
      Property. 

     

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

     

    
      
        
        

      

      
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    and
      clear of any claim or conflict with the rights of others (subject to the
      provisions of any applicable license agreement) except as would not cause a
      Material Adverse Effect; 

     

    (ii) other
      than as set forth in the SEC Reports and except as in the ordinary course of
      business, no royalties or fees (license or otherwise) are payable by the Company
      or its Subsidiaries to any Person by reason of the ownership or use of any
      of
      the Intellectual Property; 

     

    (iii) there
      have been no written claims made against the Company or its Subsidiaries
      asserting the invalidity, abuse, misuse, or unenforceability of any of the
      Intellectual Property, and, to the best of the Company’s knowledge, there are no
      reasonable grounds for any such claims which would cause a Material Adverse
      Effect; 

     

    (iv) neither
      the Company nor its Subsidiaries have made any claim of any violation or
      infringement by others of its rights in the Intellectual Property, and to the
      best of the Company’s knowledge, no reasonable grounds for such claims exist;
      and 

     

    (v) neither
      the Company nor its Subsidiaries have received written notice that it is in
      conflict with or infringing upon the asserted rights of others in connection
      with the Intellectual Property which would cause 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. All of the insurance policies of the Company and its Subsidiaries
      are
      in full force and effect and are valid and enforceable in accordance with their
      terms, and the Company and its Subsidiaries have complied with all material
      terms and conditions thereof. 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 provided 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, other than (a) for payment of
      salary or consulting fees for services rendered, (b) reimbursement for expenses
      incurred on behalf of the Company and (c) for other employee benefits, including
      stock option agreements and other stock awards under any equity compensation
      plan of the Company.

     

    (r)
       Internal
      Accounting Controls.
      The Company and each of the Subsidiaries maintains a system of internal
      accounting controls sufficient in the judgment of the Company’s management 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 

     

    
      
        
        

      

      
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    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 the Company is able to collect the information that it is
      required to disclose in the reports it files with the Commission and to process,
      summarize and disclose this information in the time periods specified in the
      Commission’s rules. The Company's certifying officers have evaluated the
      effectiveness of the Company's controls and procedures as of September 30,
      2005.
      The Company presented in its Form 10-Q for the quarter ended September 30,
      2005,
      the conclusions of the certifying officers about the effectiveness of the
      disclosure controls and procedures based on their evaluations as of September
      30, 2005. Since September 30, 2005, there have been no significant changes
      in
      the Company's internal control over financial reporting (as such term is defined
      in Exchange Act Rule 13a-15) or, to the Company's knowledge, in other factors
      that could significantly affect the Company's internal controls.

     

    (s)
       Certain
      Fees.
      Except for fees payable to SCO Securities LLC, no brokerage or finder's fees
      or
      commissions are or will be payable by the Company to any broker, financial
      advisor or consultant, finder, placement agent, investment banker, bank or
      other
      Person with respect to the transactions contemplated by this Agreement. 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 this Agreement.

     

    (t)
       Private
      Placement; Integrated Offering.
      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. 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 and would as a result require registration
      under the Securities Act or trigger any applicable shareholder approval
      provisions, including, without limitation, under the rules and regulations
      of
      any exchange or automated quotation system on which any of the securities of
      the
      Company are listed or designated.

     

    (u)
       Charter,
      Bylaws and Corporate Records.
      The minute books of the Company and its Subsidiaries contain in all material
      respects complete and accurate records of all meetings and other corporate
      actions of the board of directors, committees of the board of directors,
      incorporators and stockholders of the Company and its Subsidiaries from the
      date
      of incorporation of each such entity to the date hereof. All material corporate
      decisions and actions have been validly made or taken. All corporate books,
      including without limitation the share transfer register, comply in all material
      respects with applicable laws and regulations and have been regularly
      updated.

     

    
      
        
        

      

      
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    (v)
       Registration
      Rights.
      Except as set forth in 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.
      Except as set forth on Schedule 3(w), 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) Taxes.
      All
      tax returns and tax reports required to be filed with respect to the income,
      operations, business or assets of the Company and its Subsidiaries have been
      timely filed (or appropriate extensions have been obtained) with the appropriate
      governmental agencies in all jurisdictions in which such returns and reports
      are
      required to be filed, and all of the foregoing as filed are, in all material
      respects, correct and complete and, in all material respects, reflect accurately
      all liability for taxes of the Company and its Subsidiaries for the periods
      to
      which such returns relate, and all amounts shown as owing thereon have been
      paid. All income, profits, franchise, sales, use, value added, occupancy,
      property, excise, payroll, withholding, FICA, FUTA and other taxes (including
      interest and penalties), if any, collectible or payable by the Company and
      its
      Subsidiaries or relating to or chargeable against any of its material assets,
      revenues or income or relating to any employee, independent contractor,
      creditor, stockholder or other third party through the Closing Date, were fully
      collected and paid by such date if due by such date or provided for by adequate
      reserves in the financial statements contained in the SEC Reports as of and
      for
      the periods ended September 30, 2005 (other than taxes accruing after such
      date)
      and all similar items due through the Closing Date will have been fully paid
      by
      that date or provided for by adequate reserves, whether or not any such taxes
      were reported or reflected in any tax returns or filings. No taxation authority
      has sought to audit the records of the Company or any of its Subsidiaries for
      the purpose of verifying or disputing any tax returns, reports or related
      information and disclosures provided to such taxation authority, or for the
      Company’s or any of its Subsidiaries’ alleged failure to provide any such tax
      returns, reports or related information and disclosure. No material claims
      or
      deficiencies have been asserted against or inquiries raised with the Company
      or
      any of its Subsidiaries with respect to any taxes or other governmental charges
      or levies which have not been paid or otherwise satisfied, including claims
      that, or inquiries whether, the Company or any of its Subsidiaries has not
      filed
      a tax return that it was required to file, and, to the best of the Company’s
      knowledge, there exists no reasonable basis for the making of any such claims
      or
      inquiries. Neither the Company nor any of its Subsidiaries has waived any
      restrictions on assessment or collection of taxes or consented to the extension
      of any statute of limitations relating to taxation.

     

    (y) Environmental
      Matters. None
      of the premises or any properties owned, occupied or leased by the Company
      or
      its Subsidiaries (the “Premises”)
      has been used by the Company or the Subsidiaries or, to the Company’s knowledge,
      by any other Person, to manufacture, treat, store, or dispose of any substance
      that has been designated to be a “hazardous substance” under applicable
      Environmental Laws (hereinafter defined) (“Hazardous
      Substances”)
      in violation of any applicable Environmental Laws. To its knowledge, the Company
      has not disposed of, discharged, emitted or released any Hazardous Substances
      which would require, under applicable Environmental Laws, remediation,
      investigation or similar 

     

    
      
        
        

      

      
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    response
      activity. No Hazardous Substances are present as a result of the actions of
      the
      Company or, to the Company’s knowledge, any other Person, in, on or under the
      Premises which would give rise to any liability or clean-up obligations of
      the
      Company under applicable Environmental Laws. The Company and, to the Company’s
      knowledge, any other Person for whose conduct it may be responsible pursuant
      to
      an agreement or by operation of law, are in compliance with all laws,
      regulations and other federal, state or local governmental requirements, and
      all
      applicable judgments, orders, writs, notices, decrees, permits, licenses,
      approvals, consents or injunctions in effect on the date of this Agreement
      relating to the generation, management, handling, transportation, treatment,
      disposal, storage, delivery, discharge, release or emission of any Hazardous
      Substance (the “Environmental
      Laws”).
      Neither the Company nor, to the Company’s knowledge, any other Person for whose
      conduct it may be responsible pursuant to an agreement or by operation of law
      has received any written complaint, notice, order, or citation of any actual,
      threatened or alleged noncompliance with any of the Environmental Laws, and
      there is no proceeding, suit or investigation pending or, to the Company’s
      knowledge, threatened against the Company or, to the Company’s knowledge, any
      such Person with respect to any violation or alleged violation of the
      Environmental Laws, and, to the knowledge of the Company, there is no basis
      for
      the institution of any such proceeding, suit or investigation. 

     

    (z)
       Disclosure.
      The Company confirms that neither the Company nor any other Person acting on
      its
      behalf and at the direction of the Company, has provided any of the Purchasers
      or their agents or counsel with any information that in the Company’s reasonable
      judgment, at the time such information was furnished, constitutes material,
      non-public information. The Company understands and confirms that the Purchasers
      will rely on the foregoing representations and covenants in effecting
      transactions in securities of the Company. All disclosure provided to the
      Purchasers regarding the Company, its business and the transactions contemplated
      hereby, including the Disclosure Schedules to this Agreement, furnished by
      or on
      behalf of the Company are true and correct in all material respects and do
      not
      contain any untrue statement of a material fact or omit to state any material
      fact necessary in order to make the statements made therein, in light of the
      circumstances under which they were made, not misleading.

     

    (aa) No
      Additional Representations.
      Each Purchaser acknowledges and agrees that the Company does not make and has
      not made any representations or warranties with respect to the transactions
      contemplated hereby other than those specifically set forth in this Section
      3.1
      or in any Transaction Document.

     

    (bb)
      Poison Pill.
      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 this Agreement and the Transaction Documents, including
      without limitation the Company's issuance of the Securities and the Purchasers’
ownership of the Securities.

    

    
      
        
        

      

      
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    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; Enforceability.
      Such Purchaser (other than individuals) is an entity duly organized, validly
      existing and in good standing under the laws of the jurisdiction of its
      organization with full power and authority to enter into and to consummate
      the
      transactions contemplated by the Transaction Documents and otherwise to carry
      out its obligations thereunder. The execution, delivery and performance by
      such
      Purchaser of the transactions contemplated by this Agreement has 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, subject
      to laws of general application relating to bankruptcy, insolvency,
      reorganization, moratorium or other similar laws affecting creditors’ rights
      generally and rules of law governing specific performance, injunctive relief,
      or
      other equitable remedies.

     

    (b)
       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.

     

    (c)
       No
      Public Sale or Distribution.
      Such Purchaser is (i) acquiring the Notes and Warrants and (ii) upon conversion
      of the Notes or exercise of the Warrants will acquire the Conversion Shares
      or
      Warrant Shares, as applicable, for its own account and not with a view towards,
      or for resale in connection with, the public sale or distribution thereof;
      provided,
      however,
      that by making the representations herein, such Purchaser does not agree to
      hold
      any of the Securities for any minimum or other specific term and reserves the
      right to dispose of the Securities at any time in accordance with or pursuant
      to
      a registration statement or an exemption under the Securities Act. Such
      Purchaser is acquiring the Securities hereunder in the ordinary course of its
      business. Such Purchaser does not have any agreement or understanding, directly
      or indirectly, with any Person to distribute any of the Securities.

     

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

     

    (e)
       Residency. Such
      Purchaser is a resident of the jurisdiction set forth below such Purchaser’s
      name on Schedule
      1
      attached hereto.

     

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

     

    
      
        
        

      

      
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    (g)
       Information.
      Such Purchaser and its advisors, if any, have been furnished with all publicly
      available materials (or such materials have been made available to such
      Purchaser) relating to the business, finances and operations of the Company
      and
      such other publicly available materials relating to the offer and sale of the
      Notes and Warrants as have been requested by such Purchaser, including without
      limitation the Company’s Form 10-K for the period ended December 31, 2004, Forms
      10-Q for the periods ended March 31, 2005, June 30, 2005 and September 30,
      2005
      and Forms 8-K filed by the Company since January 1, 2005. Each Purchaser
      acknowledges that it has read and understands the risk factors set forth in
      such
      Form 10-K, Forms 10-Q and Forms 8-K. Neither such review nor any other due
      diligence investigations conducted by such Purchaser or its advisors, if any,
      or
      its representatives shall modify, amend or affect such Purchaser's right to
      rely
      on the Company's representations and warranties contained herein. Such Purchaser
      understands that its investment in the Notes and Warrants involves a high degree
      of risk.

     

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

     

    (i)
       Experience
      of Such Purchaser.
      Such Purchaser, either alone or together with its representatives, has such
      knowledge, sophistication and experience in business and financial matters,
      including investing in companies engaged in the business in which the Company
      is
      engaged, so as to be capable of evaluating the merits and risks of the
      prospective investment in the Notes and Warrants, and has so evaluated the
      merits and risks of such investment. Such Purchaser is able to bear the economic
      risk of an investment in the Notes and Warrants and, at the present time, is
      able to afford a complete loss of such investment.

     

    The
      Company acknowledges and agrees that each Purchaser does not make or has not
      made any representations or warranties with respect to the transactions
      contemplated hereby other than those specifically set forth in this Section
      3.2.

     

    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, to the Company, to an Affiliate
      of a Purchaser (who is an accredited investor and executes a customary
      representation letter) 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 satisfactory
      to
      the Company (it being understood that Wiggin and Dana LLP is reasonably
      satisfactory), 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,
      provided, however,
      that in the case of a transfer pursuant to Rule 144, no opinion shall
      be

     

    
      
        
        

      

      
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    required
      if the transferor provides the Company with a customary seller’s representation
      letter, and if such sale is not pursuant to subsection (k) of Rule 144, a
      customary broker’s representation letter and a Form 144. 
      Any such transferee that agrees in writing to be bound by the terms of this
      Agreement and the Investor Rights Agreement shall have the rights of a Purchaser
      under this Agreement and the Investor Rights Agreement. Except as required
      by
      federal securities laws and the securities law of any state or other
      jurisdiction within the United States, the Securities may be transferred, in
      whole or in part, by any of the Purchasers at any time. The Company shall
      reissue certificates evidencing the Securities upon surrender of certificates
      evidencing the Securities being transferred in accordance with this Section
      4.1(a).

     

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

     

    THESE
      SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
      OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
      REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
      ACT”),
      AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
      REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
      EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
      REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
      SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
      TO
      SUCH EFFECT, SUCH COUNSEL AND THE SUBSTANCE OF SUCH OPINION SHALL BE REASONABLY
      ACCEPTABLE TO THE COMPANY. UNLESS PROHIBITED BY APPLICABLE LAW, RULE OR
      REGULATION, THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
      MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL
      INSTITUTION THAT IS AN “ACCREDITED
      INVESTOR”
      AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT.

     

    The
      Company acknowledges and agrees that, unless prohibited by applicable law,
      rule
      or regulation, 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, 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; provided, however, that such Purchaser shall provide the Company
      with
      such documentation as is reasonably requested by the Company to ensure that
      the
      pledge is pursuant to a bona fide margin agreement with a registered
      broker-dealer or 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. The Company will execute and deliver such
      documentation as a pledgee or secured party of Securities may reasonably request
      in connection with a pledge or transfer of the Securities, including 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.

     

    
      
        
        

      

      
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    (c) Certificates
      evidencing the Conversion Shares and Warrant Shares shall not contain any legend
      (including the legend set forth in Section 4.1(b)), (i) following any sale
      of
      such Conversion Shares or Warrant Shares pursuant to Rule 144, or (ii) if such
      Conversion Shares or Warrant Shares are eligible for sale under Rule 144(k)
      (and
      the holder of such Conversion Shares or Warrant Shares has submitted a written
      request for removal of the legend indicating that the holder has complied with
      the applicable provisions of Rule 144), or (iii) 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) (and
      the holder of such Conversion Shares or Warrant Shares has submitted a written
      request for removal of the legend indicating that the holder has complied with
      the applicable provisions of Rule 144). The Company shall cause its counsel
      to
      issue a legal opinion to the Company's transfer agent promptly upon the
      occurrence of any of the events in clauses (i), (ii) or (iii) above to effect
      the removal of the legend hereunder and shall also cause its counsel to issue
      a
“blanket” legal opinion to the Company's transfer agent promptly after the
      Effective Date, if required by the Company's transfer agent, to allow sales
      pursuant to an effective Registration Statement. The Company agrees that 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 Company's transfer agent of a certificate representing Conversion
      Shares or Warrant Shares, as the case may be, issued with a restrictive legend,
      deliver or cause to be delivered to such Purchaser a certificate representing
      such Securities that is free from all restrictive and other legends; provided
      that the holder of such Conversion Shares or Warrant Shares has submitted a
      written request for removal of the legend indicating that the holder has
      complied with the applicable provisions of Rule 144. The Company may not make
      any notation on its records or give instructions to any transfer agent of the
      Company that enlarge the restrictions on transfer set forth in this
      Section.

     

    (d) Each
      Purchaser, severally and not jointly, 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 on, and the Purchaser's agreement
      that, and each Purchaser hereby agrees that, the Purchaser will not sell any
      Securities except pursuant to either the registration requirements of the
      Securities Act, including any applicable prospectus delivery requirements,
      or an
      exemption therefrom.

     

    4.2
       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. Upon the request of any such holder of Securities,
      the Company shall deliver to such holder a written certification of a duly
      authorized officer as to whether it has complied with the preceding sentence.
      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, all to the extent required from
      time to time to enable such Person to sell such Securities without registration
      under the Securities Act within the limitation of the exemptions provided by
      Rule 144.

     

    
      
        
        

      

      
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    4.3 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. 

     

    4.4 Limitation
      on Future Financing.

     

    From
      the date hereof until the earlier of 60 calendar days after the Closing Date
      or
      15 calendar days after the Effective Date, the Company shall not effect an
      issuance of its Common Stock or Common Stock Equivalents. Notwithstanding
      anything to the contrary herein, this Section 4.4 shall not apply to the
      following: (a) the granting of options or other equity compensation awards
      or
      the issuance of Common Stock or Common Stock Equivalents to employees,
      independent contractors, officers and directors of the Company pursuant to
      any
      equity compensation plan duly adopted 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 such purpose (and the
      exercise of such options or Common Stock Equivalents), or (b) the exercise
      of
      any security issued by the Company in connection with the offer and sale of
      the
      Company's securities pursuant to this Agreement, or (c) the exercise of or
      conversion of any convertible securities, options, warrants or rights issued
      and
      outstanding on the date hereof, or (d) the issuance of Common Stock or Common
      Stock Equivalents in connection with acquisitions or strategic investments,
      partnerships, business relationship or joint venture, the primary purpose of
      which is not to raise capital, or (e) the issuance of securities pursuant to
      a
      stock split or stock dividend or similar capital modification, or (f) the
      issuance of securities upon the authorization of the Company’s Board of
      Directors in connection with business conducted by the Company with vendors,
      lessors or financial institutions in connection with financing
      transactions.

     

    4.5 Publicity.
      

     

    The
      Company shall, within two Business Days following the Closing Date, file a
      Current Report on Form 8-K, disclosing the transactions contemplated hereby
      and
      make such other filings and notices in the manner and time required by the
      Commission. The Company and SCO Securities LLC shall consult with each other
      in
      issuing any press releases with respect to the transactions contemplated hereby,
      and neither the Company nor any Purchaser nor SCO Securities LLC 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
      SCO Securities LLC, or without the prior consent of SCO Securities LLC, with
      respect to any press release of the Company, except if such disclosure is
      required by applicable law, rule or regulation, in which case the disclosing
      party shall promptly provide the other party with prior notice of such public
      statement or communication.

     

    4.6 Non-Public
      Information.

     

    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 

     

    
      
        
        

      

      
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    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.

     

    4.7 Use
      of Proceeds.

     

    The
      Company covenants and agrees that the proceeds from the sale of the Common
      Stock
      and Warrants shall be used by the Company for working capital and general
      corporate purposes; under no circumstances shall any portion of the proceeds
      be
      applied to:

     

    (i) accelerated
      repayment of debt existing on the date hereof (other than payment of trade
      payables in the ordinary course of the Company’s business and consistent with
      prior practices; 

     

    (ii) the
      payment of dividends or other distributions on any capital stock of the Company;
      

     

    (iii) the
      purchase of debt or equity securities of any Person for cash, including the
      Company and its Subsidiaries, except in connection with investment of excess
      cash in high quality (A1/P1 or better) money market instruments having
      maturities of one year or less; 

     

    (iv) any
      expenditure not directly related to the business of the Company; or

     

    (v) the
      redemption of any Company equity or equity-equivalent securities.

     

    4.8 Reservation
      of Common Stock.

     

    As
      of the date hereof, the Company has reserved and the Company shall continue
      to
      reserve and keep available at all times, free of preemptive rights, a sufficient
      number of shares of Common Stock for the purpose of enabling the Company to
      issue the maximum number of Conversion Shares issuable upon conversion of the
      Notes and Warrant Shares issuable upon exercise of the Warrants.

     

    4.9 Listing
      of Common Stock.

     

    The
      Company hereby agrees that, from time to time, if the Company applies to have
      the Common Stock traded on any Trading Market, it will include in such
      application the Conversion Shares and the Warrant Shares, and will take such
      other action as is necessary to cause the Conversion Shares and Warrant Shares
      to be listed on such Trading Market as promptly as possible.

     

    4.10 Business
      Operations.
      Until the earlier of: (i) the third year anniversary of the Closing Date and
      (ii) the date that the Purchasers own less than 50% of the Notes originally
      issued pursuant to this Agreement or Conversion Shares issuable upon conversion
      thereof, the Company shall comply with the following covenants:

     

    
      
        
        

      

      
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    (a) Insurance.
      The Company and its Subsidiaries shall maintain insurance policies such that
      the
      representations contained in the first sentence of Section 3.1(p) hereof
      continue to be true and correct and shall, from time to time upon the written
      request of the Purchasers, promptly furnish or cause to be furnished to the
      Purchasers evidence, in form and substance reasonably satisfactory to the
      Purchasers, of the maintenance of all insurance maintained by it. 

     

    (b) Corporate
      Existence; Licenses.
      The Company shall preserve and maintain and cause its Subsidiaries to preserve
      and maintain their corporate existence and good standing in the jurisdiction
      of
      their incorporation and the rights, privileges and franchises of the Company
      and
      its Subsidiaries (except, in each case, in the event of a merger or
      consolidation in which the Company or its Subsidiaries, as applicable, is not
      the surviving entity) in each case where the failure to so preserve or maintain
      could have a Material Adverse Effect on the financial condition, business or
      operations of the Company and its Subsidiaries taken as a whole. The Company
      shall, and shall cause its Subsidiaries to, maintain at all times all material
      licenses or permits necessary to the conduct of its business and as required
      by
      any governmental agency or instrumentality thereof, including without limitation
      all Food and Drug Administration clearances and approvals.

     

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

     

    (d) Affiliate
      Transactions.
      Except for transactions approved by the Company’s Audit Committee or a majority
      of the disinterested members of the board of directors of the Company, neither
      the Company nor any of its Subsidiaries shall enter into any transaction with
      any (i) director, officer, employee or holder of more than 5% of the outstanding
      capital stock of any class or series of capital stock of the Company or any
      of
      its Subsidiaries, (ii) member of the immediate family of any such person, or
      (iii) corporation, partnership, trust or other entity in which any such person,
      or member of the immediate family of any such person, is a director, officer,
      trustee, partner or holder of more than 5% of the outstanding capital stock
      thereof.

     

    4.11 Securities
      Law Compliance.

     

    (a) Securities
      Act.
      The Company shall timely prepare and file with the Securities and Exchange
      Commission the form of notice of the sale of securities pursuant to the
      requirements of Regulation D regarding the sale of the Common Stock and Warrants
      under this Agreement.

     

    (b) State
      Securities Law Compliance -- Sale.
      The Company shall timely prepare and file such applications, consents to service
      of process (but not including a general consent to service of process) and
      similar documents and take such other steps and perform such further acts as
      shall be required by the state securities law requirements of each jurisdiction
      where a 

     

    
      
        
        

      

      
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    Purchaser
      resides, as indicated on Schedule
      1,
      with respect to the sale of the Common Stock and Warrants under this Agreement.
      

     

    (c) State
      Securities Law Compliance --Resale.
      Beginning no later than 30 days following any date, from time to time, on which
      the Common Stock is no longer a “covered security” under Section 18(b)(1)(A) of
      the Securities Act and continuing until either (i) the Purchasers have sold
      all
      of their Conversion Shares and Warrant Shares under a registration statement
      pursuant to the Investor Rights Agreement or (ii) the Common Stock becomes
      a
“covered security” under Section 18(b)(1)(A) of the Securities Act, the Company
      shall maintain within either Moody’s Industrial Manual or Standard and Poor’s
      Standard Corporation Descriptions (or any successors to these manuals which
      are
      similarly qualified as “recognized securities manuals” under state Blue Sky
      laws) an updated listing containing (i) the names of the officers and directors
      of the Company, (ii) a balance sheet of the Company as of a date that is at
      no
      time older than eighteen months and (iii) a profit and loss statement of the
      Company for either the preceding fiscal year or the most recent year of
      operations.

     

    4.12 Reverse
      Stock Split.
      The
      Company shall use its best efforts to obtain stockholder approval for a 1 for
      5
      reverse stock split with respect to its Common Stock (the “1
      for 5 Split”)
      and to effect such 1 for 5 Split, in each case, as promptly as practicable
      following the Closing Date. The number of authorized shares of Common Stock
      of
      the Company shall not be reduced in connection with the 1 for 5
      Split.

     

    4.13
      Poison
      Pill.
      From time to time, for as long as any Purchaser holds any Securities, the
      Company and its Board of Directors shall take 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 this Agreement and the Transaction Documents, including
      without limitation the Company's issuance of the Securities and the Purchasers’
ownership of the Securities.

     

    4.14 Director
      Designees.
      For
      as long as the Notes issued pursuant to this Agreement remain outstanding,
      (a)
      SCO Capital Partners LLC shall have the right, from time to time, to designate
      two individuals, in the sole discretion of SCO Capital Partners LLC, to serve
      as
      directors of the Company (the “SCO
      Director Designees”),
      (b) the Company shall use its best efforts to cause the number of directors
      to
      be fixed at a
      sufficient number such that at least two positions
      shall be
      available for
      the SCO Director Designees (the “SCO
      Board Seats”),
      (c) the Company shall use its best efforts to cause the SCO Director Designees
      to be nominated and elected for service as directors of the Company at each
      meeting of the Company’s shareholders held for the purpose of electing directors
      and (d) if at any time, or from time to time, one or more of the SCO Board
      Seats
      is or becomes vacant for any reason prior to the next annual meeting of
      shareholders, the Company shall use its best efforts to cause such vacancy
      to be
      filled with an SCO Director Designee.

     

    

    
      
        
        

      

      
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    ARTICLE
      V

     

    INDEMNIFICATION,
      TERMINATION AND DAMAGES

     

    5.1 Survival
      of Representations. 

     

    Except
      as otherwise provided herein, the representations and warranties of the Company
      and the Purchasers contained in or made pursuant to this Agreement shall survive
      the execution and delivery of this Agreement and the Closing Date and shall
      continue in full force and effect for a period of one (1) year from the Closing
      Date. The Company’s and the Purchasers’ warranties and representations shall in
      no way be affected or diminished in any way by any investigation of (or failure
      to investigate) the subject matter thereof made by or on behalf of the Company
      or the Purchasers.

     

    5.2 Indemnification.
      

     

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

     

    (b) The
      Purchasers, severally and not jointly, agree to indemnify and hold harmless
      the
      Company, its Affiliates, each of their officers, directors, employees and agents
      and their respective successors and assigns, from and against any losses,
      damages, or expenses which are caused by or arise out of (A) any breach or
      default in the performance by the Purchasers of any covenant or agreement made
      by the Purchasers in this Agreement or in any of the Transaction Documents;
      (B)
      any breach of warranty or representation made by the Purchasers in this
      Agreement or in any of the Transaction Documents; and (C) any and all third
      party actions, suits, proceedings, claims, demands, judgments, costs and
      expenses (including reasonable legal fees and expenses) incident to any of
      the
      foregoing; provided,
      however,
      that a Purchaser’s liability under this Section 5.2(b) shall not exceed the
      Purchase Price paid by such Purchaser hereunder.

     

    5.3 Indemnity
      Procedure. 

     

    A
      party or parties hereto agreeing to be responsible for or to indemnify against
      any matter pursuant to this Agreement is referred to herein as the “Indemnifying
      Party”
      and the other party or parties claiming indemnity is referred to as the
“Indemnified
      Party”.
      An Indemnified Party under this Agreement shall, with respect to claims asserted
      against such party by any third party, give written notice to the Indemnifying
      Party of any liability which might give rise to a claim for indemnity under
      this
      Agreement within sixty (60) Business Days of the receipt of any written claim
      from any such third party, but not later than twenty (20) days prior to the
      date
      any answer or responsive pleading is due, and with respect to other matters
      for
      which 

     

    
      
        
        

      

      
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    the
      Indemnified Party may seek indemnification, give prompt written notice to the
      Indemnifying Party of any liability which might give rise to a claim for
      indemnity; provided,
      however,
      that any failure to give such notice will not waive any rights of the
      Indemnified Party except to the extent the rights of the Indemnifying Party
      are
      materially prejudiced.

     

    The
      Indemnifying Party shall have the right, at its election, to take over the
      defense or settlement of such claim by giving written notice to the Indemnified
      Party at least fifteen (15) days prior to the time when an answer or other
      responsive pleading or notice with respect thereto is required. If the
      Indemnifying Party makes such election, it may conduct the defense of such
      claim
      through counsel of its choosing (subject to the Indemnified Party’s approval of
      such counsel, which approval shall not be unreasonably withheld or delayed),
      shall be solely responsible for the expenses of such defense and shall be bound
      by the results of its defense or settlement of the claim. The Indemnifying
      Party
      shall not settle any such claim without prior notice to and consultation with
      the Indemnified Party, and no such settlement involving any equitable relief
      or
      which might have an adverse effect on the Indemnified Party may be agreed to
      without the written consent of the Indemnified Party (which consent shall not
      be
      unreasonably withheld or delayed). So long as the Indemnifying Party is
      diligently contesting any such claim in good faith, the Indemnified Party may
      pay or settle such claim only at its own expense and the Indemnifying Party
      will
      not be responsible for the fees of separate legal counsel to the Indemnified
      Party, unless the named parties to any proceeding include both parties or
      representation of both parties by the same counsel would be inappropriate in
      the
      reasonable opinion of counsel to the Indemnified Party, due to conflicts of
      interest or otherwise. If the Indemnifying Party does not make such election,
      or
      having made such election does not, in the reasonable opinion of the Indemnified
      Party proceed diligently to defend such claim, then the Indemnified Party may
      (after written notice to the Indemnifying Party), at the expense of the
      Indemnifying Party, elect to take over the defense of and proceed to handle
      such
      claim in its discretion and the Indemnifying Party shall be bound by any defense
      or settlement that the Indemnified Party may make in good faith with respect
      to
      such claim. In connection therewith, the Indemnifying Party will fully cooperate
      with the Indemnified Party should the Indemnified Party elect to take over
      the
      defense of any such claim. The parties agree to cooperate in defending such
      third party claims and the Indemnified Party shall provide such cooperation
      and
      such access to its books, records and properties (subject to the execution
      of
      appropriate non-disclosure agreements) as the Indemnifying Party shall
      reasonably request with respect to any matter for which indemnification is
      sought hereunder; and the parties hereto agree to cooperate with each other
      in
      order to ensure the proper and adequate defense thereof.

     

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

     

    
      
        
        

      

      
        -
          27 -

        
          

        

      

      
        
        

      

       

    

    ARTICLE
      VI

     

    MISCELLANEOUS

     

    6.1 Fees
      and Expenses.

     

    The
      Company shall be responsible for the payment of the Purchasers’ reasonable and
      documented legal fees and other third-party expenses relating to the
      preparation, negotiation and execution of this Agreement and the Transaction
      Documents and the consummation of the transactions contemplated
      herein.

     

    6.2 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.

     

    6.3 Notices.

     

    Any
      and all notices or other communications or deliveries required or permitted
      to
      be provided hereunder shall be in writing and shall be deemed given and
      effective on the earliest of (a) the date of transmission, if such notice or
      communication is delivered via facsimile at the facsimile number specified
      on
      the signature pages attached hereto prior to 5:00 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
      on
      the signature pages attached hereto on a day that is not a Trading Day or later
      than 5:00 p.m. (New York City time) on any Trading Day, (c) the 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 follows:

     

    If
      to the Purchasers, at each Purchaser’s address set forth under its name on
Schedule
      1
      attached hereto, or with respect to the Company, addressed to: 

     

    Access
      Pharmaceuticals, Inc. 

    2600
      Stemmons Freeway, Suite 176

    Dallas,
      Texas 75207

    Attention:
      President

    Facsimile
      No.: (214) 905-5101

     

    or
      to such other address or addresses or facsimile number or numbers as any such
      party may most recently have designated in writing to the other parties hereto
      by such notice. Copies of notices to the Company shall be sent to:

     

    Bingham
      McCutchen LLP

    150
      Federal Street

     

    
      
        
        

      

      
        -
          28 -

        
          

        

      

      
        
        

      

       

    

    Boston,
      Massachusetts 02110 

    Attention:
      John J. Concannon, III

    Facsimile
      No.: (617) 951-8736

    

    Copies
      of notices to any Purchaser shall be sent to the addresses, if any, listed
      on
Schedule
      1
      attached hereto.

     

    6.4 Amendments;
      Waivers.
      

     

    No
      provision of this Agreement may be waived 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 waiver 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 either party to exercise any right hereunder in any manner
      impair the exercise of any such right.

     

    6.5 Construction.

     

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

     

    6.6 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. Any Purchaser may assign any or all of its rights
      under this Agreement to any Person, provided such transferee agrees in writing
      to be bound, with respect to the transferred Securities, by the provisions
      hereof that apply to the Purchasers. 

     

    6.7 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 Article V. 

     

    6.8 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. 

     

    
      
        
        

      

      
        -
          29 -

        
          

        

      

      
        
        

      

       

    

    6.9
       Jurisdiction;
      Venue; Service of Process.

     

    This
      Agreement shall be subject to the exclusive jurisdiction of the Federal District
      Court, Southern District of New York and if such court does not have proper
      jurisdiction, the State Courts of New York County, New York. The parties to
      this
      Agreement agree that any breach of any term or condition of this Agreement
      shall
      be deemed to be a breach occurring in the State of New York by virtue of a
      failure to perform an act required to be performed in the State of New York
      and
      irrevocably and expressly agree to submit to the jurisdiction of the Federal
      District Court, Southern District of New York and if such court does not have
      proper jurisdiction, the State Courts of New York County, New York for the
      purpose of resolving any disputes among the parties relating to this Agreement
      or the transactions contemplated hereby. The parties irrevocably waive, to
      the
      fullest extent permitted by law, any objection which they may now or hereafter
      have to the laying of venue of any suit, action or proceeding arising out of
      or
      relating to this Agreement, or any judgment entered by any court in respect
      hereof brought in New York County, New York, and further irrevocably waive
      any
      claim that any suit, action or proceeding brought in Federal District Court,
      Southern District of New York and if such court does not have proper
      jurisdiction, the State Courts of New York County, New York has been brought
      in
      an inconvenient forum. Each of the parties hereto consents to process being
      served in any such suit, action or proceeding, by mailing a copy thereof 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 in this Section 6.9 shall affect or limit any right
      to
      serve process in any other manner permitted by law.

     

    6.10
       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, such signature shall create a valid and binding obligation of
      the
      party executing (or on whose behalf such signature is executed) with the same
      force and effect as if such facsimile signature page were an original
      thereof.

     

    6.11
       Severability.

     

    If
      any provision of this Agreement is held to be invalid or unenforceable in any
      respect, the validity and enforceability of the remaining terms and provisions
      of this Agreement shall not in any way be affected or impaired thereby and
      the
      parties will attempt to agree upon a valid and enforceable provision that is
      a
      reasonable substitute therefor, and upon so agreeing, shall incorporate such
      substitute provision in this Agreement.

     

    6.12 Replacement
      of Securities.

     

    If
      any certificate or instrument evidencing any of the 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, 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

     

    
      
        
        

      

      
        -
          30 -

        
          

        

      

      
        
        

      

       

    

    destruction
      and customary and reasonable indemnity (but no bond shall be required), if
      requested by the Company.

     

    6.13
       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 described in the foregoing
      sentence and hereby agrees to waive in any action for specific performance
      of
      any such obligation the defense that a remedy at law would be
      adequate.

     

    6.14 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, to the extent
      permissible under applicable law, 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.

     

    6.15 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 of the obligations of any other
      Purchaser under any Transaction Document. Nothing contained herein or in any
      Transaction Document, and no action taken by any 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 Document. 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 Wiggin and Dana LLP, but such
      counsel does not represent any of the Purchasers in this transaction other
      than
      SCO Securities LLC. 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.

     

    
      
        
        

      

      
        -
          31 -

        
          

        

      

      
        
        

      

       

    

    6.16 Waiver
      of Trial by Jury. 

     

    THE
      PARTIES HERETO IRREVOCABLY WAIVE TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING
      RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

     

    6.17 Further
      Assurances. 

     

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

     

    

     

    [Signature
      pages follow.]

     

     

    
      
         

        

        
        

      

      
        -
          32 -

        
          

        

      

      
        
        

      

    

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

     

    COMPANY:

     

    ACCESS
      PHARMACEUTICALS, INC.

    

    

    By:
       /s/ Stephen B. Thompson 

    Name:
      Stephen B. Thompson 

    Title:
      Vice President, CFO

    

    
      
         

        

        
        

      

      
        -
          33 -

        
          

        

      

      
        
        

      

    

     

      PURCHASERS:

      

      
        	 	
                Print Exact 

              	
                 Name:

              	
                SCO
                  Capital Partners LLC

              
	
                 

              	
                 

              
	
                       

              	By:	
              	 /s/
                Steven H. Rouhandeh 
	 	
                Name:

              	Steven H. Rouhandeh
	 	Title 	
              	 Chairman 
	 	
              	 
	 	Address:	1285
                Avenue of the Americas 
	 	
              	 35th
                Floor 
	 	
              	 New
                York, NY 10019
	 	
                Telephone:

              	 212-554-4158
	 	Facsimile	 212-554-4058
	 	Email
	    
	 	
                SSN/EIN

              	 52-2247879
	 	
                Amount of

              	
                Investment $

              	
                4,000,000.00

              

    

    

    [Omnibus
      Access Pharmaceuticals, Inc. Convertible Note and Warrant Purchase Agreement
      Signature Page]

    

    
      
        
        

      

      
        -
          34 -

        
          

        

      

      
        
        

      

    

    
       

      
        PURCHASERS:

        

        
          	 	
                  Print Exact 

                	
                   Name:

                	
                   Lake
                    End Capial LLC

                
	
                   

                	
                   

                
	
                         

                	By:	
                	 /s/
                  Jeffrey B Davis 
	 	
                  Name:

                	Jeffrey B. Davis 
	 	Title 	
                	 Chairman 
	 	
                	 
	 	Address:	 33
                  Tall Oaks Drive 
	 	
                	 Summit,
                  NJ 07901
	 	
                	 
	 	
                  Telephone:

                	 212-554-4158
	 	
                  Facsimile

                	
                   212-554-4058

                
	
                   

                	
                  Email 

                	
                       

                
	 	
                  SSN/EIN

                	 20-2334991
	 	
                  Amount of

                	
                  Investment $

                	
                  500,000.00

                

      

      
 

      

      [Omnibus
        Access Pharmaceuticals, Inc. Convertible Note and Warrant Purchase Agreement
        Signature Page]

    

     

    
      
        
        

      

      
        -
          34 -

        
          

        

      

      
        
        

      

    

    
       

       

      
        PURCHASERS:

        

        
          	 	
                  Print Exact 

                	
                   Name:

                	
                   Beach
                    Capital LLC

                
	
                   

                	
                   

                
	
                         

                	By:	
                	 /s/
                  Steven H. Rouhandeh 
	 	
                  Name:

                	Steven H. Rouhandeh 
	 	Title 	
                	 Chairman 
	 	
                	 
	 	Address:	 1285
                  Avenue of the Americas 
	 	
                	 35th
                  Floor     
	 	
                	 New
                  York, NY 10019
	 	
                  Telephone:

                	 212-554-4158
	 	Facsimile	 212-554-4058
	 	Email
	    
	 	
                  SSN/EIN

                	 20-4249428
	 	
                  Amount of

                	
                  Investment $

                	
                  500,000.00

                

      

       

      

      [Omnibus
        Access Pharmaceuticals, Inc. Convertible Note and Warrant Purchase Agreement
        Signature Page]

    

    
      
        
          

        

        
        

      

      
        -
          34 -Unassociated Document

    EXHIBIT
      10.24

    
      

      

    

    
 

     

     

    CONVERTIBLE
      NOTE AND WARRANT PURCHASE AGREEMENT

     

    by
      and
      among

     

    Access
      Pharmaceuticals, Inc.

     

    and

     

    the
      parties named herein on Schedule 1, as Purchasers

     

    

     

    

     

    

     

    

     

    

     

    October
      24, 2006

     

    

     

     

    

     

    
      
        
          

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    

    This
      CONVERTIBLE
      NOTE AND WARRANT PURCHASE AGREEMENT
      (this
“Agreement”)
      is
      dated as of October 24, 2006, among Access Pharmaceuticals, Inc., a Delaware
      corporation (the “Company”),
      and
      the purchasers identified on Schedule
      1
      hereto
      (each 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 (as defined below), and Rule 506 promulgated
      thereunder, the Company desires to issue and sell to the Purchasers, and the
      Purchasers, severally and not jointly, desire to purchase from the Company
      (i)
      up to an aggregate original principal amount of $500,000 of Secured Convertible
      Promissory Notes (the “Notes”)
      and
      (ii) Common Stock Purchase Warrants (the “Warrants”)
      entitling the holders thereof to purchase up to 340,909 shares
      of
      the Company’s Common Stock as more fully set forth herein.

     

    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
      AND TERMS OF NOTES AND WARRANTS

     

    1.1 Definitions.
      

     

    In
      addition to the terms defined elsewhere in this Agreement, for all purposes
      of
      this Agreement, the following terms have the meanings indicated 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. 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.

     

    “Agreement”
shall
      have the meaning ascribed to such term in the Preamble.

     

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

     

    “Closing”
shall
      have the meaning ascribed to such term in Section 2.1(a). 

     

    “Closing
      Date”
shall
      have the meaning ascribed to such term in Section 2.1(a).

     

    “Commission”
means
      the Securities and Exchange Commission. 

     

    “Common
      Stock”
means
      the common stock of the Company, $0.01 par value per share, and any securities
      into which such common stock may hereafter be reclassified. 

     

    
      
        
        

      

      
        -
          2 -

        
          

        

      

      
        
        

      

    

    “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 exchangeable for, or otherwise entitles the holder
      thereof to receive, Common Stock. 

     

    “Company”
shall
      have the meaning ascribed to such term in the Preamble.

     

    “Conversion
      Shares”
means
      the shares of Common Stock issuable upon conversion of the Notes.

     

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

     

    “Effective
      Date”
means
      the date that the Registration Statement is first declared effective by the
      Commission. 

     

    “Environmental
      Laws”
shall
      have the meaning ascribed to such term in Section 3.1(y).

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended.

     

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

     

    “February
      Notes”
means
      the Secured Convertible Promissory Notes of the Company issued pursuant to
      the
      Prior Purchase Agreement.

     

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

     

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

     

    “Hazardous
      Substances”
shall
      have the meaning ascribed to such term in Section 3.1(y).

     

    “Indemnified
      Party”
shall
      have the meaning ascribed to such term in Section 5.3.

     

    “Indemnifying
      Party”
shall
      have the meaning ascribed to such term in Section 5.3.

     

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

     

    “Investor
      Rights Agreement”
means
      the Investor Rights Agreement, dated as of the date of this Agreement, between
      the Company and each of the Purchasers, in the form of Exhibit
      A
      hereto.

     

    “Lien”
means
      a
      lien, charge, security interest, encumbrance, right of first refusal or other
      restriction, except for a lien for current taxes not yet due and payable and
      a
      minor imperfection of title, if any, not material in nature or amount and not
      materially detracting from the value or impairing the use of the property
      subject thereto or impairing the operations or proposed operations of the
      Company. 

     

    
      
        
        

      

      
        -
          3 -

        
          

        

      

      
        
        

      

    

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

     

    “Notes”
shall
      have the meaning ascribed to such term in the recitals hereto.

     

    “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.
      

     

    “Placement
      Agent Warrants”
shall
      mean the common stock purchase warrants to be issued to SCO Securities LLC
      and/or its designees as compensation for services rendered in connection with
      the transaction set forth herein as provided on Schedule
      1
      attached
      hereto, which warrants shall be in the form of Exhibit
      D
      hereto.

     

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

     

    “Prior
      Purchase Agreement”
means
      that certain Convertible Note and Warrant Purchase Agreement dated as of
      February 16, 2006, among the Company and each of the purchasers described
      therein.

     

    “Purchaser”
shall
      have the meaning ascribed to such term in the Preamble.

     

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

     

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

     

    “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 Notes, the Conversion Shares, the Warrants and the Warrant
      Shares.

     

    “Securities
      Act”
means
      the Securities Act of 1933, as amended.

     

    “Security
      Agreement”
      means
      the Security Agreement, dated as of February 16, 2006, among the Company, each
      of the holders of the February Notes (including the Purchasers).

     

    “Security
      Agreement Amendment”
      means
      the Security Agreement Amendment, dated as of the date hereof, among the
      Company, each of the holders of the February Notes and each of the Purchasers,
      in the form of Exhibit
      B
      hereto,
      amending the Security Agreement.

     

    “Subscription
      Amount”
means,
      as to each Purchaser, the amount set forth beside such Purchaser’s name on
Schedule
      1
      hereto,
      in United States dollars and in immediately available funds.

     

    
      
        
        

      

      
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    “Subsidiary”
means,
      with respect to any entity, any corporation or other organization of which
      securities or other ownership interest having ordinary voting power to elect
      a
      majority of the board of directors or other persons performing similar
      functions, are directly or indirectly owned by such entity or of which such
      entity is a partner or is, directly or indirectly, the beneficial owner of
      50%
      or more of any class of equity securities or equivalent profit participation
      interests.

     

    “Trading
      Day”
means
      (i) a day on which the Common Stock is traded on a Trading Market, or (ii)
      if
      the Common Stock is not listed on a Trading Market, a day on which the Common
      Stock is traded on the over-the-counter market, as reported by the OTC Bulletin
      Board, or (iii) if the Common Stock is not quoted on the OTC Bulletin Board,
      a
      day on which the Common Stock is quoted in the over-the-counter market as
      reported by Pink Sheets LLC (or any similar organization or agency succeeding
      to
      its functions of reporting prices); provided, that in the event that the Common
      Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then
      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 New York
      Stock Exchange, the Nasdaq National Market or the Nasdaq Capital
      Market.

     

    “Transaction
      Documents”
means
      this Agreement, the Notes, the Security Agreement, the Investor Rights
      Agreement, the Warrants and any other documents or agreements executed in
      connection with the transactions contemplated hereunder. 

     

    “Warrants”
shall
      have the meaning ascribed to such term in the recitals hereto. The Placement
      Agent Warrants shall also constitute “Warrants” for all purposes hereunder and
      SCO Securities LLC and/or its designees and such other persons or entities
      shall
      constitute “Purchasers” for all purposes hereunder.

    

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

     

    1.2 Terms
      of the Notes and Warrants.
      The
      terms and provisions of the Notes are set forth in the form of Secured
      Convertible Promissory Note, attached hereto as Exhibit
      C.
      The
      terms and provisions of the Warrants are more fully set forth in the form of
      Warrant, attached hereto as Exhibit
      D.

     

    ARTICLE
      II

     

    PURCHASE
      AND SALE

     

    2.1 Closing.

     

    (a) The
      closing of the transactions contemplated under this Agreement (the “Closing”)
      will
      take place upon the execution of this Agreement by the Company and the
      Purchasers immediately following satisfaction or waiver of the conditions set
      forth in Sections 2.2 and 2.3 (other than those conditions which by their terms
      are not to be satisfied or waived until the Closing), at the offices of Wiggin
      and Dana LLP, 400 Atlantic Street, Stamford, CT 06901 (or remotely via exchange
      of documents and signatures) or at such other place or day as 

     

    
      
        
        

      

      
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    may
      be
      mutually acceptable to the Purchasers and the Company. The date on which the
      Closing occurs is the “Closing
      Date”.

     

    (b) At
      the
      Closing, the Purchasers shall purchase, severally and not jointly, and the
      Company shall issue and sell, (i) up to an aggregate original principal amount
      of $500,000 of Notes and (ii) Warrants to purchase up to 340,909 shares
      of
      Common Stock. Each Purchaser shall purchase from the Company, and the Company
      shall issue and sell to each Purchaser, a Note in such principal amount and
      a
      Warrant to purchase such number of Warrant Shares, in each case, as is set
      forth
      next to such Purchaser’s name on Schedule
      1.
      The
      Subscription Amount paid by each Purchaser shall be placed in escrow pending
      the
      Closing pursuant to a Closing Escrow Agreement among the Company, SCO Securities
      LLC and Wiggin and Dana LLP (the “Escrow
      Agent”),
      which
      agreement shall be in the form attached hereto as Exhibit
      E
      (the
“Closing
      Escrow Agreement”).

     

    2.2 Conditions
      to Obligations of Purchasers to Effect the Closing.

     

    The
      obligations of each Purchaser to effect the Closing and the transactions
      contemplated by this Agreement shall be subject to the satisfaction at or prior
      to the Closing of each of the following conditions, any of which may be waived,
      in writing, by such Purchaser:

     

    (a) At
      the
      Closing (unless otherwise specified below) the Company shall deliver or cause
      to
      be delivered to each Purchaser the following: 

     

    (i)
      this
      Agreement, duly executed by the Company;

     

    (ii)
      an
      original Note for such Purchaser in the principal amount that is set forth
      on
Schedule
      1
      hereto
      next to such Purchaser’s name;

     

    (iii)
      an
      original Warrant, registered in the name of such Purchaser, pursuant to which
      such Purchaser shall have the right to acquire up to the number of shares of
      Common Stock, as set forth next to such Purchaser’s name on Schedule
      1
      hereto;

     

    (iv)
      the
      Investor Rights Agreement, duly executed by the Company;

     

    (v)
      the
      Security Agreement Amendment, duly executed by the Company and the parties
      thereto, other than the Purchasers (if any);

     

    (vi)
      a
      legal opinion of Bingham McCutchen LLP, counsel
      to the Company, in the form of Exhibit
      F
      hereto;

     

    (vii)
      a
      certificate of the Secretary of the Company (the “Secretary’s
      Certificate”),
      attaching a true copy of the Certificate of Incorporation and Bylaws of the
      Company, as amended to the Closing Date, and attaching true and complete copies
      of the resolutions of the Board of Directors of the Company authorizing the
      execution, delivery and performance of this Agreement and the other Transaction
      Documents; and

     

    

    (b) All
      representations and warranties of the Company contained herein shall remain
      true
      and correct in all material respects as of the Closing Date as though such
      representations and
      

     

    
      
        
        

      

      
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    warranties
      were made on such date (except those representations and warranties that address
      matters only as of a particular date will remain true and correct as of such
      date).

    

    (c) As
      of the
      Closing Date, there shall have been no Material Adverse Effect with respect
      to
      the Company since the date hereof.

     

    (d) From
      the
      date hereof to the Closing Date, trading in the Common Stock shall not have
      been
      suspended by the Commission (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 Financial Markets shall not have been
      suspended or limited, or minimum prices shall not have been established on
      securities whose trades are 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.

     

    2.3. Conditions
      to Obligations of the Company to Effect the Closing.

     

    (a) The
      obligations of the Company to effect the Closing and the transactions
      contemplated by this Agreement shall be subject to the satisfaction at or prior
      to the Closing of each of the following conditions, any of which may be waived,
      in writing, by the Company. At the Closing, 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 of immediately available funds
      as provided in the Closing Escrow Agreement; 

     

    (iii)
      the
      Investor Rights Agreement, duly executed by such Purchaser; and

     

    (iv)
      the
      Security Agreement, duly executed by such Purchaser.

     

    (b) All
      representations and warranties of each of the Purchasers contained herein shall
      remain true and correct as of the Closing Date as though such representations
      and warranties were made on such date.

     

    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
      concurrently herewith and except as provided in the SEC Reports, the Company
      hereby makes the following representations and warranties as of the date hereof
      and as of the Closing Date to each Purchaser:

     

    (a)
       Subsidiaries.
      Except
      as listed in Schedule 3.1(a), the Company has no direct or indirect
      Subsidiaries. 

     

    
      
        
        

      

      
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    (b)
       Organization
      and Qualification.
      Each of
      the Company and 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 corporate 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 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, would not
      have or result in (i) a material adverse effect on the legality, validity or
      enforceability of any Transaction Document, (ii) a material adverse effect
      on
      the business or financial condition 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”).

     

    (c)
       Authorization;
      Enforceability.
      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 thereunder. The execution and
      delivery of each of the Transaction Documents by the Company and the
      consummation by it of the transactions contemplated thereby have been duly
      authorized by all necessary action on the part of the Company and no further
      action is required by the Company in connection therewith. 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, will constitute the
      valid and binding obligation of the Company enforceable against the Company
      in
      accordance with its terms, subject to laws of general application relating
      to
      bankruptcy, insolvency, reorganization, moratorium or other similar laws
      affecting creditors’ rights generally and rules of law governing specific
      performance, injunctive relief, or other equitable remedies.

     

    (d)
       No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the Company
      and the consummation by the Company of the transactions contemplated 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, 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) 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 cases of clause (ii), where such conflict, default or violation
      would not have or result in a Material Adverse Effect.

     

    (e)
       Filings,
      Consents and Approvals.
      The
      Company is not required to obtain any consent, waiver, authorization or order
      of, give any notice to, or make any filing or registration 

     

    
      
        
        

      

      
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          8 -

        
          

        

      

      
        
        

      

       

    

    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 (a) the filing with the Commission
      of
      the Registration Statement, the application(s) to each Trading Market for the
      listing of the Conversion Shares and Warrant Shares for trading thereon in
      the
      time and manner required thereby, Form D and applicable Blue Sky filings and
      (b)
      such as have already been obtained or such exemptive filings as are required
      to
      be made under applicable securities laws.

     

    (f)
       Issuance
      of the Securities.
      The
      Securities are duly authorized and, when issued and paid for in accordance
      with
      the Transaction Documents, will be duly and validly issued, fully paid and
      nonassessable, free and clear of all Liens, other than any Liens created by
      or
      imposed on the holders thereof through no action of the Company. The Company
      has
      reserved from its duly authorized capital stock the maximum number of shares
      of
      Common Stock issuable upon conversion of the Notes and exercise of the
      Warrants.

     

    (g)
       Capitalization.
      

     

    (i) The
      authorized and outstanding capitalization of the Company is set forth on
      Schedule 3.1(g) hereto. All shares of the Company’s issued and outstanding
      capital stock have been duly authorized, are validly issued and outstanding,
      and
      are fully paid and nonassessable. No securities issued by the Company from
      March
      1, 2002 to the date hereof were issued in violation of any statutory or common
      law preemptive rights. There are no dividends which have accrued or been
      declared but are unpaid on the capital stock of the Company. All taxes required
      to be paid by the Company in connection with the issuance and any transfers
      of
      the Company’s capital stock have been paid. The holders of the Company’s Common
      Stock have certain rights under the company’s Rights Agreement dated as of
      October 31, 2001 by and between the Company and American Stock Transfer as
      Rights Agent. All outstanding securities of the Company have been issued in
      all
      material respects in accordance with the provisions of all applicable securities
      and other laws.

     

    (ii) 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 a result of the purchase and sale of the Securities and
      except for employee and director stock options under the Company’s equity
      compensation plans and as set forth on Schedule 3.1(h)(ii) hereto, there are
      no
      outstanding options, warrants, rights to subscribe to, calls or commitments
      of
      any character whatsoever relating to, or securities, rights or obligations
      convertible into 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 securities or rights
      convertible or exchangeable into shares of Common Stock. The issue 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 such securities.

     

    
      
        
        

      

      
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    (h) SEC
      Reports; Financial Statements; Liabilities.
      

     

    (i) The
      Company has filed all reports required to be filed by it under the Securities
      Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) of the
      Exchange Act, for the 12 months preceding the date hereof (or such shorter
      period as the Company was required by law to file such material) (the foregoing
      materials, including the exhibits thereto, 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 filing dates, the SEC Reports complied in all material respects
      with the requirements of the Securities Act and the Exchange Act, as the case
      may be, and the rules and regulations of the Commission promulgated thereunder,
      as applicable, and none of the SEC Reports, as of their respective filing dates,
      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 light of the circumstances under which they were made, not
      misleading.

     

    (ii) The
      Company’s (A) audited financial statements for the fiscal years ended December
      31, 2005 and 2004 included in the Company’s annual reports on Form 10-K filed
      with the Commission and (B) the financial statements included in the Company’s
      quarterly reports on Form 10-Q filed with the Commission for the first two
      fiscal quarters of 2006 comply with applicable accounting requirements and
      the
      rules and regulations of the Commission with respect thereto as in effect at
      the
      time of filing of such reports. Such financial statements have been prepared
      in
      accordance with generally accepted accounting principles in the United States,
      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, subject to normal year-end audit adjustments. Such
      financial statements fairly present in all material respects the financial
      position of the Company and its consolidated subsidiaries, if any, 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 year-end
      audit adjustments.

     

    (iii) Except
      as
      set forth in the SEC Reports, and except for liabilities and obligations
      incurred since June 30, 2006 in the ordinary course of business, consistent
      with
      past practice, as of the date hereof: (i) the Company and its Subsidiaries
      do
      not have any material liabilities or obligations (absolute, accrued, contingent
      or otherwise) and (ii) there has not been any aspect of the prior or current
      conduct of the business of the Company or its Subsidiaries which may form the
      basis for any material claim by any third party which if asserted could result
      in a Material Adverse Effect.

     

    (i)
       Material
      Changes.
      Except
      as set forth in the SEC Reports or on Schedule 3.1(i), since June 30, 2006,
      the
      Company has conducted its business only in the ordinary course, consistent
      with
      past practice, and since such date there has not occurred:

     

    (i) any
      event, occurrence or development that has had or that could reasonably be
      expected to result in a Material Adverse Effect on the Company or any of its
      Subsidiaries;

     

    (ii) any
      amendments or changes in the charter documents of the Company and its
      Subsidiaries;

     

    
      
        
        

      

      
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          10 -

        
          

        

      

      
        
        

      

       

    

    (iii) any:

     

    (A)
      incurrence, assumption or guarantee by the Company or its Subsidiaries of any
      debt for borrowed money other than (i) equipment leases made in the ordinary
      course of business, consistent with past practice and (ii) any such incurrence,
      assumption or guarantee with respect to an amount of $25,000 or less that has
      been disclosed in the SEC Reports; 

     

    (B)
      other
      than as set forth on Schedule 3.1(i)(iii)(A) hereto, issuance or sale of any
      securities convertible into or exchangeable for securities of the Company other
      than to directors, employees and consultants pursuant to existing equity
      compensation or stock purchase plans of the Company; 

     

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

     

    (D)
      issuance or sale of any stock, bond or other corporate security other than
      to
      directors, employees and consultants pursuant to existing equity compensation
      or
      stock purchase plans of the Company;

     

    (E)
      discharge or satisfaction of any material Lien; 

     

    (F)
      declaration or making any payment or distribution to stockholders or purchase
      or
      redemption of any share of its capital stock or other security other than to
      directors, officers and employees of the Company or its Subsidiaries as
      compensation for services rendered to the Company or its Subsidiary (as
      applicable) or for reimbursement of expenses incurred on behalf of the Company
      or its Subsidiary (as applicable); 

     

    (G)
      sale,
      assignment or transfer of any of its intangible assets except in the ordinary
      course of business, consistent with past practice, or cancellation of any debt
      or claim except in the ordinary course of business, consistent with past
      practice;

     

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

     

    (I)
      material change in officer compensation, except in the ordinary course of
      business and consistent with past practice; or 

     

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

     

    (iv) other
      than as set forth on Schedule 3(i)(iv) hereto, any creation, sufferance or
      assumption by the Company or any of its Subsidiaries of any Lien on any asset
      or
      any making of any loan, advance or capital contribution to or investment in
      any
      Person, in an aggregate amount which exceeds $25,000 outstanding at any
      time;

     

    (v) any
      entry
      into, amendment of, relinquishment, termination or non-renewal by the Company
      or
      its Subsidiaries of any material contract, license, lease, transaction,
      commitment 

     

    
      
        
        

      

      
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          11 -

        
          

        

      

      
        
        

      

       

    

    or
      other
      right or obligation, other than in the ordinary course of business, consistent
      with past practice; or

     

    (vi)
      other than as set forth on Schedule 3(i)(vi) hereto, any transfer or grant
      of a
      right with respect to the patents, trademarks, trade names, service marks,
      trade
      secrets, copyrights or other intellectual property rights owned or licensed
      by
      the Company or its Subsidiaries, except as among the Company and its
      Subsidiaries.

     

    (j)
       Litigation.
      There
      is no action, suit, inquiry, notice of violation, proceeding or, to the
      knowledge of the Company, investigation pending nor, to the knowledge of the
      Company, is any of the above threatened against 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 result in a Material Adverse Effect. Neither
      the Company nor any Subsidiary, nor, to the knowledge of the Company, 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 within the past five (5) years. To the
      knowledge of the Company, there has not been and 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 within the past eight (8) years.

     

    (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 have or result
      in 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
      currently in default under or that it is in violation of, any indenture, loan
      or
      credit agreement or any other agreement or instrument to which it is a party
      or
      by which it or any of its properties is bound (whether or not such default
      or
      violation has been waived), (ii) is in violation of any order of any court,
      arbitrator or governmental body, or (iii) is or has been in violation of any
      statute, rule or regulation of any governmental authority, including without
      limitation all foreign, federal, state and local laws applicable to its
      business, except in the case of clauses (i) and (iii) as would not have or
      reasonably be expected to result in a Material Adverse Effect.

     

    (m)
       Licenses;
      Compliance With FDA and Other Regulatory Requirements.

     

    (i)
       The
      Company holds all material authorizations, consents, approvals, franchises,
      licenses and permits required under applicable law or regulation for the
      operation of the business of the Company and its Subsidiaries as presently
      operated (the “Governmental
      Authorizations”).
      All
      the Governmental Authorizations have been duly issued or obtained and are in
      full force and effect, and the Company and its Subsidiaries are in material
      compliance with 

     

    
      
        
        

      

      
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          12 -

        
          

        

      

      
        
        

      

       

    

    the
      terms
      of all the Governmental Authorizations. The Company and its Subsidiaries have
      not engaged in any activity that, to their knowledge, would cause revocation
      or
      suspension of any such Governmental Authorizations. Neither the execution,
      delivery nor performance of this Agreement shall adversely affect the status
      of
      any of the Governmental Authorizations.

     

    (ii) Without
      limiting the generality of the representations and warranties made in
      sub-paragraph (i) above, the Company represents and warrants that (i) the
      Company and each of its Subsidiaries is in material compliance with all
      applicable provisions of the United States Federal Food, Drug, and Cosmetic
      Act
      and the rules and regulations promulgated thereunder (the “FDC
      Act”)
      and
      equivalent laws, rules and regulations in jurisdictions outside the United
      States in which the Company or its Subsidiaries do business, (ii) its products
      and those of each of its Subsidiaries that are in the Company’s control are not
      adulterated or misbranded and are in lawful distribution, (iii) all of the
      products marketed by and within the control of the Company comply in all
      material respects with any conditions of approval and the terms of the
      application by the Company to the appropriate Regulatory Authorities, (iv)
      no
      Regulatory Authority has initiated legal action with respect to the
      manufacturing of the Company’s products, such as seizures or required recalls,
      and the Company is in compliance with applicable good manufacturing practice
      regulations, (v) its products are labeled and promoted by the Company and its
      representatives in substantial compliance with the applicable terms of the
      marketing applications submitted by the Company to the Regulatory Authorities
      and the provisions of the FDC Act and foreign equivalents, (vi) all adverse
      events that were known to and required to be reported by Company to the
      Regulatory Authorities have been reported to the Regulatory Authorities in
      a
      timely manner, (vii) neither the Company nor any of its Subsidiaries is, to
      their knowledge, employing or utilizing the services of any individual who
      has
      been debarred under the FDC Act or foreign equivalents, (viii) all stability
      studies required to be performed for products distributed by the Company or
      any
      of its Subsidiaries have been completed or are ongoing in material compliance
      with the applicable Regulatory Authority requirements, (ix) any products
      exported by the Company or any of its Subsidiaries have been exported in
      compliance with the FDC Act and (x) the Company and its Subsidiaries are in
      compliance in all material respects with all applicable provisions of the
      Controlled Substances Act. For purposes of this Section 3.1(m), “Regulatory
      Authority”
means
      any governmental authority in a country or region that regulates the manufacture
      or sale of Company’s products, including, but not limited to, the United States
      Food and Drug Administration.

     

    (n)
       Title
      to Assets.
      The
      Company and the Subsidiaries do not own any real property, and have good and
      marketable title to all personal property owned by them that is material to
      the
      business of the Company and the Subsidiaries, taken as a whole, in each case
      free and clear of all Liens other than those pursuant to the Security Agreement
      and except those, if any, reflected in the Company’s financial statements or
      incurred in the ordinary course of business consistent with past practice or
      which would not cause a Material Adverse Effect. Any real property and
      facilities held under lease by the Company and the Subsidiaries are held by
      them
      under valid, subsisting and enforceable leases (subject to laws of general
      application relating to bankruptcy, insolvency, reorganization, moratorium
      or
      other similar laws affecting creditors’ rights generally and rules of law
      governing specific performance, injunctive relief, or other equitable remedies)
      with which the Company and the Subsidiaries are in material
      compliance.

     

    
      
        
        

      

      
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    (o) Intellectual
      Property. 

     

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

     

    (ii) other
      than as set forth in the SEC Reports and except as in the ordinary course of
      business, no royalties or fees (license or otherwise) are payable by the Company
      or its Subsidiaries to any Person by reason of the ownership or use of any
      of
      the Intellectual Property; 

     

    (iii) there
      have been no written claims made against the Company or its Subsidiaries
      asserting the invalidity, abuse, misuse, or unenforceability of any of the
      Intellectual Property, and, to the best of the Company’s knowledge, there are no
      reasonable grounds for any such claims which would cause a Material Adverse
      Effect; 

     

    (iv) neither
      the Company nor its Subsidiaries have made any claim of any violation or
      infringement by others of its rights in the Intellectual Property, and to the
      best of the Company’s knowledge, no reasonable grounds for such claims exist;
      and 

     

    (v) neither
      the Company nor its Subsidiaries have received written notice that it is in
      conflict with or infringing upon the asserted rights of others in connection
      with the Intellectual Property which would cause 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. All of the insurance policies of the Company and its Subsidiaries
      are
      in full force and effect and are valid and enforceable in accordance with their
      terms, and the Company and its Subsidiaries have complied with all material
      terms and conditions thereof. 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 provided 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, 

     

    
      
        
        

      

      
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    director,
      trustee or partner, other than (a) for payment of salary or consulting fees
      for
      services rendered, (b) reimbursement for expenses incurred on behalf of the
      Company and (c) for other employee benefits, including stock option agreements
      and other stock awards under any equity compensation plan of the
      Company.

     

    (r)
       Internal
      Accounting Controls.
      The
      Company and each of the Subsidiaries maintains a system of internal accounting
      controls sufficient in the judgment of the Company’s management 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 the Company
      is
      able to collect the information that it is required to disclose in the reports
      it files with the Commission and to process, summarize and disclose this
      information in the time periods specified in the Commission’s rules. The
      Company’s certifying officers have evaluated the effectiveness of the Company’s
      controls and procedures as of June 30, 2006. The Company presented in its Form
      10-Q for the quarter ended June 30, 2006, the conclusions of the certifying
      officers about the effectiveness of the disclosure controls and procedures
      based
      on their evaluations as of June 30, 2006. Since June 30, 2006, there have been
      no significant changes in the Company’s internal control over financial
      reporting (as such term is defined in Exchange Act Rule 13a-15) or, to the
      Company’s knowledge, in other factors that could significantly affect the
      Company’s internal controls.

     

    (s)
       Certain
      Fees.
      Except
      for fees payable to SCO Securities LLC, no brokerage or finder’s fees or
      commissions are or will be payable by the Company to any broker, financial
      advisor or consultant, finder, placement agent, investment banker, bank or
      other
      Person with respect to the transactions contemplated by this Agreement. 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 this Agreement.

     

    (t)
       Private
      Placement; Integrated Offering.
      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. 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 and would as a result require registration
      under the Securities Act or trigger any applicable shareholder approval
      provisions, including, without limitation, under the rules and regulations
      of
      any exchange or automated quotation system on which any of the securities of
      the
      Company are listed or designated.

     

    
      
        
        

      

      
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    (u)
       Charter,
      Bylaws and Corporate Records.
      The
      minute books of the Company and its Subsidiaries contain in all material
      respects complete and accurate records of all meetings and other corporate
      actions of the board of directors, committees of the board of directors,
      incorporators and stockholders of the Company and its Subsidiaries from the
      date
      of incorporation of each such entity to the date hereof. All material corporate
      decisions and actions have been validly made or taken. All corporate books,
      including without limitation the share transfer register, comply in all material
      respects with applicable laws and regulations and have been regularly
      updated.

     

    (v)
       Registration
      Rights.
      Except
      as set forth in 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.
      Except
      as set forth on Schedule 3(w), 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) Taxes.
      All
      tax
      returns and tax reports required to be filed with respect to the income,
      operations, business or assets of the Company and its Subsidiaries have been
      timely filed (or appropriate extensions have been obtained) with the appropriate
      governmental agencies in all jurisdictions in which such returns and reports
      are
      required to be filed, and all of the foregoing as filed are, in all material
      respects, correct and complete and, in all material respects, reflect accurately
      all liability for taxes of the Company and its Subsidiaries for the periods
      to
      which such returns relate, and all amounts shown as owing thereon have been
      paid. All income, profits, franchise, sales, use, value added, occupancy,
      property, excise, payroll, withholding, FICA, FUTA and other taxes (including
      interest and penalties), if any, collectible or payable by the Company and
      its
      Subsidiaries or relating to or chargeable against any of its material assets,
      revenues or income or relating to any employee, independent contractor,
      creditor, stockholder or other third party through the Closing Date, were fully
      collected and paid by such date if due by such date or provided for by adequate
      reserves in the financial statements contained in the SEC Reports as of and
      for
      the periods ended June 30, 2006 (other than taxes accruing after such date)
      and
      all similar items due through the Closing Date will have been fully paid by
      that
      date or provided for by adequate reserves, whether or not any such taxes were
      reported or reflected in any tax returns or filings. No taxation authority
      has
      sought to audit the records of the Company or any of its Subsidiaries for the
      purpose of verifying or disputing any tax returns, reports or related
      information and disclosures provided to such taxation authority, or for the
      Company’s or any of its Subsidiaries’ alleged failure to provide any such tax
      returns, reports or related information and disclosure. No material claims
      or
      deficiencies have been asserted against or inquiries raised with the Company
      or
      any of its Subsidiaries with respect to any taxes or other governmental charges
      or levies which have not been paid or otherwise satisfied, including claims
      that, or inquiries whether, the Company or any of its Subsidiaries has not
      filed
      a tax return that it was required to file, and, to the best of the Company’s
      knowledge, there exists no reasonable basis for the making of any such claims
      or
      inquiries. Neither the Company nor any of its Subsidiaries has waived any
      restrictions on assessment or collection of taxes or consented to the extension
      of any statute of limitations relating to taxation.

     

    
      
        
        

      

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

     

    (z)
       Disclosure.
      The
      Company confirms that neither the Company nor any other Person acting on its
      behalf and at the direction of the Company, has provided any of the Purchasers
      or their agents or counsel with any information that in the Company’s reasonable
      judgment, at the time such information was furnished, constitutes material,
      non-public information. The Company understands and confirms that the Purchasers
      will rely on the foregoing representations and covenants in effecting
      transactions in securities of the Company. All disclosure provided to the
      Purchasers regarding the Company, its business and the transactions contemplated
      hereby, including the Disclosure Schedules to this Agreement, furnished by
      or on
      behalf of the Company are true and correct in all material respects and do
      not
      contain any untrue statement of a material fact or omit to state any material
      fact necessary in order to make the statements made therein, in light of the
      circumstances under which they were made, not misleading.

     

    (aa) No
      Additional Representations.
      Each
      Purchaser acknowledges and agrees that the Company does not make and has not
      made any representations or warranties with respect to the transactions
      contemplated hereby other than those specifically set forth in this Section
      3.1
      or in any Transaction Document.

     

    (bb)
      Poison Pill.
      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 

     

    
      
        
        

      

      
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    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 this Agreement and the Transaction
      Documents, including without limitation the Company’s issuance of the Securities
      and the Purchasers’ ownership of the Securities.

    

    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; Enforceability.
      Such
      Purchaser (other than individuals) is an entity duly organized, validly existing
      and in good standing under the laws of the jurisdiction of its organization
      with
      full power and authority to enter into and to consummate the transactions
      contemplated by the Transaction Documents and otherwise to carry out its
      obligations thereunder. The execution, delivery and performance by such
      Purchaser of the transactions contemplated by this Agreement has 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, subject
      to laws of general application relating to bankruptcy, insolvency,
      reorganization, moratorium or other similar laws affecting creditors’ rights
      generally and rules of law governing specific performance, injunctive relief,
      or
      other equitable remedies.

     

    (b)
       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.

     

    (c)
       No
      Public Sale or Distribution.
      Such
      Purchaser is (i) acquiring the Notes and Warrants and (ii) upon conversion
      of
      the Notes or exercise of the Warrants will acquire the Conversion Shares or
      Warrant Shares, as applicable, for its own account and not with a view towards,
      or for resale in connection with, the public sale or distribution thereof;
      provided,
      however,
      that by
      making the representations herein, such Purchaser does not agree to hold any
      of
      the Securities for any minimum or other specific term and reserves the right
      to
      dispose of the Securities at any time in accordance with or pursuant to a
      registration statement or an exemption under the Securities Act. Such Purchaser
      is acquiring the Securities hereunder in the ordinary course of its business.
      Such Purchaser does not have any agreement or understanding, directly or
      indirectly, with any Person to distribute any of the Securities.

     

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

     

    (e)
       Residency. Such
      Purchaser is a resident of the jurisdiction set forth below such Purchaser’s
      name on Schedule
      1
      attached
      hereto.

     

    
      
        
        

      

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

     

    (g)
       Information.
      Such
      Purchaser and its advisors, if any, have been furnished with all publicly
      available materials (or such materials have been made available to such
      Purchaser) relating to the business, finances and operations of the Company
      and
      such other publicly available materials relating to the offer and sale of the
      Notes and Warrants as have been requested by such Purchaser, including without
      limitation the Company’s Form 10-K for the period ended December 31, 2005, Forms
      10-Q for the periods ended March 31, 2006 and June 30, 2006 and Forms 8-K filed
      by the Company since January 1, 2006. Each Purchaser acknowledges that it has
      read and understands the risk factors set forth in such Form 10-K, Forms 10-Q
      and Forms 8-K. Neither such review nor any other due diligence investigations
      conducted by such Purchaser or its advisors, if any, or its representatives
      shall modify, amend or affect such Purchaser’s right to rely on the Company’s
      representations and warranties contained herein. Such Purchaser understands
      that
      its investment in the Notes and Warrants involves a high degree of
      risk.

     

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

     

    (i)
       Experience
      of Such Purchaser.
      Such
      Purchaser, either alone or together with its representatives, has such
      knowledge, sophistication and experience in business and financial matters,
      including investing in companies engaged in the business in which the Company
      is
      engaged, so as to be capable of evaluating the merits and risks of the
      prospective investment in the Notes and Warrants, and has so evaluated the
      merits and risks of such investment. Such Purchaser is able to bear the economic
      risk of an investment in the Notes and Warrants and, at the present time, is
      able to afford a complete loss of such investment.

     

    The
      Company acknowledges and agrees that each Purchaser does not make or has not
      made any representations or warranties with respect to the transactions
      contemplated hereby other than those specifically set forth in this Section
      3.2.

     

    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 

     

    
      
        
        

      

      
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    registration
      statement, to the Company, to an Affiliate of a Purchaser (who is an accredited
      investor and executes a customary representation letter) 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 satisfactory to the Company (it being understood
      that
      Wiggin and Dana LLP is reasonably satisfactory), 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,
      provided, however,
      that in
      the case of a transfer pursuant to Rule 144, no opinion shall be required if
      the
      transferor provides the Company with a customary seller’s representation letter,
      and if such sale is not pursuant to subsection (k) of Rule 144, a customary
      broker’s representation letter and a Form 144. 
      Any such
      transferee that agrees in writing to be bound by the terms of this Agreement
      and
      the Investor Rights Agreement shall have the rights of a Purchaser under this
      Agreement and the Investor Rights Agreement. Except as required by federal
      securities laws and the securities law of any state or other jurisdiction within
      the United States, the Securities may be transferred, in whole or in part,
      by
      any of the Purchasers at any time. The Company shall reissue certificates
      evidencing the Securities upon surrender of certificates evidencing the
      Securities being transferred in accordance with this Section
      4.1(a).

     

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

     

    THESE
      SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
      OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
      REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
      ACT”),
      AND,
      ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
      REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
      EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
      REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
      SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
      TO
      SUCH EFFECT, SUCH COUNSEL AND THE SUBSTANCE OF SUCH OPINION SHALL BE REASONABLY
      ACCEPTABLE TO THE COMPANY. UNLESS PROHIBITED BY APPLICABLE LAW, RULE OR
      REGULATION, THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
      MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL
      INSTITUTION THAT IS AN “ACCREDITED
      INVESTOR”
AS
      DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT.

     

    The
      Company acknowledges and agrees that, unless prohibited by applicable law,
      rule
      or regulation, 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, 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; provided, however, that such Purchaser shall provide the Company
      with
      such documentation as is reasonably requested by the Company to ensure that
      the
      pledge is pursuant to a bona fide margin 

     

    
      
        
        

      

      
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    agreement
      with a registered broker-dealer or 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. The Company will execute and
      deliver such documentation as a pledgee or secured party of Securities may
      reasonably request in connection with a pledge or transfer of the Securities,
      including 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 Conversion Shares and Warrant Shares shall not contain any legend
      (including the legend set forth in Section 4.1(b)), (i) following any sale
      of
      such Conversion Shares or Warrant Shares pursuant to Rule 144, or (ii) if such
      Conversion Shares or Warrant Shares are eligible for sale under Rule 144(k)
      (and
      the holder of such Conversion Shares or Warrant Shares has submitted a written
      request for removal of the legend indicating that the holder has complied with
      the applicable provisions of Rule 144), or (iii) 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) (and
      the holder of such Conversion Shares or Warrant Shares has submitted a written
      request for removal of the legend indicating that the holder has complied with
      the applicable provisions of Rule 144). The Company shall cause its counsel
      to
      issue a legal opinion to the Company’s transfer agent promptly upon the
      occurrence of any of the events in clauses (i), (ii) or (iii) above to effect
      the removal of the legend hereunder and shall also cause its counsel to issue
      a
“blanket” legal opinion to the Company’s transfer agent promptly after the
      Effective Date, if required by the Company’s transfer agent, to allow sales
      pursuant to an effective Registration Statement. The Company agrees that 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 Company’s transfer agent of a certificate representing Conversion
      Shares or Warrant Shares, as the case may be, issued with a restrictive legend,
      deliver or cause to be delivered to such Purchaser a certificate representing
      such Securities that is free from all restrictive and other legends; provided
      that the holder of such Conversion Shares or Warrant Shares has submitted a
      written request for removal of the legend indicating that the holder has
      complied with the applicable provisions of Rule 144. The Company may not make
      any notation on its records or give instructions to any transfer agent of the
      Company that enlarge the restrictions on transfer set forth in this
      Section.

     

    (d) Each
      Purchaser, severally and not jointly, 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 on, and the Purchaser’s agreement
      that, and each Purchaser hereby agrees that, the Purchaser will not sell any
      Securities except pursuant to either the registration requirements of the
      Securities Act, including any applicable prospectus delivery requirements,
      or an
      exemption therefrom.

     

    4.2
       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. Upon the request of any such holder of Securities,
      the Company shall deliver to such holder a written certification of a duly
      authorized officer as to whether it has complied with the preceding

     

    
      
        
        

      

      
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    sentence.
      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, all to the extent required from
      time to time to enable such Person to sell such Securities without registration
      under the Securities Act within the limitation of the exemptions provided by
      Rule 144.

     

    4.3 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. 

     

    4.4 Publicity.
      

     

    The
      Company shall, within two Business Days following the Closing Date, file a
      Current Report on Form 8-K, disclosing the transactions contemplated hereby
      and
      make such other filings and notices in the manner and time required by the
      Commission. The Company and SCO Securities LLC shall consult with each other
      in
      issuing any press releases with respect to the transactions contemplated hereby,
      and neither the Company nor any Purchaser nor SCO Securities LLC 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
      SCO Securities LLC, or without the prior consent of SCO Securities LLC, with
      respect to any press release of the Company, except if such disclosure is
      required by applicable law, rule or regulation, in which case the disclosing
      party shall promptly provide the other party with prior notice of such public
      statement or communication.

     

    4.5 Use
      of Proceeds.

     

    The
      Company covenants and agrees that the proceeds from the sale of the Notes and
      Warrants shall be used by the Company for working capital and general corporate
      purposes; under no circumstances shall any portion of the proceeds be applied
      to:

     

    (i) accelerated
      repayment of debt existing on the date hereof (other than payment of trade
      payables in the ordinary course of the Company’s business and consistent with
      prior practices); 

     

    (ii) the
      payment of dividends or other distributions on any capital stock of the Company;
      

     

    (iii) the
      purchase of debt or equity securities of any Person for cash, including the
      Company and its Subsidiaries, except in connection with investment of excess
      cash in high quality (A1/P1 or better) money market instruments having
      maturities of one year or less; 

     

    (iv) any
      expenditure not directly related to the business of the Company; or

     

    
      
        
        

      

      
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    (v) the
      redemption of any Company equity or equity-equivalent securities.

     

    4.6 Reservation
      of Common Stock.

     

    As
      of the
      date hereof, the Company has reserved and the Company shall continue to reserve
      and keep available at all times, free of preemptive rights, a sufficient number
      of shares of Common Stock for the purpose of enabling the Company to issue
      the
      maximum number of Conversion Shares issuable upon conversion of the Notes and
      Warrant Shares issuable upon exercise of the Warrants.

     

    4.7 Listing
      of Common Stock.

     

    The
      Company hereby agrees that, from time to time, if the Company applies to have
      the Common Stock traded on any Trading Market, it will include in such
      application the Conversion Shares and the Warrant Shares, and will take such
      other action as is necessary to cause the Conversion Shares and Warrant Shares
      to be listed on such Trading Market as promptly as possible.

     

    4.8 Business
      Operations.
      Until
      the earlier of: (i) the third year anniversary of the Closing Date and (ii)
      the
      date that the Purchasers own less than 50% of the Notes originally issued
      pursuant to this Agreement or Conversion Shares issuable upon conversion
      thereof, the Company shall comply with the following covenants:

     

    (a) Insurance.
      The
      Company and its Subsidiaries shall maintain insurance policies such that the
      representations contained in the first sentence of Section 3.1(p) hereof
      continue to be true and correct and shall, from time to time upon the written
      request of the Purchasers, promptly furnish or cause to be furnished to the
      Purchasers evidence, in form and substance reasonably satisfactory to the
      Purchasers, of the maintenance of all insurance maintained by it. 

     

    (b) Corporate
      Existence; Licenses.
      The
      Company shall preserve and maintain and cause its Subsidiaries to preserve
      and
      maintain their corporate existence and good standing in the jurisdiction of
      their incorporation and the rights, privileges and franchises of the Company
      and
      its Subsidiaries (except, in each case, in the event of a merger or
      consolidation in which the Company or its Subsidiaries, as applicable, is not
      the surviving entity) in each case where the failure to so preserve or maintain
      could have a Material Adverse Effect on the financial condition, business or
      operations of the Company and its Subsidiaries taken as a whole. The Company
      shall, and shall cause its Subsidiaries to, maintain at all times all material
      licenses or permits necessary to the conduct of its business and as required
      by
      any governmental agency or instrumentality thereof, including without limitation
      all Food and Drug Administration clearances and approvals.

     

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

     

    
      
        
        

      

      
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    only
      that
      the same are being contested in good faith and by appropriate proceedings and
      appropriate reserves therefor have been established.

     

    (d) Affiliate
      Transactions.
      Except
      for transactions approved by the Company’s Audit Committee or a majority of the
      disinterested members of the board of directors of the Company, neither the
      Company nor any of its Subsidiaries shall enter into any transaction with any
      (i) director, officer, employee or holder of more than 5% of the outstanding
      capital stock of any class or series of capital stock of the Company or any
      of
      its Subsidiaries, (ii) member of the immediate family of any such person, or
      (iii) corporation, partnership, trust or other entity in which any such person,
      or member of the immediate family of any such person, is a director, officer,
      trustee, partner or holder of more than 5% of the outstanding capital stock
      thereof.

     

    4.9 Securities
      Law Compliance.

     

    (a) Securities
      Act.
      The
      Company shall timely prepare and file with the Securities and Exchange
      Commission the form of notice of the sale of securities pursuant to the
      requirements of Regulation D regarding the sale of the Common Stock and Warrants
      under this Agreement.

     

    (b) State
      Securities Law Compliance -- Sale.
      The
      Company shall timely prepare and file such applications, consents to service
      of
      process (but not including a general consent to service of process) and similar
      documents and take such other steps and perform such further acts as shall
      be
      required by the state securities law requirements of each jurisdiction where
      a
      Purchaser resides, as indicated on Schedule
      1,
      with
      respect to the sale of the Common Stock and Warrants under this Agreement.
      

     

    (c) State
      Securities Law Compliance --Resale.
      Beginning no later than 30 days following any date, from time to time, on which
      the Common Stock is no longer a “covered security” under Section 18(b)(1)(A) of
      the Securities Act and continuing until either (i) the Purchasers have sold
      all
      of their Conversion Shares and Warrant Shares under a registration statement
      pursuant to the Investor Rights Agreement or (ii) the Common Stock becomes
      a
“covered security” under Section 18(b)(1)(A) of the Securities Act, the Company
      shall maintain within either Moody’s Industrial Manual or Standard and Poor’s
      Standard Corporation Descriptions (or any successors to these manuals which
      are
      similarly qualified as “recognized securities manuals” under state Blue Sky
      laws) an updated listing containing (i) the names of the officers and directors
      of the Company, (ii) a balance sheet of the Company as of a date that is at
      no
      time older than eighteen months and (iii) a profit and loss statement of the
      Company for either the preceding fiscal year or the most recent year of
      operations.

     

    4.10
      Poison
      Pill.
      From
      time to time, for as long as any Purchaser holds any Securities, the Company
      and
      its Board of Directors shall take 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 this
      Agreement and the Transaction Documents, including without limitation the
      Company’s issuance of the Securities and the Purchasers’ ownership of the
      Securities.

     

    
      
        
        

      

      
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    4.11 Director
      Designees.
      For
      as
      long as the Notes issued pursuant to this Agreement remain outstanding, the
      Company shall comply with the covenant set forth in Section 4.14 of the Prior
      Purchase Agreement, without regard to whether any “Notes”, as such term is used
      in the Prior Purchase Agreement, remain outstanding.

     

    

     

    ARTICLE
      V

     

    INDEMNIFICATION,
      TERMINATION AND DAMAGES

     

    5.1 Survival
      of Representations. 

     

    Except
      as
      otherwise provided herein, the representations and warranties of the Company
      and
      the Purchasers contained in or made pursuant to this Agreement shall survive
      the
      execution and delivery of this Agreement and the Closing Date and shall continue
      in full force and effect for a period of one (1) year from the Closing Date.
      The
      Company’s and the Purchasers’ warranties and representations shall in no way be
      affected or diminished in any way by any investigation of (or failure to
      investigate) the subject matter thereof made by or on behalf of the Company
      or
      the Purchasers.

     

    5.2 Indemnification.
      

     

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

     

    (b) The
      Purchasers, severally and not jointly, agree to indemnify and hold harmless
      the
      Company, its Affiliates, each of their officers, directors, employees and agents
      and their respective successors and assigns, from and against any losses,
      damages, or expenses which are caused by or arise out of (A) any breach or
      default in the performance by the Purchasers of any covenant or agreement made
      by the Purchasers in this Agreement or in any of the Transaction Documents;
      (B)
      any breach of warranty or representation made by the Purchasers in this
      Agreement or in any of the Transaction Documents; and (C) any and all third
      party actions, suits, proceedings, claims, demands, judgments, costs and
      expenses (including reasonable legal fees and expenses) incident to any of
      the
      foregoing; provided,
      however,
      that a
      Purchaser’s liability under this Section 5.2(b) shall not exceed the Purchase
      Price paid by such Purchaser hereunder.

     

    5.3 Indemnity
      Procedure. 

     

    A
      party
      or parties hereto agreeing to be responsible for or to indemnify against any
      matter pursuant to this Agreement is referred to herein as the “Indemnifying
      Party”
and
      the
      other 

     

    
      
        
        

      

      
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    party
      or
      parties claiming indemnity is referred to as the “Indemnified
      Party”.
      An
      Indemnified Party under this Agreement shall, with respect to claims asserted
      against such party by any third party, give written notice to the Indemnifying
      Party of any liability which might give rise to a claim for indemnity under
      this
      Agreement within sixty (60) Business Days of the receipt of any written claim
      from any such third party, but not later than twenty (20) days prior to the
      date
      any answer or responsive pleading is due, and with respect to other matters
      for
      which the Indemnified Party may seek indemnification, give prompt written notice
      to the Indemnifying Party of any liability which might give rise to a claim
      for
      indemnity; provided,
      however,
      that
      any failure to give such notice will not waive any rights of the Indemnified
      Party except to the extent the rights of the Indemnifying Party are materially
      prejudiced.

     

    The
      Indemnifying Party shall have the right, at its election, to take over the
      defense or settlement of such claim by giving written notice to the Indemnified
      Party at least fifteen (15) days prior to the time when an answer or other
      responsive pleading or notice with respect thereto is required. If the
      Indemnifying Party makes such election, it may conduct the defense of such
      claim
      through counsel of its choosing (subject to the Indemnified Party’s approval of
      such counsel, which approval shall not be unreasonably withheld or delayed),
      shall be solely responsible for the expenses of such defense and shall be bound
      by the results of its defense or settlement of the claim. The Indemnifying
      Party
      shall not settle any such claim without prior notice to and consultation with
      the Indemnified Party, and no such settlement involving any equitable relief
      or
      which might have an adverse effect on the Indemnified Party may be agreed to
      without the written consent of the Indemnified Party (which consent shall not
      be
      unreasonably withheld or delayed). So long as the Indemnifying Party is
      diligently contesting any such claim in good faith, the Indemnified Party may
      pay or settle such claim only at its own expense and the Indemnifying Party
      will
      not be responsible for the fees of separate legal counsel to the Indemnified
      Party, unless the named parties to any proceeding include both parties or
      representation of both parties by the same counsel would be inappropriate in
      the
      reasonable opinion of counsel to the Indemnified Party, due to conflicts of
      interest or otherwise. If the Indemnifying Party does not make such election,
      or
      having made such election does not, in the reasonable opinion of the Indemnified
      Party proceed diligently to defend such claim, then the Indemnified Party may
      (after written notice to the Indemnifying Party), at the expense of the
      Indemnifying Party, elect to take over the defense of and proceed to handle
      such
      claim in its discretion and the Indemnifying Party shall be bound by any defense
      or settlement that the Indemnified Party may make in good faith with respect
      to
      such claim. In connection therewith, the Indemnifying Party will fully cooperate
      with the Indemnified Party should the Indemnified Party elect to take over
      the
      defense of any such claim. The parties agree to cooperate in defending such
      third party claims and the Indemnified Party shall provide such cooperation
      and
      such access to its books, records and properties (subject to the execution
      of
      appropriate non-disclosure agreements) as the Indemnifying Party shall
      reasonably request with respect to any matter for which indemnification is
      sought hereunder; and the parties hereto agree to cooperate with each other
      in
      order to ensure the proper and adequate defense thereof.

     

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

     

    
      
        
        

      

      
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    the
      reasonable expenses of counsel to the Indemnified Party shall be reimbursed
      on a
      current basis by the Indemnifying Party. With regard to other claims for which
      indemnification is payable hereunder, such indemnification shall be paid
      promptly by the Indemnifying Party upon demand by the Indemnified
      Party.

     

    ARTICLE
      VI

     

    MISCELLANEOUS

     

    6.1 Fees
      and Expenses.

     

    The
      Company shall be responsible for the payment of the Purchasers’ reasonable and
      documented legal fees and other third-party expenses relating to the
      preparation, negotiation and execution of this Agreement and the Transaction
      Documents and the consummation of the transactions contemplated
      herein.

     

    6.2 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.

     

    6.3 Notices.

     

    Any
      and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be in writing and shall be deemed given and effective
      on the earliest of (a) the date of transmission, if such notice or communication
      is delivered via facsimile at the facsimile number specified on the signature
      pages attached hereto prior to 5:00 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 on the
      signature pages attached hereto on a day that is not a Trading Day or later
      than
      5:00 p.m. (New York City time) on any Trading Day, (c) the 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
      follows:

     

    If
      to the
      Purchasers, at each Purchaser’s address set forth under its name on Schedule
      1
      attached
      hereto, or with respect to the Company, addressed to: 

     

    Access
      Pharmaceuticals, Inc.

    2600
      Stemmons Freeway, Suite 176

    Dallas,
      Texas 75207

    Attention:
      President 

    Facsimile
      No.: (214) 905-5101

     

    to
      such
      other address or addresses or facsimile number or numbers as any such party
      may
      most recently have designated in writing to the other parties hereto by such
      notice. Copies of notices to the Company shall be sent to:

     

    
      
        
        

      

      
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    Bingham
      McCutchen LLP

    150
      Federal Street

    Boston,
      Massachusetts 02110 

    Attention:
      John J. Concannon, III

    Facsimile
      No.: (617) 951-8736

    

    Copies
      of
      notices to any Purchaser shall be sent to the addresses, if any, listed on
      Schedule
      1
      attached
      hereto.

     

    6.4 Amendments;
      Waivers.
      

     

    No
      provision of this Agreement may be waived 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 waiver 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 either party to exercise any right hereunder in any manner
      impair the exercise of any such right.

     

    6.5 Construction.

     

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

     

    6.6 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. Any Purchaser may assign any or all of its rights
      under this Agreement to any Person, provided such transferee agrees in writing
      to be bound, with respect to the transferred Securities, by the provisions
      hereof that apply to the Purchasers. 

     

    6.7 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 Article V. 

     

    6.8 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. 

     

    
      
        
        

      

      
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    6.9
       Jurisdiction;
      Venue; Service of Process.

     

    This
      Agreement shall be subject to the exclusive jurisdiction of the Federal District
      Court, Southern District of New York and if such court does not have proper
      jurisdiction, the State Courts of New York County, New York. The parties to
      this
      Agreement agree that any breach of any term or condition of this Agreement
      shall
      be deemed to be a breach occurring in the State of New York by virtue of a
      failure to perform an act required to be performed in the State of New York
      and
      irrevocably and expressly agree to submit to the jurisdiction of the Federal
      District Court, Southern District of New York and if such court does not have
      proper jurisdiction, the State Courts of New York County, New York for the
      purpose of resolving any disputes among the parties relating to this Agreement
      or the transactions contemplated hereby. The parties irrevocably waive, to
      the
      fullest extent permitted by law, any objection which they may now or hereafter
      have to the laying of venue of any suit, action or proceeding arising out of
      or
      relating to this Agreement, or any judgment entered by any court in respect
      hereof brought in New York County, New York, and further irrevocably waive
      any
      claim that any suit, action or proceeding brought in Federal District Court,
      Southern District of New York and if such court does not have proper
      jurisdiction, the State Courts of New York County, New York has been brought
      in
      an inconvenient forum. Each of the parties hereto consents to process being
      served in any such suit, action or proceeding, by mailing a copy thereof 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 in this Section 6.9 shall affect or limit any right
      to
      serve process in any other manner permitted by law.

     

    6.10
       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, such signature shall create a valid and binding obligation of
      the
      party executing (or on whose behalf such signature is executed) with the same
      force and effect as if such facsimile signature page were an original
      thereof.

     

    6.11
       Severability.

     

    If
      any
      provision of this Agreement is held to be invalid or unenforceable in any
      respect, the validity and enforceability of the remaining terms and provisions
      of this Agreement shall not in any way be affected or impaired thereby and
      the
      parties will attempt to agree upon a valid and enforceable provision that is
      a
      reasonable substitute therefor, and upon so agreeing, shall incorporate such
      substitute provision in this Agreement.

     

    6.12 Replacement
      of Securities.

     

    If
      any
      certificate or instrument evidencing any of the 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, 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

     

    
      
        
        

      

      
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          29 -

        
          

        

      

      
        
        

      

       

    

    destruction
      and customary and reasonable indemnity (but no bond shall be required), if
      requested by the Company.

     

    6.13
       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 described in the foregoing
      sentence and hereby agrees to waive in any action for specific performance
      of
      any such obligation the defense that a remedy at law would be
      adequate.

     

    6.14 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, to the extent permissible under
      applicable law, 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.

     

    6.15 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 of the obligations of any other
      Purchaser under any Transaction Document. Nothing contained herein or in any
      Transaction Document, and no action taken by any 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 Document. 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 Wiggin and Dana LLP, but such
      counsel does not represent any of the Purchasers in this transaction other
      than
      SCO Securities LLC. 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.

     

    
      
        
        

      

      
        -
          30 -

        
          

        

      

      
        
        

      

       

    

    6.16 Waiver
      of Trial by Jury. 

     

    THE
      PARTIES HERETO IRREVOCABLY WAIVE TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING
      RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

     

    6.17 Further
      Assurances. 

     

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

     

    

     

    [Signature
      pages follow.]

     

     

     

     

    
      
        
        

      

      
        -
          31 -

        
          

        

      

      
        
        

      

    

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

     

    COMPANY:

     

    ACCESS
      PHARMACEUTICALS, INC.

    

    

    By: 
      /s/ Stephen B. Thompson

    Name:
      Stephen B. Thompson 

    Title:
      VP-CFO

     

     

     

    
 

    
      
        
        

      

      
        -
          32 -

        
          

        

      

      
        
        

      

    

     

    
      	 	Print
              Exact
              	 Name:	
               SCO
                Capital Partners LLC

            
	 	 
	       	By:	
            	 /s/
              Steven H. Rouhandeh
	 	
              Name:

            	 Steven H. Rouhandeh
	 	Title 	
            	 Chairman
	 	
            	 
	 	Address:	 1285
              Avenue of the Americas 
	 	
            	 35th
              Floor
	 	
            	 New
              York, NY 10019
	 	Telephone:	 212-554-4158
	 	Facsimile	 214-554-4058
	 	Email
	 
	 	SSN/EIN	 52-2247879
	 	
              Amount
                of

            	
              Investment $

            	
              400,000.00

            

    

     

     

    [Omnibus
      Access Pharmaceuticals, Inc. Convertible Note and Warrant Purchase Agreement
      Signature Page]

     

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    PURCHASERS:

    

    
      	 	
              Print Exact 

            	
               Name:

            	
               Lake
                End Capial LLC

            
	
               

            	
               

            
	
                     

            	By:	
            	 /s/
              Jeffrey B. Davis 
	 	
              Name:

            	Jeffrey B. Davis 
	 	Title 	
            	 Chairman 
	 	
            	 
	 	Address:	 33
              Tall Oaks Drive 
	 	
            	 Summit,
              NJ 07901
	 	
            	 
	 	
              Telephone:

            	 212-554-4158
	 	Facsimile	 212-554-4058
	 	Email
	 jdavis@scogroup.com    
	 	
              SSN/EIN

            	 20-2334991
	 	
              Amount of

            	
              Investment $

            	
              100,
                000.00

            

    

    [Omnibus
      Access Pharmaceuticals, Inc. Convertible Note and Warrant Purchase Agreement
      Signature Page]

    

 

    
      
        
          

        

        
        

      

      
        -
          33 -

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