Document:

Exhibit
      10.13

     

    SECURITIES
      PURCHASE AGREEMENT

     

    THIS
      PURCHASE AGREEMENT (“Agreement”)
      is
      made as of the 14th day of November, 2007 by and among Interpharm Holdings
      Inc.,
      a Delaware corporation (the “Company”),
      Interpharm, Inc., a New York corporation (the “Interpharm”
and
      together with the Company, the “Borrowers”)
      and
      the Purchasers set forth on the signature page affixed hereto (each a
“Purchaser”
and
      collectively the “Purchasers”).

     

    Recitals

     

    A. The
      Company and the Purchasers are executing and delivering this Agreement in
      reliance upon the exemption from securities registration afforded by
      Section 4(2) under the Securities Act of 1933, as amended (“1933
      Act”),
      and
      the provisions of Regulation D (“Regulation D”),
      as
      promulgated by the U.S. Securities and Exchange Commission (the “SEC”)
      under
      the 1933 Act; 

     

    B. The
      Purchasers, severally and not jointly, wish to purchase, and the Company wishes
      to sell and issue to the Purchasers, upon the terms and subject to the
      conditions stated in this Agreement, the aggregate principal amount of the
      Company’s Secured 12% Notes due 2009, substantially in the form attached hereto
      as Exhibit
      A
      (the
“STAR
      Notes”)
      set
      forth opposite such Purchaser’s name in column two of the Schedule of
      Purchasers.

     

    C. Upon
      the
      receipt of certain approvals, the Company intends to exchange for the STAR
      Notes
      the Company’s (i) Secured Convertible 12% Notes due 2009, substantially in the
      form attached hereto as Exhibit
      B
      (the
“Initial
      Convertible Notes”),
      which
      shall be convertible into shares of the Company’s common stock, par value $0.01
      per share (the “Common
      Stock”)
      and
      (ii) warrants, in substantially the form attached hereto as Exhibit C
      (the
“Warrants”)
      to
      acquire up to that number of shares of Common Stock set forth opposite such
      Purchaser’s name in column three of the Schedule of Purchasers.

     

    NOW,
      THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
      and for other good and valuable consideration, the receipt and sufficiency
      of
      which is hereby acknowledged, the Company and the Purchasers, severally and
      not
      jointly, agree as follows:

     

    1. DEFINITIONS.
      In
      addition to those terms defined above and elsewhere in this Agreement, for
      the
      purposes of this Agreement, the following terms shall have the meanings here
      set
      forth:

     

    1.1 “1933
      Act”
has
      the
      meaning set forth in the Preamble.

     

    1.2 “1934
      Act”
means
      the Securities Exchange Act of 1934, as amended.

     

    1.3 “8-K
      Filing”
is
      defined in Section 5.5.

     

    1.4 “Action”
is
      defined in Section 3.9.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    1.5 “Affiliate”
means,
      with respect to any Person, any other Person which directly or indirectly
      through one or more intermediaries controls, is controlled by, or is under
      common control with, such Person, as such terms are used in and construed under
      Rule 144 under the 1933 Act.

     

    1.6 “Agreement”
has
      the
      meaning set forth in the Preamble.

     

    1.7 “Borrowers”
has
      the
      meaning set forth in the Preamble.

     

    1.8 “Business
      Day”
means
      any day other than Saturday, Sunday or other day on which commercial banks
      in
      the City of New York are authorized or required by law to remain
      closed.

     

    1.9 “Buy-In”
is
      defined in Section 5.1(e).

     

    1.10 “Buy-In
      Price”
is
      defined in Section 5.1(e).

     

    1.11 “Cash
      Amount”
is
      defined in Section 5.4(c).

     

    1.12 “Closing”
is
      defined in Section 2.1.

     

    1.13 “Closing
      Date”
is
      defined in Section 2.2.

     

    1.14 “Closing
      Price”
means,
      for any date, the closing bid price per share of the Common Stock for such
      date
      (or the nearest preceding date) on the primary Eligible Market or exchange
      or
      quotation system on which the Common Stock is then listed or quoted, or if
      the
      Common Stock is not listed or quoted of any Eligible Market, exchange or
      quotation system, the fair market value of a share of Common Stock as determined
      by an independent appraiser selected in good faith by the Required Holders,
      the
      cost of which shall be paid by the Company.

     

    1.15 “Collateral
      Agent”
means
      Tullis-Dickerson Capital Focus III, L.P., a Delaware limited partnership, and
      its successors and assigns.

     

    1.16 “Common
      Stock”
has
      the
      meaning set forth in the Preamble.

     

    1.17 “Company”
has
      the
      meaning set forth in the Preamble.

     

    1.18 “Company
      Counsel”
means
      Guzov Ofsink, LLC.

     

    1.19 “Contingent
      Obligation”
is
      defined in Section 3.28.

     

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

     

    1.21 “Convertible
      Notes”
means
      the Initial Convertible Notes and the PIK Notes.

     

    1.22 “Disclosure
      Materials”
is
      defined in Section 3.7.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

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

     

    1.24 “Eligible
      Market”
means
      any of the New York Stock Exchange, the American Stock Exchange, the NASDAQ
      Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or
      the
      NASD Over-the-Counter Bulletin Board.

     

    1.25 “Environmental
      Law”
is
      defined in Section 3.33.

     

    1.26 “Excluded
      Stock”
means
      (a) the issuance of Common Stock upon exercise or conversion of any options
      or
      other securities outstanding as of the date of this Agreement and described
      in
Schedule 3.6
      (provided that such exercise or conversion occurs in accordance with the terms
      thereof, without amendment or modification, and that the applicable exercise
      or
      conversion price or ratio is described in such schedule), (b) the issuance
      of Common Stock or grant of options to employees, officers, directors or
      consultants of the Company pursuant to a stock option plan or other incentive
      stock plan duly adopted by the Company’s board of directors and/or approved by
      its shareholders, (c) the issuance of the Initial Convertible Notes and
      Warrants in exchange for the STAR Notes, (d) upon exercise of the Warrants,
      the
      conversion of the Convertible Notes and the payment of PIK Notes on the Initial
      Convertible Notes, (e) securities issued pursuant to acquisitions or other
      strategic transactions; provided, (i) such acquisition or other transaction
      is
      not with an Affiliate of the Company or any individual who is related by blood,
      marriage or adoption to any Affiliate of the Company, (ii) the primary purpose
      of such acquisition or other transaction is not to raise capital and (iii)
      such
      security is issued at a price which is greater than or equal to the arithmetic
      average of the Closing Price of the Common Stock for the ten (10) consecutive
      Trading Days immediately preceding the date of issuance, or (f) (i) issuance
      of
      shares of Series D-1 Convertible Preferred Stock in exchange for outstanding
      shares of the Series B-1 Convertible Preferred Stock and Series C-1 Convertible
      Preferred Stock, (ii) issuance of the Amended and Restated Warrants in exchange
      for the warrants which were issued in connection with the issuance of the Series
      B-1 Convertible Preferred Stock and Series C-1 Convertible Preferred Stock
      and
      (iii) issuance of Common Stock upon the conversion of the Series D-1 Convertible
      Preferred Stock or the exercise of such Amended and Restated Warrants, in each
      case in accordance with the terms of the Consent and Waiver Agreement, dated
      November __, 2007, among the Company, the holders of the Series B-1 Convertible
      Preferred Stock and Series C-1 Convertible Preferred Stock, the Purchasers
      and
      the Sutaria Stockholders named therein.

     

    1.27 “FDA”
is
      defined in Section
      3.34.

     

    1.28 “FDCA”
is
      defined in Section
      3.34.

     

    1.29 “GAAP”
is
      defined in Section 3.7.

     

    1.30 “Hazardous
      Materials”
is
      defined in Section 3.33.

     

    1.31 “Indebtedness”
is
      defined in Section 3.28.

     

    1.32 “Information
      Statement”
is
      defined in Section
      5.6.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    1.33 “Interpharm”
has
      the
      meaning set forth in the Preamble.

     

    1.34 “Intellectual
      Property Rights”
is
      defined in Section 3.19.

     

    1.35 “Initial
      Convertible Notes”
has
      the
      meaning set forth in the Preamble.

     

    1.36 “Lien”
means
      any lien, charge, claim, security interest, encumbrance, right of first refusal
      or other restrictions.

     

    1.37 “Material
      Adverse Effect”
means
      a
      material adverse effect on the (i) condition (financial or otherwise), business,
      assets or results of operations of any of the Borrowers, (ii)  the
      Borrowers’ ability to perform any of their obligations under the terms of the
      Transaction Documents in any material respect or (iii) rights and remedies
      of a
      Purchaser under the Transaction Documents.

     

    1.38 “Material
      Permits”
is
      defined in Section 3.21.

     

    1.39 “Maximum
      Rate”
is
      defined in Section
      7.17.

     

    1.40 “Person”
means
      an individual, corporation, partnership, limited liability company, trust,
      business trust, association, joint stock company, joint venture, pool,
      syndicate, sole proprietorship, unincorporated organization, governmental
      authority or any other form of entity not specifically listed
      herein.

     

    1.41 “Pharmaceutical
      Product”
is
      defined in Section
      3.34.

     

    1.42 “PIK
      Notes”
shall
      mean the Convertible Notes issuable as interest payment on the outstanding
      Convertible Notes in accordance with the terms of the Convertible
      Notes.

     

    1.43 “Preferred
      Stock Consents”
is
      defined in Section
      6.1(xii).

     

    1.44 “Purchase
      Price”
is
      defined in Section 2.2(b).

     

    1.45 “Purchasers”
has
      the
      meaning set forth in the Preamble.

     

    1.46 “Registrable
      Securities”
is
      defined in Section
      5.21.

     

    1.47 “Registration
      Statement”
means
      a
      registration statement covering the resale of the Conversion Shares and the
      Warrant Shares.

     

    1.48 “Regulation D”
has
      the
      meaning set forth in the Preamble.

     

    1.49 “Required
      Holders”
means
      the holders of at least a majority of the then outstanding principal amount
      of
      the STAR Notes or the Convertible Notes held by Cameron Reid, Aisling Capital
      II, L.P. and Tullis-Dickerson Capital Focus III, L.P.

     

    1.50 “SEC”
has
      the
      meaning set forth in the Preamble.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    1.51 “SEC
      Reports”
is
      defined in Section 3.7.
      

     

    1.52 “Securities”
means
      the STAR Notes, the Convertible Notes, the Warrants, the Conversion Shares
      and
      the Warrant Shares issued or issuable to the applicable Purchaser pursuant
      to
      the Transaction Documents.

     

    1.53 “Security
      Agreement”
means
      the Security Agreement, dated as of the date hereof, made by each of the
      Borrowers in favor of the Collateral Agent, as amended or supplemented from
      time
      to time in accordance with its terms.

     

    1.54 “Security
      Documents”
means
      the Security Agreement and all other security agreements, pledge agreements,
      collateral assignments, mortgages, collateral agency agreements, control
      agreements, deeds of trusts or other grants or transfers for security executed
      by any Borrower creating (or purporting to create) a Lien upon property in
      favor
      of the Collateral Agent, in each case, as amended, modified, renewed, restated
      or replaced, in whole or in part, from time to time, in accordance with its
      terms.

     

    1.55 “Senior
      Credit Agreement”
means
      the Credit and Security Agreement, dated as of February 9, 2006, by and between
      Interpharm, Inc. and Wells Fargo Bank, together with the related documents
      thereto (including, without limitation, any guarantee agreements and security
      documents), in each case as such agreement may be amended, restated,
      supplemented, refinanced, replaced, refunded or otherwise modified from time
      to
      time, whether by the same lender or any other lender or group of
      lenders.

     

    1.56 “Senior
      Credit Facility Consent”
is
      defined in Section
      6.1(xi).

     

    1.57 “Shareholder
      Approval”
is
      defined in Section
      5.6(a).
      

     

    1.58 “STAR
      Notes”
has
      the
      meaning set forth in the Preamble.

     

    1.59 “Stockholder
      Meeting”
is
      defined in Section
      5.6(b).

     

    1.60 “Stockholder
      Meeting Deadline”
is
      defined in Section
      5.6(b).

     

    1.61 “Subsidiary”
means
      any Person in which the Company or Interpharm, directly or indirectly, owns
      capital stock or holds an equity or similar interest.

     

    1.62 “Sutaria
      Note”
means
      the Junior Subordinate Secured 12% Promissory Note due 2010 issued by the
      Company to Maganlal K. Sutaria and Vilma Sutaria in the principal amount of
      $3,000,000, which financing is subordinate to the STAR Notes and the Convertible
      Notes.

     

    1.63 “Sutaria
      Parties”
means
      P&K Holdings I, LLC, a New York limited liability company, Rajs Holdings I,
      LLC, a New York limited liability company, Rametra Holdings I, LLC, a New York
      limited liability company, Maganlal K. Sutaria, Vilma Sutaria, Perry Sutaria,
      Raj Sutaria, Mona Rametra and Sutaria Family Realty, LLC.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    1.64 “Trading
      Day”
means
      (a) any day on which the Common Stock is listed or quoted and traded on its
      primary Trading Market, (b) if the Common Stock is not then listed or
      quoted and traded on any Eligible Market, then any day on which trading occurs
      on the NASDAQ Global Market (or any successor thereto), or (c) if trading
      ceases to occur on the NASDAQ Global Market (or any successor thereto), any
      Business Day.

     

    1.65 “Trading
      Market”
means
      the American Stock Exchange or any other Eligible Market, or any other national
      securities exchange, market or trading or quotation facility on which the Common
      Stock is then listed or quoted.

     

    1.66 “Transaction
      Documents”
means
      this Agreement, the STAR Notes, the Convertible Notes, the Warrants, the
      Security Documents, and any other agreement, document or instrument entered
      into
      or delivered, now or in the future, by any of the Borrowers in connection with
      this Agreement or any of the other Transaction Documents.

     

    1.67 “Transfer
      Agent”
means
      Continental Stock Transfer & Trust Company, or any successor transfer agent
      for the Company.

     

    1.68 “Transfer
      Agent Instructions”
means
      the Irrevocable Transfer Agent Instructions, in the form of Exhibit D,
      executed by the Company and delivered to and acknowledged in writing by the
      Transfer Agent. 

     

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

     

    1.70 “Warrants”
has
      the
      meaning set forth in the Preamble.

     

    2. PURCHASE
      AND SALE OF SECURITIES.

     

    2.1 Purchase
      of STAR Notes.
      Subject
      to the terms and conditions of this Agreement and on the basis of the
      representations and warranties made herein, each of the Purchasers hereby,
      severally and not jointly, agrees to purchase, and the Company hereby agrees
      to
      sell and issue to each of the Purchasers, the respective amount of STAR Notes
      set forth opposite such Purchaser’s name on the Schedule of Purchasers (the
“Closing”).
      

     

    2.2 Closing
      Date.

     

    (a) Closing
      Date.
      The
      date and time of the Closing (the “Closing
      Date”)
      shall
      be 10:00 a.m. Eastern Time on or before November 25, 2007 (or such later date
      as
      is mutually agreed to by the Borrowers and the Purchasers). The Closing shall
      occur on the Closing Date at the offices of Guzov Ofsink, LLC, 600 Madison
      Avenue, 14th
      Floor,
      New York, New York 10022.

     

    (b) Purchase
      Price.
      At the
      Closing, each Purchaser shall deliver or cause to be delivered to the Borrowers
      the purchase price (the “Purchase
      Price”),
      which
      shall be equal to the original principal amount of the STAR Notes being
      purchased by such Purchaser at the Closing, in United States dollars and in
      immediately available funds, by wire transfer to a separate account of the
      Borrowers for such purpose. 

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    3. REPRESENTATIONS
      AND WARRANTIES OF THE BORROWERS.
      Each of
      the Borrowers, jointly and severally, hereby represents and warrants to the
      Purchasers that:

     

    3.1 Subsidiaries.
      None of
      the Borrowers has any direct or indirect Subsidiaries other than those listed
      in
Schedule 3.1.
      Except
      as disclosed in Schedule 3.1,
      the
      Borrowers own, directly or indirectly, all of the capital stock or comparable
      equity interests of each Subsidiary free and clear of any Lien and all the
      issued and outstanding shares of capital stock or comparable equity interest
      of
      each Subsidiary are validly issued and are fully paid, non-assessable and free
      of preemptive and similar rights.

     

    3.2 Organization,
      Good Standing and Qualification.
      Each of
      the Borrowers and the Subsidiaries is a corporation validly existing and in
      good
      standing under the laws of the jurisdiction of its incorporation or organization
      (as applicable), with all requisite power and authority to carry on its business
      as presently conducted and own and use its properties and assets. Each of the
      Borrowers and the Subsidiaries is duly qualified to do business as a foreign
      corporation and is in good standing in each jurisdiction in which the conduct
      of
      its business or its ownership or leasing of property makes such qualification
      or
      licensing necessary, except where the failure to be so qualified or in good
      standing, as the case may be, would not, individually or in the aggregate,
      reasonably be expected to have or result in a Material Adverse
      Effect.

     

    3.3 Authorization;
      Enforcement.
      Each of
      the Borrowers has the requisite corporate power and authority to enter into
      and
      to consummate the transactions contemplated by each of the Transaction Documents
      to which it is a party and otherwise to carry out its obligations hereunder
      and
      thereunder. The execution and delivery of each of the Transaction Documents
      by
      each of the Borrowers and the consummation by it of the transactions
      contemplated hereunder and thereunder have been duly authorized by all necessary
      action on the part of the Borrowers and no further consent or action is required
      by the Borrowers, their Boards of Directors or their stockholders in connection
      therewith, other than as set forth in Section 5.6. Each Transaction Document
      has
      been (or upon delivery will have been) duly executed by each of the Borrowers
      who is a party thereto and when delivered in accordance with the terms hereof,
      will constitute the valid and binding obligation of such Borrower enforceable
      against such Borrower in accordance with its terms; except as such
      enforceability may be limited by applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation, or similar laws relating to, or
      affecting generally the enforcement of auditors rights and remedies or by other
      equitable principles of general application.

     

    3.4 No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the
      Borrowers and the consummation by the Borrowers of the transactions contemplated
      hereby and thereby do not and will not (a) conflict with or violate any
      provision of any Borrower’s or any Subsidiary’s certificate or articles of
      incorporation, bylaws or other organizational or charter documents,
      (b) 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 Borrower or Subsidiary debt or otherwise) or other
      understanding to which a Borrower or any Subsidiary is a party or by which
      any
      property or asset of a Borrower or any Subsidiary is bound or affected, or
      (c) result in a violation of any law, rule, regulation, order, judgment,
      injunction, decree or other restriction of any court or governmental authority
      to which a Company or a Subsidiary is subject (assuming the accuracy of
      Purchasers’ representations and warranties and compliance by the Purchasers’ of
      their respective covenants as set forth in this Agreement), including federal
      and state securities laws and regulations and the rules and regulations of
      any
      self-regulatory organization to which a Borrower or its securities are subject,
      or by which any property or asset of a Borrower or a Subsidiary is bound or
      affected; except in the case of each of clauses (b) and (c), such as would
      not,
      individually or in the aggregate, reasonably be expected to have or result
      in a
      Material Adverse Effect.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    3.5 Issuance
      of the Securities.
      The
      Securities have been duly authorized. The STAR Notes, when issued and paid
      for
      in accordance with the terms of this Agreement, will be validly issued, fully
      paid and nonassessable, and free and clear of all Liens and charges and shall
      not be subject to preemptive or similar rights. The Convertible Notes and the
      Warrants, when issued in exchange for the STAR Notes in accordance with the
      terms of this Agreement, and the Conversion Shares and the Warrant Shares or
      other securities issuable upon conversion of the Convertible Notes and upon
      exercise of the Warrants, when so issued and paid for in accordance with the
      terms thereof, will be, validly issued, fully paid and nonassessable, and free
      and clear of all Liens and charges and shall not be subject to preemptive or
      similar rights. The Company has reserved from its duly authorized capital stock
      the maximum number of shares of Common Stock to be issued to the applicable
      Purchasers upon conversion or exercise of the Securities or issuable pursuant
      to
      the other Transaction Documents without giving effect to any anti-dilution
      or
      ratchet provisions. Assuming the continued validity of the Purchaser’s
      representations and warranties contained in Section 4,
      the
      offer, issuance and sale of the Securities to the Purchasers pursuant to this
      Agreement and upon conversion or exercise of the Securities are exempt from
      registration requirements of the 1933 Act.

     

    3.6 Capitalization.
      

     

    (a) The
      aggregate number of shares and type of all authorized, issued and outstanding
      capital stock, options and other securities of the Company (whether or not
      presently convertible into or exercisable or exchangeable for shares of capital
      stock of the Company) is set forth in Schedule 3.6.
      All
      outstanding shares of capital stock are duly authorized, validly issued, fully
      paid and nonassessable and have been issued in compliance with all applicable
      securities laws. No securities of the Company are entitled to preemptive or
      similar rights, and 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 as disclosed in Schedule 3.6,
      there
      are no outstanding options, warrants, script rights to subscribe to, calls
      or
      commitments of any character whatsoever relating to, or securities, rights
      or
      obligations convertible into or 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.
      Except as set forth in Schedule 3.6
      and
      except for customary adjustments as a result of stock dividends, stock splits,
      combinations of shares, reorganizations, recapitalizations, reclassifications
      or
      other similar events, there are no anti-dilution or price adjustment provisions
      contained in any security issued by the Company (or in any agreement providing
      rights to security holders), and the issuance and sale of the Securities will
      not obligate the Company to issue shares of Common Stock or other securities
      to
      any Person (other than the Purchasers) and will not result in a right of any
      holder of Company securities to adjust the exercise, conversion, exchange or
      reset price under such securities. To the knowledge of the Company, except
      as
      specifically disclosed in its SEC Reports, no Person or group of related Persons
      beneficially owns (as determined pursuant to Rule 13d-3 under the 1934
      Act), or has the right to acquire, by agreement with or by obligation binding
      upon the Company, beneficial ownership of in excess of 5% of the outstanding
      Common Stock, ignoring for such purposes any limitation on the number of shares
      of Common Stock that may be owned at any single time.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (b) As
      of the
      date hereof, the authorized capital stock of Interpharm consists of 150,000,000
      shares of Common Stock, of which 65,813,668 shares are issued and outstanding.
      All outstanding shares of capital stock of Interpharm are owned by the Company
      and are duly authorized, validly issued, fully paid and nonassessable.

     

    3.7 SEC
      Reports; Financial Statements.
      Except
      as set forth in Schedule
      3.7,
      the
      Company has filed all reports required to be filed by it under the 1933 Act
      and
      the 1934 Act, including pursuant to Section 13(a) or 15(d) of the 1934 Act,
      since June 30, 2006 (the foregoing materials being collectively referred to
      herein as the “SEC
      Reports”
and,
      together with the Schedules to this Agreement, the “Disclosure
      Materials”)
      on a
      timely basis or has received a valid extension of such time of filing and has
      filed any such SEC Reports prior to the expiration of any such extension. As
      of
      their respective dates, the SEC Reports complied in all material respects with
      the requirements of the 1933 Act and the 1934 Act and the rules and regulations
      of the SEC promulgated thereunder, and none of the SEC Reports, when filed,
      contained any untrue statement of a material fact or omitted to state a material
      fact required to be stated therein or necessary in order to make the statements
      therein, in light of the circumstances under which they were made, not
      misleading. The financial statements of the Company included in the SEC Reports
      comply in all material respects with applicable accounting requirements and
      the
      rules and regulations of the SEC with respect thereto as in effect at the time
      of filing. Such financial statements have been, and the financial statements
      to
      be included in Company’s Annual Report of Form 10-K, for the year ended June 30,
      2007 will be, prepared in accordance with the United States generally accepted
      accounting principles applied on a consistent basis during the periods involved
      (“GAAP”),
      (except (i) as may be otherwise specified in such financial statements or
      the notes thereto or (ii) in the case of unaudited interim statements, to
      the extent they do not include footnotes or may be condensed or summary
      statements), and fairly present in all material respects the financial position
      of the Company and its consolidated subsidiaries as of and for the dates thereof
      and the results of operations and cash flows for the periods then ended,
      subject, in the case of unaudited statements, to normal year-end audit
      adjustments. All material agreements or commitments to which the Company or
      any
      Subsidiary is a party or to which the property or assets of the Company or
      any
      Subsidiary are subject are included as part of or specifically identified in
      the
      SEC Reports.

     

    3.8 Material
      Changes.
      Since
      the date of the latest audited financial statements included within the SEC
      Reports, except as specifically disclosed on Schedule 3.8,
      (a) there has been no event, occurrence or development that, individually
      or in the aggregate, has had or that would reasonably be expected to result
      in a
      Material Adverse Effect, (b) none of the Borrowers has incurred any
      liabilities (contingent or otherwise), other than (A) trade payables, accrued
      expenses and other liabilities incurred in the ordinary course of business
      consistent with past practice and (B) liabilities not required to be reflected
      in the Company’s financial statements pursuant to GAAP or required to be
      disclosed in filings made with the SEC, (c) the Company has not altered its
      method of accounting or the identity of its auditors, except as disclosed in
      its
      SEC Reports, (d) none of the Borrowers has declared or made any dividend or
      distribution of cash or other property to its stockholders or purchased,
      redeemed or made any agreements to purchase or redeem any shares of its capital
      stock, and (e) none of the Borrowers has issued any equity securities to
      any officer, director or Affiliate, except pursuant to existing Company stock
      option plans. The Company does not have pending before the SEC any request
      for
      confidential treatment of information.

     

    
      
        
        

      

      
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    3.9 Absence
      of Litigation.
      Except
      as set forth in Schedule 3.9,
      there
      is no action, suit, inquiry, notice of violation, proceeding or investigation
      pending or, to the knowledge of the Borrowers, threatened against or affecting
      any of the Borrowers, any Subsidiary, any of Borrower’s officers or directors in
      their capacities as such and 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
      (a) adversely affects or challenges the legality, validity or
      enforceability of any of the Transaction Documents or the Securities or
      (b) could, if there were an unfavorable decision, individually or in the
      aggregate, have or result in a Material Adverse Effect. Within the past five
      years, none of the Borrowers nor any Subsidiary, nor any director or officer
      thereof, is or has been the subject of any Action involving a claim of violation
      of or liability under federal or state securities laws or a claim of breach
      of
      fiduciary duty. There has not been, and to the knowledge of the Borrowers,
      there
      is not pending or contemplated, any investigation by the SEC involving the
      Company or any current or former director or officer of any of the Borrowers.
      The SEC has not issued any stop order or other order suspending the
      effectiveness of any registration statement filed by the Company or any
      Subsidiary.

     

    3.10 Compliance.
      Except
      as set forth in the SEC Reports, none of the Borrowers nor any Subsidiary,
      except in each case as would not, individually or in the aggregate, reasonably
      be expected to have or result in a Material Adverse Effect, (a) 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
      a Borrower or any Subsidiary under), nor has any Borrower or any Subsidiary
      received notice of a claim that it is in default under or that it is in
      violation of, any indenture, loan or credit agreement or any other agreement
      or
      instrument to which it is a party or by which it or any of its properties is
      bound (whether or not such default or violation has been waived), (b) is in
      violation of any order of any court, arbitrator or governmental body, or
      (c) 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 relating to taxes, environmental protection, occupational health
      and safety, product quality and safety and employment and labor
      matters.

     

    3.11 Title
      to Assets.
      The
      Borrowers and their Subsidiaries have valid title to or leasehold rights for
      all
      real property that is material to the business of the Borrowers and the
      Subsidiaries and good and marketable title in all personal property owned by
      them that is material to the business of the Borrowers and the Subsidiaries,
      in
      each case free and clear of all Liens, except for Liens disclosed in the SEC
      filings or as do not, individually or in the aggregate, materially interfere
      with the use made and proposed to be made of such property by the Borrowers
      and
      the Subsidiaries. Any real property and facilities held under lease by the
      Borrowers and its Subsidiaries are held by them under valid, subsisting and
      enforceable leases of which the Borrowers and the Subsidiaries are in
      compliance; except as would not, individually or in the aggregate, reasonably
      be
      expected to have or result in a Material Adverse Effect.

     

    
      
        
        

      

      
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    3.12 Placement
      Agent’s Fees.
      No
      brokerage or finder’s fees or commissions are or will be payable by the
      Borrowers 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, and the Borrowers have not taken any action
      that
      would cause any Purchaser to be liable for any such fees or commissions. 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. The Company shall indemnify and hold harmless the Purchasers,
      their employees, officers, directors, agents, and partners, and their respective
      Affiliates, from and against all claims, losses, damages, costs (including
      the
      costs of preparation and attorney’s fees) and expenses suffered in respect of
      any such claimed or existing fees, as such fees and expenses are
      incurred.

     

    3.13 Private
      Placement.
      None of
      the Borrowers nor any Person acting on the Borrowers’ behalf has sold or offered
      to sell or solicited any offer to buy the Securities by means of any form of
      general solicitation or advertising. None of the Borrowers nor any of their
      Affiliates nor any Person acting on the Borrowers’ behalf has, directly or
      indirectly, at any time within the past six months, made any offer or sale
      of
      any security or solicitation of any offer to buy any security under
      circumstances that would (i) eliminate the availability of the exemption
      from registration under Regulation D under the 1933 Act in connection with
      the offer and sale of the Securities as contemplated hereby or (ii) cause
      the offering of the Securities pursuant to the Transaction Documents to be
      integrated with prior offerings by the Borrowers for purposes of any applicable
      law, regulation or stockholder approval provisions, including, without
      limitation, under the rules and regulations of any Trading Market. The issuance
      and sale of the Securities hereunder does not contravene the rules and
      regulations of the Trading Market and no shareholder approval (except to the
      extent already obtained) is required for the Company to fulfill its obligations
      under the Transaction Documents. The Company is not, and is not an Affiliate
      of,
      an “investment company” within the meaning of the Investment Company Act of
      1940, as amended. The Company is not a United States real property holding
      corporation within the meaning of the Foreign Investment in Real Property Tax
      Act of 1980.

     

    3.14 Listing
      and Maintenance Requirements.
      Except
      as set forth in the SEC Reports, the Company has not, in the two years preceding
      the date hereof, received notice (written or oral) 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. Except as set forth in the SEC Reports, 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.

     

    
      
        
        

      

      
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    3.15 Registration
      Rights.
      Except
      as described in Schedule 3.15,
      the
      Company has not granted or agreed to grant to any Person any rights (including
      “piggy-back” registration rights) to have any securities of the Company
      registered with the SEC or any other governmental authority that have not been
      satisfied or waived.

     

    3.16 Application
      of Takeover Protections.
      There
      is no control share acquisition, business combination, poison pill (including
      any distribution under a rights agreement) or other similar anti-takeover
      provision under the Company’s certificate of incorporation (or similar charter
      documents) or the laws of its state of incorporation that is or could become
      applicable to the Purchasers as a result of the Purchasers and the Company
      fulfilling their obligations or exercising their rights under the Transaction
      Documents, including without limitation the Company’s issuance of the Securities
      and the Purchasers’ ownership of the Securities.

     

    3.17 Disclosure.
      All
      disclosure provided to the Purchasers regarding the Borrowers, their business
      and the transactions contemplated hereby, including the Schedules to this
      Agreement, furnished by or on behalf of the Borrowers are true and correct
      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. The Borrowers
      acknowledge and agree that no Purchaser makes or has made any representations
      or
      warranties with respect to the transactions contemplated hereby other than
      those
      specifically set forth in Section 4.
      

     

    3.18 [Intentionally
      Blank]

     

    3.19 Intellectual
      Property.
      The
      Borrowers and their Subsidiaries own, or have rights to use, all inventions,
      know-how, patents, patent applications, trademarks, trademark applications,
      service marks, trade names, copyrights, licenses, trade secrets and other
      similar rights that are necessary or material for use in connection with their
      respective businesses now operated by them and presently contemplated to be
      operated by them and as described in the SEC Reports and which the failure
      to so
      have would have or reasonably be expected to result in a Material Adverse Effect
      (collectively, the “Intellectual
      Property Rights”).
      Schedule
      3.19
      sets
      forth a complete and accurate description of the Borrowers’ material
      Intellectual Property Rights, other than off-the-shelf commercial or shrinkwrap
      software and excluding all software or other material that is distributed as
      “free software,” “open source software” or under a similar licensing or
      distribution model. None of the Borrower’s or any Subsidiary’s Intellectual
      Property Rights have expired or terminated, or are expected to expire or
      terminate, within three years from the date of this Agreement. None of the
      Borrowers nor any Subsidiary has received written notice that the Intellectual
      Property Rights used by a Borrower or any Subsidiary violates or infringes
      upon
      the rights of any Person. To the knowledge of the Borrowers, the Borrowers’ and
      their Subsidiaries’ patents and other Intellectual Property Rights and the
      present activities of the Borrowers and their Subsidiaries do not infringe
      any
      patent, copyright, trademark, trade name or other proprietary rights of any
      third party, and there is no claim, action or proceeding being made or brought
      against, or to the Borrowers’ knowledge, being threatened against, a Borrower or
      any Subsidiary regarding any of the Intellectual Property Rights. None of the
      Borrowers has any knowledge of an infringement by another Person of any of
      the
      Intellectual Property Rights by third parties and has no reason to believe
      that
      any of its Intellectual Property Rights is unenforceable. The Borrowers have
      taken commercially reasonable security measures to protect the secrecy,
      confidentiality and value of all of their intellectual properties

     

    
      
        
        

      

      
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    3.20 Insurance.
      The
      Borrowers and their 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 Borrowers and their Subsidiaries
      are engaged. The Borrowers have no reason to believe that they will not be
      able
      to renew their and the Subsidiaries’ 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 on terms consistent with the market for
      the Borrowers’ and such Subsidiaries’ respective businesses.

     

    3.21 Regulatory
      Permits.
      The
      Borrowers and their Subsidiaries possess all certificates, authorizations and
      permits issued by the appropriate federal, state, local or foreign regulatory
      authorities necessary to conduct their respective businesses as described in
      the
      SEC Reports, except where the failure to possess such permits would not,
      individually or in the aggregate, reasonably be expected to have or result
      in a
      Material Adverse Effect (“Material
      Permits”),
      and
      none of the Borrowers nor any Subsidiary has received any notice of proceedings
      relating to the revocation or modification of any Material Permit.

     

    3.22 Transactions
      With Affiliates and Employees.
      Except
      as set forth in SEC Reports filed at least ten days prior to the date hereof
      and
      except for the transactions contemplated by the Transaction Documents, none
      of
      the officers or directors of the Borrowers and, to the knowledge of the
      Borrowers, none of the employees of the Borrowers, is presently a party to
      any
      transaction with any Borrower 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
      Borrowers, any entity in which any officer, director, or any such employee
      has a
      substantial interest or is an officer, director, trustee or
      partner.

     

    3.23 Form S-1
      Eligibility.
      The
      Company is eligible to register the resale of its Common Stock for resale by
      the
      Purchasers under Form S-1 promulgated under the Securities
      Act.

     

    3.24 Solvency.
      None of
      the Borrowers have taken any steps to seek protection pursuant to any bankruptcy
      law nor do any of the Borrowers have any knowledge or reason to believe that
      its
      creditors intend to initiate involuntary bankruptcy proceedings. Based on the
      financial condition of the Borrowers as of the Closing Date, and giving effect
      to the transactions contemplated herein, (a) the Borrowers’ fair saleable
      value of its assets exceeds the amount that will be required to be paid on
      or in
      respect of the Borrowers’ existing debts and other liabilities (including known
      contingent liabilities) as they mature; (b) the Borrowers’ assets do not
      constitute unreasonably small capital to carry on its business for the current
      fiscal year as now conducted and as proposed to be conducted including its
      capital needs taking into account the particular capital requirements of the
      business conducted by the Borrowers, and projected capital requirements and
      capital availability thereof; and (c) the current cash flow of the
      Borrowers, together with the proceeds the Borrowers would receive, were it
      to
      liquidate all of its assets, after taking into account all anticipated uses
      of
      the cash, would be sufficient to pay all amounts on or in respect of its debt
      when such amounts are required to be paid. None of the Borrowers intends to
      incur debts beyond its ability to pay such debts as they mature (taking into
      account the timing and amounts of cash to be payable on or in respect of its
      debt).

     

    
      
        
        

      

      
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    3.25 Internal
      Accounting Controls.
      The
      Company and its Subsidiaries maintain a system of internal accounting controls
      sufficient to provide reasonable assurance that (a) transactions are
      executed in accordance with management’s general or specific authorizations,
      (b) transactions are recorded as necessary to permit preparation of
      financial statements in conformity with generally accepted accounting principles
      and to maintain asset accountability, (c) access to assets is permitted
      only in accordance with management’s general or specific authorization, and
      (d) the recorded accountability for assets is compared with the existing
      assets at reasonable intervals and appropriate action is taken with respect
      to
      any differences.

     

    3.26 [Intentionally
      Blank].

     

    3.27 Foreign
      Corrupt Practices.
      None of
      the Borrowers nor any of their Subsidiaries nor, to the knowledge of the
      Borrowers, any director, officer, agent, employee or other Person acting on
      behalf of the Borrowers or any of their Subsidiaries has, in the course of
      its
      actions for, or on behalf of, the Borrowers (a) used any corporate funds
      for any unlawful contribution, gift, entertainment or other unlawful expenses
      relating to political activity; (b) made any direct or indirect unlawful
      payment to any foreign or domestic government official or employee from
      corporate funds; (c) violated or is in violation of any provision of the
      U.S. Foreign Corrupt Practices Act of 1977, as amended; or (d) made any
      unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful
      payment to any foreign or domestic government official or employee.

     

    3.28 Indebtedness.
      Except
      as disclosed in Schedule 3.28,
      none of
      the Borrowers nor any of their Subsidiaries (a) has any outstanding
      Indebtedness (as defined below) in an individual amount of more than $500,000,
      (b) is in violation of any term of or in default under any contract,
      agreement or instrument relating to any Indebtedness, except where such
      violations and defaults would not reasonably be expected to result, individually
      or in the aggregate, in a Material Adverse Effect, or (c) is a party to any
      contract, agreement or instrument relating to any Indebtedness, the performance
      of which, in the judgment of the Company’s officers, is reasonably expected to
      have a Material Adverse Effect. For purposes of this Agreement: (i)
“Indebtedness”
of
      any
      Person means, without duplication (A) all indebtedness for borrowed money,
      (B) all obligations issued, undertaken or assumed as the deferred purchase
      price of property or services (other than trade payables entered into in the
      ordinary course of business), (C) all reimbursement or payment obligations
      with respect to letters of credit, surety bonds and other similar instruments,
      (D) all obligations evidenced by notes, bonds, debentures or similar
      instruments, including obligations so evidenced incurred in connection with
      the
      acquisition of property, assets or businesses, (E) all indebtedness created
      or arising under any conditional sale or other title retention agreement, or
      incurred as financing, in either case with respect to any property or assets
      acquired with the proceeds of such indebtedness (even though the rights and
      remedies of the seller or bank under such agreement in the event of default
      are
      limited to repossession or sale of such property), (F) all monetary
      obligations under any leasing or similar arrangement which, in connection with
      GAAP, is classified as a capital lease, (G) all indebtedness referred to in
      clauses (A) through (F) above secured by (or for which the holder of
      such Indebtedness has an existing right, contingent or otherwise, to be secured
      by) any Lien upon or in any property or assets (including accounts and contract
      rights) owned by any Person, even though the Person which owns such assets
      or
      property has not assumed or become liable for the payment of such indebtedness,
      and (H) all Contingent Obligations in respect of indebtedness or
      obligations of others of the kinds referred to in clauses (A) through
      (G) above; and (ii) “Contingent
      Obligation”
means,
      as to any Person, any direct or indirect liability, contingent or otherwise,
      of
      that Person with respect to any indebtedness, lease, dividend or other
      obligation of another Person if the primary purpose or intent of the Person
      incurring such liability, or the primary effect thereof, is to provide assurance
      to the obligee of such liability that such liability will be paid or discharged,
      or that any agreements relating thereto will be complied with, or that the
      holders of such liability will be protected (in whole or in part) against loss
      with respect thereto.

     

    
      
        
        

      

      
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    3.29 Employee
      Relations.
      None of
      the Borrowers nor any of their Subsidiaries is a party to any collective
      bargaining agreement or employs any member of a union. The Borrowers believe
      that their relations with their employees are as disclosed in the SEC Reports.
      Except as disclosed in the SEC Reports, during the period covered by the SEC
      Reports, no executive officer of the Company or any of its Subsidiaries (as
      defined in Rule 501(f) of the 1933 Act) has notified the Company or any
      such Subsidiary that such officer intends to leave the Company or any such
      Subsidiary or otherwise terminate such officer’s employment with the Company or
      any such Subsidiary. To the knowledge of the Borrowers or any such Subsidiary,
      no executive officer of any Borrower or any of their Subsidiaries is in
      violation of any material term of any employment contract, confidentiality,
      disclosure or proprietary information agreement, non-competition agreement,
      or
      any other contract or agreement or any restrictive covenant, and the continued
      employment of each such executive officer does not subject such Borrower or
      any
      such Subsidiary to any liability with respect to any of the foregoing
      matters.

     

    3.30 Labor
      Matters.
      The
      Company and its Subsidiaries are in compliance in all material respects with
      all
      federal, state, local and foreign laws and regulations respecting labor,
      employment and employment practices and benefits, terms and conditions of
      employment, hiring promotion or pay, and wages and hours, except where failure
      to be in compliance would not, either individually or in the aggregate,
      reasonably be expected to result in a Material Adverse Effect.

     

    3.31 Subsidiary
      Rights.
      No
      Subsidiary of a Borrower is currently prohibited, directly or indirectly, from
      paying any dividends to such Borrower, from making any other distribution on
      such Subsidiary’s capital stock, from repaying to the Borrowers any loans or
      advances to such Subsidiary from such Borrower or from transferring any of
      such
      Subsidiary’s property or assets to a Borrower or any other Subsidiary of the
      Borrowers. The Borrowers or one of their Subsidiaries has the unrestricted
      right
      to vote all capital securities of their Subsidiaries as owned by a Borrower
      or
      such Subsidiary.

     

    3.32 Tax
      Status.
      Each of
      the Borrowers and each of their Subsidiaries (a) has filed all foreign,
      federal and state income, franchise and all other tax returns, reports and
      declarations required by any jurisdiction to which it is subject, (b) has
      paid all taxes and other governmental assessments and charges that are material
      in amount, shown or determined to be due on such returns, reports and
      declarations, except those being contested in good faith and (c) has set
      aside on its books provision reasonably adequate for the payment of all taxes
      for periods subsequent to the periods to which such returns, reports or
      declarations apply. There are no unpaid taxes in any material amount claimed
      to
      be due by the taxing authority of any jurisdiction.

     

    
      
        
        

      

      
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    3.33 Environmental.
      To the
      Borrowers’ knowledge, the Borrowers and their Subsidiaries and their properties,
      assets and operations are in compliance with, and hold all permits,
      authorizations and approvals required under, Environmental Laws (as defined
      below), except to the extent that failure to so comply or to hold such permits,
      authorizations or approvals, individually or in the aggregate, would not
      reasonably be expected to result in a Material Adverse Effect. Except as would
      not, individually or in the aggregate, reasonably be expected to result in
      a
      Material Adverse Effect, none of the Borrowers nor any of the Subsidiaries
      (a) is, to the Borrowers’ knowledge, the subject of any investigation,
      (b) has received any written notice or claim, (c) is a party to any
      pending or, to the Borrowers’ knowledge, threatened action, suit or proceeding,
      (d) is bound by any judgment, decree or order, or (e) has entered into
      any agreement, in each case relating to any alleged violation of any
      Environmental Law or any actual or alleged release or threatened release or
      cleanup at any location of any Hazardous Materials (as defined below). As used
      herein, “Environmental
      Law”
means
      any federal, state, local or foreign law, statute, ordinance, rule, regulation,
      order, decree, judgment, injunction, permit, license, authorization or other
      binding requirement or common law relating to health, safety or the protection,
      cleanup or restoration of the environment or natural resources, including those
      relating to the distribution, processing, generation, treatment, storage,
      disposal, transportation, other handling or release or threatened release of
      Hazardous Materials, and “Hazardous
      Materials”
means
      any material (including, without limitation, pollutants, contaminants, hazardous
      or toxic substances or wastes) that is regulated by or may give rise to
      liability under any Environmental Law.

     

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

     

    
      
        
        

      

      
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    3.35 Filings,
      Consents and Approvals.
      None of
      the Borrowers is 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 such Borrower of
      the
      Transaction Documents, other than the filing of the Amendment to the
      Certificates of Designation with the Secretary of State of the State of
      Delaware, the filing required pursuant to the 1933 Act and or the 1934 Act,
      the
      application(s) to each Trading Market for the listing of the Conversion Shares
      and the Warrant Shares for trading thereon in the time and manner required
      thereby, the approval and actions set forth in Section 5.6, applicable Blue
      Sky
      filings and the filings required by the Security Documents to perfect the
      security interest of the Purchasers. 

     

    4. REPRESENTATIONS
      AND WARRANTIES OF THE PURCHASER.
      Each
      Purchaser, as to itself only and for no other Purchaser, hereby represents
      and
      warrants to the Company as follows:

     

    4.1 Organization;
      Authority.
      If
      Purchaser is an entity, such Purchaser is an entity duly organized, validly
      existing and in good standing under the laws of the jurisdiction of its
      organization. Such Purchaser has the requisite power and authority (corporate,
      limited liability company, partnership or otherwise) to enter into and to
      consummate the transactions contemplated by the Transaction Documents and
      otherwise to carry out its obligations hereunder and thereunder. The execution,
      delivery and performance by such Purchaser of this Agreement have been duly
      authorized by all necessary action on the part of such Purchaser. This Agreement
      has been duly executed by such Purchaser and, when delivered by such Purchaser
      in accordance with terms hereof, will constitutes the valid and legally binding
      obligation of such Purchaser, enforceable against it in accordance with its
      terms.

     

    4.2 Purchaser
      Status.
      At the
      time such Purchaser was offered the Securities, it was, and at the date hereof
      is, an “accredited investor” as defined in Rule 501(a) under the 1933 Act.
      Such Purchaser is not a broker-dealer, or required to be registered as a
      broker-dealer, under Section 15 of the 1934 Act.

     

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

     

    
      
        
        

      

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

     

    4.5 No
      Public Sale or Distribution; Investment Intent.
      Such
      Purchaser is acquiring the Securities in the ordinary course of business for
      its
      own account for investment purposes only and not with a view towards, or for
      resale in connection with, the public sale or distribution thereof, and such
      Purchaser does not have a present intention nor a present arrangement to effect
      any distribution of the Securities to or through any person or entity;
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 an
      effective registration statement or an exemption under the 1933 Act.

     

    4.6 Information
      on the Company.
      Each
      Purchaser has been furnished with or has had access to the Disclosure Materials.
      In addition, the Purchaser has received in writing from the Borrowers such
      other
      information concerning its operations, financial condition and other matters
      as
      the Purchaser has requested in writing and considered all factors the Purchaser
      deems material in deciding on the advisability of investing in the Securities.
      

     

    4.7 Placement
      Agent’s Fees.
      The
      Borrowers have not incurred and will not incur, directly or indirectly, as
      a
      result of any action taken by such Purchaser, any liability for brokerage or
      finders’ fees or agents’ commissions or any similar charges in connection with
      this Agreement. 

     

    5. COVENANTS
      AND AGREEMENTS.

     

    5.1 Transfer
      Restrictions.

     

    (a) The
      Purchasers covenant that the Securities may only be disposed of pursuant to
      an
      effective registration statement under the 1933 Act or pursuant to an available
      exemption from the registration requirements of the 1933 Act, and in compliance
      with any applicable state securities laws. In connection with any transfer
      of
      Securities other than pursuant to an effective registration statement or to
      the
      Company or pursuant to Rule 144(k), the Company may require the transferor
      to provide to the Company an opinion of counsel selected by the transferor
      and
      reasonably acceptable to the Company, the form and substance of which opinion
      shall be reasonably satisfactory to the Company, to the effect that such
      transfer does not require registration under the 1933 Act. Notwithstanding
      the
      foregoing, the Company hereby consents to and agrees to register on the books
      of
      the Company and with its Transfer Agent, without any such legal opinion, any
      transfer of Securities by a Purchaser to an Affiliate of such Purchaser,
      provided that the transferee certifies to the Company that it is an “accredited
      investor” as defined in Rule 501(a) promulgated under the 1933 Act.

     

    
      
        
        

      

      
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    (b) The
      Purchasers agree to the imprinting, except as otherwise permitted by
Section 5.1(c),
      the
      following legend on any certificate evidencing Securities: 

     

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

     

    (c) Certificates
      evidencing Securities shall not be required to contain the legend set forth
      in
Section 5.1(b)
      or any
      other legend (i) while a registration statement covering the resale of
      such Securities is effective under the 1933 Act, or (ii) following any sale
      of such Securities pursuant to Rule 144, or (iii) if such Securities
      are eligible for sale under Rule 144(k), or (iv) if such legend is not
      required under applicable requirements of the 1933 Act (including judicial
      interpretations and pronouncements issued by the Staff of the SEC). The Company
      shall cause its counsel to issue the legal opinion included in the Transfer
      Agent Instructions to the Company’s Transfer Agent on the Effective Date.
      Following the Effective Date or at such earlier time as a legend is no longer
      required for certain Securities, the Company will, no later than three Trading
      Days following the delivery by a Purchaser to the Company or the Company’s
      transfer agent of a legended certificate representing such Securities, deliver
      or cause to be delivered to such Purchaser a certificate representing such
      Securities that is free from all restrictive and other legends. 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
Section 5.1(b).
      For so
      long as any Purchaser owns Securities, the Company will not effect or publicly
      announce its intention to effect any exchange, recapitalization or other
      transaction that effectively requires or rewards physical delivery of
      certificates evidencing the Common Stock.

     

    
      
        
        

      

      
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    (d) The
      Company acknowledges and agrees that a Purchaser may from time to time pledge
      or
      grant a security interest in some or all of the Securities in connection with
      a
      bona fide margin agreement or other loan or financing arrangement secured by
      the
      Securities and, if required under the terms of such agreement, loan or
      arrangement, such Purchaser may transfer possession of such pledged or secured
      Securities to the pledgees or secured parties. Such a pledge or transfer of
      possession would not be subject to approval of the Company and no legal opinion
      of the pledgee, secured party or pledgor shall be required in connection
      therewith but such legal opinion may be required in connection with a subsequent
      transfer following default by the Purchaser of the pledge. Further, no notice
      shall be required of such pledge. At the appropriate Purchaser’s expense, the
      Company will execute and deliver such reasonable documentation as a pledgee
      or
      secured party of Securities may reasonably request in connection with a pledge
      or transfer of possession of the Securities, including the preparation and
      filing of any required prospectus supplement under Rule 424(b)(3) of the
      1933 Act or other applicable provision of the 1933 Act to appropriately amend
      the list of selling stockholders thereunder. Except as otherwise provided in
      Section 5.1(c),
      any
      securities subject to a pledge or security interest as contemplated by this
      Section
      5.1(d)
      shall
      continue to contain the legend set forth in Section 5.1(b)
      and be
      subject to the restrictions or transfer set forth in Section
      5.1(a).

     

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

     

    5.2 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 1934 Act, except in the case of the Company’s Annual Report on
      Form 10-K for the fiscal year ended June 30, 2007 which shall be filed on or
      before November 16, 2007 in accordance with Section
      5.8.
      As long
      as any Purchaser owns Securities, if the Company is not required to file reports
      pursuant to such laws, it will prepare and furnish to the Purchasers and make
      publicly available in accordance with paragraph (c) of Rule 144 such
      information as is required for the Purchasers to sell the Securities under
      Rule 144. The Company further covenants that it will take such further
      action as any holder of Securities may reasonably request to satisfy the
      provisions of Rule 144 applicable to the issuer of securities relating to
      transactions for the sale of securities pursuant to Rule 144.

     

    
      
        
        

      

      
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    5.3 Integration.
      The
      Company shall not, and shall use its best efforts to ensure that no Affiliate
      of
      the Company shall, sell, offer for sale or solicit offers to buy or otherwise
      negotiate in respect of any security (as defined in Section 2 of the 1933
      Act) that would be integrated with the offer or sale of the Securities in a
      manner that would require the registration under the 1933 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.

     

    5.4 Reservation
      and Listing of Securities.
      

     

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

     

    (b) The
      Company shall (i) in the time and manner required by each Trading Market,
      prepare and file with such Trading Market an additional shares listing
      application covering all of the shares of Common Stock issued or issuable under
      the Transaction Documents, (ii) take all steps necessary to cause such
      shares of Common Stock to be approved for listing on each Trading Market as
      soon
      as possible thereafter, (iii) provide to the Purchasers evidence of such
      listing, and (iv) maintain the listing of such Common Stock on each such
      Trading Market.

     

    (c) In
      the
      case of a breach by the Company of Section 5.4(a),
      in
      addition to the other remedies available to the Purchasers, the Purchasers
      shall
      have the right to require the Company to either: (i) use its best efforts
      to obtain the required shareholder approval necessary to permit the issuance
      of
      such shares of Common Stock as soon as is possible, but in any event not later
      than the 60th day after such notice, or (ii) within five Trading Days after
      delivery of a written notice, pay cash to such Purchaser, an amount equal to
      the
      number of shares of Common Stock not issuable by the Company times 115% of
      the
      average Closing Price over the five Trading Days immediately prior to the date
      of such notice or, if greater, the five Trading Days immediately prior to the
      date of payment (the “Cash
      Amount”)
      which
      cash amount shall be in satisfaction of the Company’s obligation to deliver such
      shares. If the exercising or converting Purchaser elects the first option under
      the preceding sentence and the Company fails to obtain the required shareholder
      approval on or prior to the 60th day after such notice, then within three
      Trading Days after such 60th day, the Company shall pay the Cash Amount to
      such
      Purchaser, as liquidated damages and not as penalty.

     

    5.5 Securities
      Laws Disclosure; Publicity.
      On or
      before the fourth Trading Day following the execution of this Agreement, the
      Company shall file a Current Report on Form 8-K with the SEC (the
“8-K
      Filing”)
      describing the material terms of the Transaction Documents and including as
      exhibits to such Current Report on Form 8-K this Agreement, the form of the
      STAR Notes, the form of the Convertible Notes, and the form of Warrants, in
      the
      form required by the 1934 Act, and no later than the fourth Trading Day
      following the Closing Date the Company shall file an additional Current Report
      on Form 8-K to disclose the Closing. Thereafter, the Company shall timely file
      any filings and notices required by the SEC or applicable law with respect
      to
      the transactions contemplated hereby and, if any disclosure therein differs
      materially from that which is contained in the 8-K Filing, provide copies
      thereof to the Purchasers promptly after filing. The Borrowers and the
      Purchasers shall consult with each other in issuing any press releases or
      otherwise making public statements or filings and other communications with
      the
      SEC or any regulatory agency or Trading Market with respect to the transactions
      contemplated hereby, and no party shall issue any such press release or
      otherwise make any such public statement, filing or other communication without
      the prior consent of the other, except if such disclosure is required by law,
      in
      which case the disclosing party shall promptly provide the other party with
      prior notice of such public statement, filing or other communication.
      Notwithstanding the foregoing, the Company shall not publicly disclose the
      name
      of any Purchaser, or include the name of any Purchaser in any filing with the
      SEC (other than the Registration Statement and any exhibits to filings made
      in
      respect of this transaction in accordance with periodic filing requirements
      under the 1934 Act) or any regulatory agency or Trading Market, without the
      prior written consent of such Purchaser, except to the extent such disclosure
      is
      required by law or Trading Market regulations, in which case the Company shall
      provide the Purchasers with prior notice of such disclosure.

     

    
      
        
        

      

      
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    5.6 Information
      Statement.
      

     

    (a) The
      Company shall, as soon as practicable, but no later than November 21, 2007,
      file
      with the SEC an Information Statement on Schedule 14C (the “Information
      Statement”),
      which
      has been previously reviewed by the Purchasers and a counsel of their choice,
      setting forth information regarding the written majority consent in lieu of
      a
      meeting of the holders of the majority of the Company’s capital stock entitled
      to vote approving the Company’s issuance of all of the Securities as described
      in this Agreement in accordance with applicable law and the rules and
      regulations of the Trading Market (the “Shareholder
      Approval”),
      including the exchange of the STAR Notes for (i) Initial Convertible Notes
      in
      principal amount equal to the principal and accrued and unpaid interest on
      the
      STAR Notes and (ii) Warrants to purchase the Warrant Shares. 

     

    As
      soon
      as practicable thereafter, but no earlier than January 18, 2008 and no later
      than February 28, 2008, the Company shall provide each stockholder of the
      Company the Information Statement in accordance with applicable law and the
      rules and regulations of the American Stock Exchange; provided, however, that
      in
      the event of a review by the SEC of the Information Statement which shall not
      be
      concluded by February 15, 2008, the Company shall provide each stockholder
      of
      the Company the Information Statement in accordance with applicable law and
      the
      rules and regulations of the American Stock Exchange within ten (10) business
      days of clearing comments received from the SEC. The Company shall use its
      reasonable best efforts to address any SEC comments on the Information Statement
      and to mail the Information Statement as soon as practicable.

     

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

     

    
      
        
        

      

      
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    5.7 Form
      D; Blue Sky.
      The
      Company shall file a Form D with respect to the Securities as required under
      Regulation D and provide a copy thereof to each Purchaser promptly after such
      filing. The Company shall, on or before each of the Closing Dates, take such
      action as the Company shall reasonably determine is necessary in order to obtain
      an exemption for or to qualify the Securities for sale to the Purchasers at
      each
      of the Closings pursuant to this Agreement under applicable securities or “Blue
      Sky” laws of the states of United States, and shall provide evidence of any such
      action so taken to the Purchasers on or prior to the Closing Dates. The Company
      shall make all filings and reports relating to the offer and sale of the
      Securities required under applicable securities or “Blue Sky” laws of the states
      of the United States following each of the Closing Dates.

     

    5.8 Form
      10-K; Trading of Common Stock.
      As soon
      as practicable after the Closing, the Company shall promptly file with the
      SEC
      its Annual Report on Form 10-K for the year ended June 30, 2007, but in no
      event
      no later than by November 16, 2007, and thereafter, shall take all steps
      necessary to cause Common Stock to be listed for trading on the Trading Marked
      and the trading of the Common Stock on the Trading Market to resume without
      any
      further suspension (except for any suspensions of trading of not more than
      one
      Trading Day solely to permit dissemination of material information regarding
      the
      Company). 

     

    5.9 MFN
      Provision.
      With
      the exception of the Excluded Stock, if any of the Borrowers or any of their
      Subsidiaries offers to issue or issues to any Person any security of such
      Borrower or any Subsidiary, then such Borrower shall offer to each Purchaser
      the
      right to exchange all or a portion of the STAR Notes or Convertible Notes then
      held by such Purchaser valued at the then outstanding principal amount, plus
      accrued and unpaid interest, of such STAR Notes or Convertible Notes for such
      security. Such offer shall be made at the same time and in the same manner
      as if
      such offer is being made to any other potential purchaser of such security.
      Each
      Purchaser shall have five (5) Trading Days to review the offer and determine
      whether it wants to exchange all or any portion of the STAR Notes or Convertible
      Notes.

     

    5.10 General
      Indemnity.
      

     

    (a) The
      Borrowers, jointly and severally, agree to indemnify and hold harmless the
      Purchasers (and their respective directors, officers, affiliates, agents,
      successors and assigns) from and against any and all losses, liabilities,
      deficiencies, costs, damages and expenses (including, without limitation,
      reasonable attorneys’ fees, charges and disbursements) incurred by the
      Purchasers as a result of any inaccuracy in, or breach of, the representations,
      warranties or covenants made by the Company herein or arising out of relating
      to
      any one or more of the following: (i)
      any
      presence of any Hazardous Material in, on, above or under the Borrowers real
      property located in Yaphank, New York; (ii) any past, present or threatened
      release of Hazardous Material in, on, above, under or from the Property; (iii)
      any activity by any Borrowers, any of their Affiliates or other users of the
      Property or any other Person in connection with any actual, proposed or
      threatened use, treatment, storage, holding, existence, disposition or other
      release, generation, production, manufacturing, processing, refining, control,
      management, abatement, removal, handling, transfer or transportation to or
      from
      the Property of any Hazardous Material at any time located in, under, on or
      above the Property; (iv) any activity by any Borrower, any of their Affiliate
      or
      other users of the Property in connection with any actual or proposed
      remediation of any Hazardous Materials at any time located in, under, on or
      above the Property; (v) any past, present or threatened violations of any
      Environmental Laws (or permits issued pursuant to any Environmental Law) in
      connection with the Property or operations thereon; (vi) any personal injury,
      wrongful death, or property damage caused by Hazardous Material arising under
      any statutory or common law or tort law theory.
      

     

    
      
        
        

      

      
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    (b) Each
      Purchaser, severally but not jointly, agrees to indemnify and hold harmless
      the
      Borrowers and their directors, officers, affiliates, agents, successors and
      assigns from and against any and all losses, liabilities, deficiencies, costs,
      damages and expenses (including, without limitation, reasonable attorneys’ fees,
      charges and disbursements) incurred by the Borrowers as a result of any
      inaccuracy in or breach of the representations, warranties or covenants made
      by
      such Purchaser herein. The maximum aggregate liability of each Purchaser
      pursuant to its indemnification obligations under this Section
      5.10
      shall
      not exceed the portion of the Purchase Price paid by such Purchaser
      hereunder.

     

    5.11 No
      Conflicting Agreements.
      The
      Company will not, without obtaining prior approval from the Required Holders,
      take any action, enter into any agreement or make any commitment that would
      conflict or interfere in any material respect with the obligations to the
      Purchasers under the Agreements.

     

    5.12 Compliance
      with Laws.
      So long
      as the Purchasers beneficially own any Securities, the Company will use
      reasonable efforts to comply with all applicable laws, rules, regulations,
      orders and decrees of all governmental authorities, except to the extent
      non-compliance (in one instance or in the aggregate) would not have a Material
      Adverse Effect.

     

    5.13 Corporate
      Existence.
      So long
      as any Securities remain outstanding, each of the Borrowers shall maintain
      its
      corporate existence, except in the event of a merger, consolidation or sale
      of
      all or substantially all of such Borrower’s assets so long as the surviving or
      successor entity in such transaction (a) assumes such Borrower’s
      obligations hereunder and under the agreements and instruments entered into
      in
      connection herewith; (b) has no legal, contractual or other restrictions on
      its ability to perform the obligations of the Borrowers hereunder and under
      the
      agreements and instruments entered into in connection herewith; and
      (c)(i) in the case of the Company, is a publicly traded corporation whose
      common stock and the shares of capital stock issuable upon conversion and
      exercise of the Convertible Notes and Warrants are (or would be upon issuance
      thereof) listed for trading on an Eligible Market (other than the NASD
      Over-the-Counter Bulletin Board) or (ii) if not such a publicly traded
      corporation, then the buyer agrees that it will, at the election of the
      Purchasers, purchase such Purchasers’ Securities at a price equal to the greater
      of (A) 120% of the Purchase Price of such Securities or (B) the fair market
      value of such Securities on an as-converted and as-exercised basis based on
      the
      closing price immediately preceding such transaction or the redemption date,
      whichever is greater.

     

    
      
        
        

      

      
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    5.14 Use
      of
      Proceeds.
      The
      Borrowers shall use the proceeds from the sale of the STAR Notes and the Sutaria
      Note for general working capital purposes, and not for the purposes of redeeming
      any capital stock or other securities of any Borrower.

     

    5.15 Variable
      Price Security.
      So long
      as any of the Convertible Notes or the Warrants remain outstanding, neither
      the
      Company nor any of its Subsidiaries shall, without the prior written consent
      of
      the Purchaser, contract for any equity financing (including any debt financing
      with an equity component) or issue any equity securities of the Company or
      any
      Subsidiary or securities convertible or exchangeable into or for equity
      securities of the Company or any Subsidiary (including debt securities with
      an
      equity component) which, in any case (i) are convertible into or
      exchangeable for an indeterminate number of shares of common stock,
      (ii) are convertible into or exchangeable for Common Stock at a price which
      varies with the market price of the Common Stock, (iii) directly or
      indirectly provide for any “re-set” or adjustment of the purchase price,
      conversion rate or exercise price after the issuance of the security, or
      (iv) contain any “make-whole” provision based upon, directly or indirectly,
      the market price of the Common Stock after the issuance of the security, in
      each
      case, other than reasonable and customary anti-dilution adjustments for issuance
      of shares of Common Stock at a price which is below the market price of the
      Common Stock.

     

    5.16 Default
      Interest.
      If the
      Company fails to make any cash payment required by any Transaction Document
      in
      full when due then the Company shall pay interest thereon at a rate of 18%
      per
      annum (or such lesser maximum rate that is permitted to be paid under applicable
      law) from the date such payment was due until such amount, plus all such
      interest, is paid in full.

     

    5.17 Indebtedness;
      Liens.
      For so
      long as any obligations under the STAR Notes or the Convertible Notes are
      outstanding, the Borrowers will not, and will not permit any of their
      Subsidiaries to, without the written consent of the Required Holders, directly
      or indirectly, incur, create, assume or permit to exist any Indebtedness that
      is
      senior to or pari passu with the STAR Notes or the Convertible Notes in right
      of
      payment, other than pursuant to the Senior Credit Agreement. For so long as
      any
      obligations under the STAR Notes or the Convertible Notes are outstanding,
      the
      Borrowers will not, and will not permit any of their Subsidiaries to, without
      the written consent of the Required Holders, directly or indirectly, create,
      incur, assume or suffer to exist any Liens whatsoever on any of its assets
      or
      properties, except (i) Liens in favor of the Purchasers and the Collateral
      Agent
      created by the Security Documents; (ii) “Permitted Liens” as defined in the
      Senior Credit Agreement, as in existence as of the date hereof, and (iii) Liens
      securing the obligations of the Borrowers under the Sutaria Note, provided,
      that
      the obligations under the Sutaria Note and the Liens securing such obligations
      are, and shall be at all times be, subordinate to the obligations under the
      Convertible Notes and the Liens in favor of the Purchasers and the Collateral
      Agent. 

     

    5.18 Covenants
      in Senior Credit Agreement.
      The
      Covenants made by the Borrowers in Section 6.2 of the Senior Credit Agreement
      (as amended from time to time thereunder), are hereby incorporated by reference
      herein and shall be deemed to have been made by the Borrowers to the Purchasers
      on and as of the date hereof; provided, however, in the event of any conflict
      or
      inconsistency between the provisions of the Senior Credit Agreement so
      incorporated herein and the provisions hereof, the provision of this Agreement
      shall control. The Borrowers shall promptly provide the Purchasers with copies
      of any amendment to the Senior Credit Agreement or any other agreement or
      instrument entered into in connection with the Senior Credit
      Agreement.

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    5.19 Dividends;
      Interest; Redemptions.
      None of
      the Borrowers will declare or pay any dividends (other than dividends payable
      solely in the stock of the Company) on any class of its capital stock, or make
      any payment on account of the purchase, redemption or other retirement on any
      of
      its capital stock or any securities (other than the Convertible Notes and
      Warrants) convertible into its capital stock; except, the Company may declare
      or
      pay regularly scheduled dividends on its Series A-1 Convertible Cumulative
      Preferred Stock, Series B-1 Convertible Preferred Stock and Series C-1
      Convertible Preferred Stock (and following the exchange of the Series B-1
      Convertible Preferred Stock and Series C-1 Convertible Preferred Stock for
      shares of Series D-1 Convertible Preferred Stock in accordance with that certain
      Consent and Waiver Agreement, dated the date hereof, relating to the Preferred
      Stock Consent, the Series D-1 Convertible Preferred Stock) provided that no
      default or event of default exists under this Agreement or any of the other
      Transaction Documents. None of the Borrowers shall pre-pay or redeem any of
      its
      Indebtedness which is junior or subordinate to the STAR Notes and the
      Convertible Notes; except, the Borrowers may pay regularly scheduled interest
      payments on such junior Indebtedness provided that no default or event of
      default exists under this Agreement or any of the other Transaction Documents
      and provided such payments are not prohibited by the Senior Credit Agreement
      or
      any agreement entered into in connection with the Senior Credit Agreement.
      

     

    5.20 [Intentionally
      Blank]

     

    5.21 “Piggy-Back”
      Registration Rights.
      The
      Company shall notify all of the Purchasers in writing at least fifteen (15)
      Trading Days prior to the filing of any registration statement under the 1933
      Act (other than a registration statement on a Form S-8 or, with respect to
      exchange offering of debt, on a Form S-4) for purposes of a public offering
      of
      securities of the Company and will afford each Purchaser an opportunity to
      include in such registration statement all or part of such shares of Common
      Stock issuable or issued upon the conversion of the Convertible Notes or the
      exercise of Warrants (but excluding any such shares which can by sold, without
      any volume limitation, to the public pursuant to Rule 144 promulgated under
      the
      1933 Act) (the “Registrable
      Securities”).
      Each
      Purchaser desiring to include in any such registration statement all or any
      part
      of the Registrable Securities shall within ten (10) Trading Days after the
      above-described notice from the Company, so notify the Company in writing.
      Upon
      written request of each Purchaser, the Company shall use commercially reasonable
      efforts to cause to be registered under the 1933 Act all of the Registrable
      Securities that each such Purchaser has requested to be registered.
      Notwithstanding any other provision of this Section
      5.21,
      if the
      managing underwriter advises the Company in writing that marketing factors
      require a limitation of the number of shares to be underwritten, the managing
      underwriter may allocate the shares to be included in such registration, first,
      to the Company and any investors exercising demand registration rights; second,
      to the Purchaser and any other investors exercising “piggy-back” registration
      rights on a pro rata basis based on the total number of shares held by the
      Purchaser and such investors; and third, to any other stockholder of the Company
      on a pro rata basis.

     

    
      
        
        

      

      
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    6. CONDITIONS.
      

     

    6.1 Conditions
      Precedent to the Obligations of the Purchasers.
      The
      obligation of each Purchaser to acquire the STAR Notes at the Closing is subject
      to the satisfaction or waiver by such Purchaser, at or before the Closing,
      of
      each of the following conditions:

     

    (i) Representations
      and Warranties.
      The
      representations and warranties of the Borrowers contained herein shall be true
      and correct in all material respects as of the date when made and as of the
      Closing Date as though made on and as of such date; 

     

    (ii) Performance.
      Each of
      the Borrowers shall have performed, satisfied and complied in all material
      respects with all covenants, agreements and conditions required by the
      Transaction Documents to be performed, satisfied or complied with by it at
      or
      prior to the Closing;

     

    (iii) No
      Injunction.
      No
      statute, rule, regulation, executive order, decree, ruling or injunction shall
      have been enacted, entered, promulgated or endorsed by any court or governmental
      authority of competent jurisdiction that prohibits the consummation of any
      of
      the transactions contemplated by the Transaction Documents; 

     

    (iv) Adverse
      Changes.
      Since
      the date of execution of this Agreement, no event or series of events shall
      have
      occurred that reasonably would reasonably be expected to have or result in
      a
      Material Adverse Effect;

     

    (v) Officers’
      Certificate.
      Such
      Purchaser shall have received a certificate, executed by the Chief Executive
      Officer and the Chief Financial Officer of the Company, dated as of the Closing
      Date, as to the effect (A) set forth in clauses (i),
      (ii)
      and
(iv)
      of this
Section
      6.1;
      and (B)
      that each of the Borrowers will be, and the Borrowers and its Subsidiaries,
      on a
      consolidated basis, will be, solvent (as determined in accordance with
Section
      3.24)
      upon
      the consummation of the transactions contemplated herein and in the other
      Transaction Documents;

     

    (vi) Opinion
      Letters.
      Such
      Purchaser shall have received the opinion of counsel to the Borrowers and of
      counsel to the Sutaria Parties dated as of the Closing Date, in form, scope
      and
      substance reasonably satisfactory to such Purchaser;

     

    (vii) Transaction
      Documents.
      Each of
      the Borrowers shall have executed each of the Transaction Documents to which
      it
      is a party and shall have delivered the same to such Purchaser;

     

    (viii) Securities.
      The
      Company shall have executed and delivered to such Purchaser the STAR Notes
      being
      purchased by such Purchaser at the Closing;

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    (ix) Transfer
      Agent Instructions.
      The
      Transfer Agent Instructions shall have been delivered to and acknowledged in
      writing by the Company’s transfer agent;

     

    (x) Secretary’s
      Certificate.
      Each of
      the Borrowers shall have delivered to such Purchaser a secretary’s certificate
      dated as of the Closing Date, as to (A) the certificate or articles of
      incorporation of such Borrower; (B) the bylaws of such Borrower; and (C) duly
      adopted resolutions of the Board of Directors of such Borrower relating to
      the
      Transaction Documents and the transactions contemplated therein;

     

    (xi) Senior
      Credit Facility Waiver and Consent.
      Such
      Purchaser shall have received evidence, in form and substance reasonably
      satisfactory to such Purchaser, that the lenders under the Senior Credit
      Agreement have (A) waived any existing default under the Senior Credit
      Agreement; and (B) consented to the entry and consummation of the transactions
      contemplated by this Agreement and the other Transaction Documents, including,
      without limitation, the issuance of the STAR Notes, the Convertible Notes and
      the granting of the security interest by the Borrowers pursuant to the Security
      Documents (the “Senior
      Credit Facility Consent”;

     

    (xii) Preferred
      Stock Waiver and Consent.
      Such
      Purchaser shall have received evidence, in form and substance reasonably
      satisfactory to such Purchaser, that all of the holders of each of the Series
      A-1 Convertible Cumulative Preferred Stock, Series B-1 Convertible Preferred
      Stock and Series C-1 Convertible Preferred Stock have (A) waived any existing
      default under the terms of any such preferred stock or any other document,
      agreement or instrument relating thereto; and (B) consented to the entry and
      consummation of the transactions contemplated by this Agreement and the other
      Transaction Documents, including, without limitation, the exchange of the STAR
      Notes for the Initial Convertible Notes and the Warrants and the issuance of
      additional Convertible Notes (the “Preferred
      Stock Consents”);
      

     

    (xiii) Sutaria
      Parties.
      The
      Sutaria Parties shall have provided the Borrowers with additional debt financing
      in an amount not less than $3,000,000 pursuant to the Sutaria Note, which
      Sutaria Note shall be subordinate to the STAR Notes and the Convertible Notes,
      upon terms reasonably satisfactory to the Purchasers and their counsel;
      and

     

    (xiv) Other
      Documents.
      The
      Borrowers shall have delivered, or caused to have delivered, any other documents
      reasonably requested by a Purchaser or counsel to a Purchaser in connection
      with
      the Closing.

     

    6.2 Conditions
      Precedent to the Obligations of the Borrowers.
      The
      obligation of the Borrowers to sell Securities at the Closing is subject to
      the
      satisfaction or waiver by the Borrowers, at or before the Closing, of each
      of
      the following conditions:

     

    (a) Representations
      and Warranties.
      The
      representations and warranties of the Purchasers contained herein shall be
      true
      and correct in all material respects as of the date when made and as of the
      Closing Date as though made on and as of such date; 

     

    (b) Performance.
      The
      Purchasers shall have performed, satisfied and complied in all material respects
      with all covenants, agreements and conditions required by the Transaction
      Documents to be performed, satisfied or complied with by the Purchasers at
      or
      prior to the Closing; and

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

    (c) No
      Injunction.
      No
      statute, rule, regulation, executive order, decree, ruling or injunction shall
      have been enacted, entered, promulgated or endorsed by any court or governmental
      authority of competent jurisdiction that prohibits the consummation of any
      of
      the transactions contemplated by the Transaction Documents.

     

    7. MISCELLANEOUS.

     

    7.1 Termination.
      This
      Agreement may be terminated by the Borrowers or any Purchaser, by written notice
      to the other parties, if the Closing has not been consummated by the third
      Business Day following the date of this Agreement; provided that no such
      termination will affect the right of any party to sue for any breach by the
      other party (or parties).

     

    7.2 Fees
      and Expenses.
      At the
      Closing, the Borrowers shall pay to (i) Aisling Capital II, L.P. and
      Tullis-Dickerson Capital Focus III, L.P. an aggregate of up to $130,000 for
      their legal fees and expenses incurred in connection with the preparation and
      negotiation of the Transaction Documents and (ii) the Sutaria Parties an
      aggregate of $50,000 for their legal fees and expenses incurred in connection
      with the preparation and negotiation of the Transaction Documents and the
      Sutaria Note. Except as expressly set forth in the Transaction Documents to
      the
      contrary, each party shall pay the fees and expenses of its advisers, counsel,
      accountants and other experts, if any, and all other expenses incurred by such
      party incident to the negotiation, preparation, execution, delivery and
      performance of this Agreement. The Borrowers shall pay all transfer agent fees,
      stamp taxes and other taxes and duties levied in connection with the issuance
      of
      any Securities.

     

    7.3 Entire
      Agreement.
      The
      Transaction Documents, together with the Exhibits and Schedules thereto, contain
      the entire understanding of the parties with respect to the subject matter
      hereof and supersede all prior agreements and understandings, oral or written,
      with respect to such matters, which the parties acknowledge have been merged
      into such documents, exhibits and schedules. At or after the Closing, and
      without further consideration, the Borrowers will execute and deliver to the
      Purchasers such further documents as may be reasonably requested in order to
      give practical effect to the intention of the parties under the Transaction
      Documents.

     

    7.4 Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be in writing and shall be deemed given and effective
      on the earliest of (a) the date of transmission, if such notice or
      communication is delivered via facsimile or e-mail at the facsimile number
      or
      e-mail address specified in this Section prior to 6:30 p.m. (New York City
      time)
      on a Trading Day, (b) the Trading Day after the date of transmission, if
      such notice or communication is delivered via facsimile at the facsimile number
      specified in this Agreement later than 6:30 p.m. (New York City time) on any
      date and earlier than 11:59 p.m. (New York City time) on such date, (c) the
      Trading Day following the date of mailing, if sent by 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 Borrowers:

            	
              Interpharm
                Holdings Inc.

              75
                Adams Avenue

              Hauppauge,
                NY 11788

              Attn:
                Chief Operating Officer

              Fax
                No.: 631-952-9587

              Tel
                No.: 631-952-0214

              E-Mail:
                pgiallorenzo@interphaminc.com

            
	 	 
	
              With
                a copy to:

            	
              Guzov
                Ofsink, LLC

              600
                Madison Avenue, 14th Floor

              New
                York, NY 10022

              Attn:
                Darren L. Ofsink, Esq.

              Fax
                No.: 212-688-7273

              Tel
                No.: 212-371-8008

              E-Mail:
                dofsink@golawintl.com

            
	 	 
	
              If
                to the Purchasers

            	
              To
                the address set forth under such Purchaser’s name on the signature pages
                attached hereto.

            

    

     

    or
      such
      other address as may be designated in writing hereafter, in the same manner,
      by
      such Person. 

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    7.5 Amendments;
      Waivers.
      No
      provision of this Agreement may be waived or amended except in a written
      instrument signed by the Borrowers and the Required Holders. 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.

     

    7.6 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.

     

    7.7 Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and permitted assigns. The Borrowers may not assign this
      Agreement or any rights or obligations hereunder without the prior written
      consent of the Purchasers. Any Purchaser may assign its rights under this
      Agreement to any Person to whom such Purchaser assigns or transfers any
      Securities, provided such transferee agrees in writing to be bound, with respect
      to the transferred Securities, by the provisions hereof that apply to the
“Purchasers”. Notwithstanding anything to the contrary herein, the Securities
      may be pledged to any Person in connection with a bona fide margin account
      or
      other loan or financing arrangement secured by such Securities.

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

    7.8 No
      Third-Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      successors and permitted assigns and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person, except that each Indemnitee
      is an intended third-party beneficiary of Section 5.10
      and may
      enforce the provisions of such Section directly against the
      Company.

     

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

     

    7.10 Survival.
      The
      representations, warranties, agreements and covenants contained herein shall
      survive the Closing and the delivery, conversion and/or exercise of the
      Securities, as applicable.

     

    7.11 Execution.
      This
      Agreement may be executed in two or more counterparts, all of which when taken
      together shall be considered one and the same agreement and shall become
      effective when counterparts have been signed by each party and delivered to
      the
      other party, it being understood that both parties need not sign the same
      counterpart. In the event that any signature is delivered by facsimile
      transmission, 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.

     

    7.12 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.

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

    7.13 Rescission
      and Withdrawal Right.
      Notwithstanding anything to the contrary contained in (and without limiting
      any
      similar provisions of) the Transaction Documents, whenever the Collateral Agent
      or the Required Holders exercise a right, election, demand or option under
      a
      Transaction Document and the Borrowers do not timely perform its related
      obligations within the periods therein provided, then such Collateral Agent
      or
      the Required Holders may rescind or withdraw, in their sole discretion from
      time
      to time upon written notice to the Borrowers, any relevant notice, demand or
      election in whole or in part without prejudice to its future actions and
      rights.

     

    7.14 Replacement
      of Securities.
      If any
      certificate or instrument evidencing any Securities is mutilated, lost, stolen
      or destroyed, the Borrowers 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 Borrowers of such loss, theft or destruction
      and
      customary and reasonable indemnity, if requested. The applicants for a new
      certificate or instrument under such circumstances shall also pay any reasonable
      third-party costs associated with the issuance of such replacement
      Securities.

     

    7.15 Remedies.
      In
      addition to being entitled to exercise all rights provided herein or granted
      by
      law, including recovery of damages, each of the Purchasers and the Borrowers
      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.

     

    7.16 Payment
      Set Aside.
      To the
      extent that any Borrower makes a payment or payments to any Purchaser pursuant
      to any Transaction Document or a Purchaser enforces or exercises its rights
      hereunder or 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 a Borrower,
      a
      trustee, receiver or any other person under any law (including, without
      limitation, any bankruptcy law, state or federal law, common law or equitable
      cause of action), then to the extent of any such restoration the obligation
      or
      part thereof originally intended to be satisfied shall be revived and continued
      in full force and effect as if such payment had not been made or such
      enforcement or setoff had not occurred.

     

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

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

     

    7.18 Adjustments
      in Share Numbers and Prices.
      In the
      event of any stock split, subdivision, dividend or distribution payable in
      shares of Common Stock (or other securities or rights convertible into, or
      entitling the holder thereof to receive directly or indirectly shares of Common
      Stock), combination or other similar recapitalization or event occurring after
      the date hereof, each reference in any Transaction Document to a number of
      shares or a price per share shall be amended to appropriately account for such
      event.

     

    [Signature
      Pages Follow]

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

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

     

    
      	 	 	 
	 	
              INTERPHARM
                HOLDINGS INC.

            
	 
 	 
 	 
 
	
            	By:  	/s/
              Peter Giallorenzo
	 	
              

              Name:
                Peter
                Giallorenzo

            
	 	
              Title:
                CFO

            

    

    
       

      
        	 	 	 
	 	
                
                  INTERPHARM,
                    INC.

                

              
	 
 	 
 	 
 
	
              	By:  	/s/
                Peter Giallorenzo
	 	
                

                
                  Name:
                    Peter
                    Giallorenzo

                

              
	 	
                
                  Title:
                    CFO

                

              

      

       

    

    [Signature
      Page for Purchasers Follows]

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    
      	 	 	 
	 	
              
                AISLING
                  CAPITAL II, L.P.

              

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

            
	 	 
	 	
              By:
                AISLING CAPITAL PARTNERS, LLC, its general partner

            
	 
 	 
 	 
 
	
            	By:  	/s/
              Dennis Purcell 
	 	
              

              
                Name:
                  Dennis
                  Purcell

              

            
	 	
              
                Title:
                  SMD

              

            

    

    
      
        
           

          
            	 	
                    Address
                      for Notice:

                  
	 	 
	 	
                    888
                      Seventh Avenue, 30th
                      Floor

                    New
                      York, New York 10106

                    Facsimile
                      No.: (212) 651-6379

                    Telephone
                      No.: (212) 651-6394

                    E-Mail:
                      dschiff@aislingcapital.com

                    Attn:
                      Andrew Schiff

                  
	 	 
	 	
                    With
                      a copy to:

                  
	 	 
	 	
                    Feldman
                      Weinstein & Smith LLP

                    420
                      Lexington Avenue, Suite 2620

                    New
                      York, New York 10170

                    Facsimile
                      No.: (212) 997-4242

                    Telephone
                      No.: (212) 869-7000

                    E-Mail:
                      jsmith@feldmanweinstein.com

                    Attn:
                      Joseph A. Smith

                  

          

           

          
            
              
              

            

            
              35

              
                

              

            

            
              
              

              
                
                   

                  
                    	 	 	 
	 	
                            
                              
                                TULLIS-DICKERSON
                                  CAPITAL FOCUS III, L.P.

                              

                            

                          
	 	 
	 	
                            By:
                              Tullis-Dickerson Partners III, L.L.C.., its general
                              partner

                          
	 
 	 
 	 
 
	
                          	By:  	/s/
                            Joan
                            P. Neuscheler 
	 	
                            

                            
                              
                                Name:
                                  Joan P. Neuscheler

                              

                            

                          
	 	
                            
                              
                                Title:
                                  Principal

                              

                            

                          

                  

                   

                

              

              
                	 	
                        
                          Address
                            for Notice:

                        

                      
	 	 
	 	
                        
                          Two
                            Greenwich Plaza, 4th
                            Floor

                          Greenwich,
                            CT 06830

                          Facsimile
                            No.: (203) 629-9293

                          Telephone
                            No.: (203) 629-8700

                          E-Mail:
                            jneuscheler@tullisdickerson.com

                          Attn:
                            Joan P. Neuscheler

                        

                      
	 	 
	 	
                        
                          With
                            a copy to:

                        

                      
	 	 
	 	
                        
                          Law
                            offices of Gloria M. Skigen

                          Two
                            Greenwich Plaza, 4th
                            Floor

                          Greenwich,
                            CT 06830

                          Facsimile:
                            (203) 861-2498

                          Telephone
                            No.: (203) 861-1717

                          E-Mail:
                            gskigen@tullisdickerson.com

                          Attn:
                            Gloria M. Skigen

                        

                      

              

               

              
                
                  
                  

                

                
                  36

                  
                    

                  

                

                
                  
                  

                

              

            

          

        

      

    

    
      
         

        
          	 	 	 
	 	
                  
                    
                      
                        SUTARIA
                          FAMILY REALTY, LLC

                      

                    

                  

                
	 
 	 
 	 
 
	
                	By:  	/s/ Maganlal
                  Sutaria
	 	
                  

                  
                    
                      
                        Name:
                          Maganlal
                          Sutaria 

                      

                    

                  

                
	 	
                  
                    
                      
                        Title:
                          Managing
                          Member

                      

                    

                  

                

        

        
           

          
            	 	
                    
                      
                        Address
                          for Notice:

                      

                    

                  
	 	 
	 	
                    
                      
                        Sutaria
                          Family Realty, LLC

                        6
                          Buckingham Court

                        Morristown,
                          NJ 07960

                        Facsimile
                          No.: (973) 538-6111

                        Telephone
                          No.: (973) 895-4870

                        E-Mail:
                          psutaria@muanj.com

                        Attn:
                          Perry Sutaria

                      

                    

                  
	 	 
	 	
                    
                      
                        With
                          a copy to:

                      

                    

                  
	 	 
	 	
                    
                      
                        Sadis
                          & Goldberg, LLP

                        551
                          Fifth Avenue, 21st
                          Floor

                        New
                          York, New York 10176

                        Facsimile
                          No.: (212) 573-8038

                        Telephone
                          No.: (212) 573-8140

                        E-Mail:
                          dviola@sglawyers.com

                        Attn:
                          Daniel G. Viola, Esq.

                      

                    

                  

          

           

          
            
              
              

            

            
              37

              
                

              

            

            
              
              

            

          

        

      

    

    
       

      
        	 	 	 
	
              	By:  	/s/
                Cameron Reid
	 	
                

                
                  
                    
                      
                        Name:
                          Cameron
                          Reid

                      

                    

                  

                

              

      

      
         

          
            	 	
                    
                      
                        
                          Address
                            for Notice:

                        

                      

                    

                  
	 	 
	 	
                    
                      
                        
                          c/o
                            Interpharm Holdings, Inc.

                          75
                            Adams Avenue

                          Hauppauge,
                            NY 11788

                          Facsimile
                            No.: (631) 952-9587

                          Telephone
                            No.: (631) 952-0214

                          E-Mail:
                            creid@interpharminc.com

                        

                      

                    

                  

          

           

          
            
              
              

            

            
              38

              
                

              

            

            
              
              

            

          

        

      

    

     

    EXHIBITS

     

    Schedule
      of Purchasers

    A. Form
      of
      STAR Note 

    B. Form
      of
      Convertible Note

    C. Form
      of
      Warrant

    D.
      Transfer
      Agent Instructions

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

    SCHEDULE OF
      PURCHASERS

     

    
      	
              Purchaser

            	 	
              STAR
                Notes

            	 	
              Warrant
                Shares

            	 
	
              Sutaria
                Family Realty, LLC

            	 	
              $

            	
              2,500,000

            	 	 	
              921,052

            	 
	
              Tullis-Dickerson
                Capital Focus III, L.P.

            	 	
              $

            	
              833,334

            	 	 	
              307,017

            	 
	
              Aisling
                Capital II, L.P.

            	 	
              $

            	
              833,333

            	 	 	
              307,017

            	 
	
              Cameron
                Reid

            	 	
              $

            	
              833,333

            	 	 	
              307,017

            	 
	 	 	 	 	 	 	 	 
	
              TOTAL

            	 	
              $

            	
              5,000,000

            	 	 	
              1,842,103

            	 

    

    

    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A

     

    STAR
      NOTE

     

    (Please
      refer to Exhibit 4.3 of this Form 10K)

     

    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      B

     

    INITIAL
      CONVERTIBLE NOTE

     

    (Please
      refer to Exhibit 4.12)

     

    
      
        
        

      

      
        42

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      C

     

    FORM
      OF WARRANT

     

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

     

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

     

    INTERPHARM
      HOLDINGS INC.

     

    WARRANT

     

    
      	
              Warrant
                No. [ ]

            	
              Dated:
                [_________], 2008

            

    

    

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

     

      
        

      

    

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

         

      

    

    
      
        
        

      

      
        43

        
          

        

      

      
        
        

      

       

    

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

     

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

     

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

     

    11. Exercise
      and Duration of Warrants.

     

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

     

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

     

    
      
        
        

      

      
        44

        
          

        

      

      
        
        

      

    

     

    12. Delivery
      of Warrant Shares.
      

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        45

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        46

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    
      
        
        

      

      
        47

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    
      
        
        

      

      
        48

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        49

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    
      
        
        

      

      
        50

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        51

        
          

        

      

      
        
        

      

    

     

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

     

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

            
	 	 
	
              where:

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

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

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

            
	 	 
	 	
              B
                =
                the Exercise Price.

            

    

     

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

     

    18. Intentionally
      Blank.

     

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

     

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

     

    
      
        
        

      

      
        52

        
          

        

      

      
        
        

      

    

     

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

     

    22. Miscellaneous.

     

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

     

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

     

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

     

    
      
        
        

      

      
        53

        
          

        

      

      
        
        

      

       

    

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

     

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

     

    [Signature
      Page Follows]

     

    
      
        
        

      

      
        54

        
          

        

      

      
        
        

      

    

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

     

    
      	
            	
              INTERPHARM
                HOLDINGS INC.

            
	 	 
	 	
              By:  

              
                

              

            
	 	
              Name:
                __________________________________

               

            
	 	
              Title:
                ___________________________________

            

    

    

    
      
        
        

      

      
        55

        
          

        

      

      
        
        

      

    

    Annex A

     

    FORM
      OF
      EXERCISE NOTICE

     

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

     

    To:
      INTERPHARM HOLDINGS INC.

     

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

     

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

     

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

     

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

     

    ____
      “Cash Exercise” 

     

    ____
      “Cashless Exercise” (if permitted)

     

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

     

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

     

    
      	
              Dated:
                _______________, ______

            	
              Name
                of Holder:

            
	 	 
	 	
              (Print)
                _______________________________________

            
	 	 
	 	
              By:

              
                

              

            
	 	
              Name: _______________________________________

               

            
	 	
              Title: ________________________________________

            

    

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    ACKNOWLEDGEMENT

     

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

     

    
      	
            	
              INTERPHARM
                HOLDINGS INC.

            
	 	 
	 	
              By:
                

              
                

              

               

            
	 	
              Name: ______________________________________

            
	 	
              Title: ______________________________________

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Annex B

     

    FORM
      OF ASSIGNMENT

     

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

     

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

     

    
      	
              Dated:
                _____________, ______

            	 
	 	 
	 	
              
                

                (Signature
                must conform in all respects to name of holder as specified on the
                face of
                the Warrant)

            
	 	 
	 	 
	 	
              
                
Address
                of Transferee

            
	 	 

              

            
	 	 

              

            
	 	 
	
              In
                the presence of:

            	 
	 

              

            	 

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      D

     

    TRANSFER
      AGENT INSTRUCTIONS

     

    Continental
      Stock Transfer & Trust Company,

    17
      Battery Place,

    New
      York,
      NY 10004-1123

    

    Ladies
      and Gentlemen:

     

    Reference
      is made to that certain Securities Purchase Agreement, dated as of November
      14,
      2007 (the “Agreement”),
      by
      and among Interpharm Holdings Inc., a Delaware corporation, (the “Company”),
      Interpharm, Inc., a New York corporation, and the purchasers named therein
      (the
“Holders”)
      pursuant to which the Company anticipates issuing the Company’s (a) 
Secured Convertible 12% Notes due 2009 (the “Convertible
      Notes”)
      which
      shall be convertible into shares of the Company’s common stock, par value $0.01
      per share (the “Common
      Stock”)
      and
      (b) warrants, which are exercisable into shares of Common Stock (the
“Warrants”).
      

     

    This
      letter shall serve as our irrevocable authorization and direction to you
      (provided that you are the transfer agent of the Company at such time) to issue
      shares of Common Stock upon conversion of the Convertible Notes (the
“Conversion
      Shares”)
      and
      upon exercise of the Warrants (the “Warrant
      Shares”)
      to or
      upon the order of a Holder from time to time upon delivery to you of a properly
      completed and duly executed Conversion Notice or Exercise Notice, as the case
      may be, in the form attached hereto as Exhibit I
      and
Exhibit II,
      which
      has been acknowledged by the Company as indicated by the signature of a duly
      authorized officer of the Company thereon. 

     

    You
      acknowledge and agree that so long as you have previously received
      (a) written confirmation from the Company’s legal counsel that either
      (i) a registration statement covering resales of the Conversion Shares or
      the Warrant Shares has been declared effective by the Securities and Exchange
      Commission (the “SEC”)
      under
      the Securities Act of 1933, as amended (the “1933
      Act”),
      or
      (ii) sales of the Common Shares and the Warrant Shares may be made in
      conformity with Rule 144(k) under the 1933 Act (“Rule 144”),
      and
      (b) if applicable, a copy of such registration statement, then within three
      (3) business days after your receipt of a Conversion Notice or an Exercise,
      you
      shall issue the certificates representing the Conversion Shares or the Warrant
      Shares, as the case may be, and such certificates shall not bear any legend
      restricting transfer of the Conversion Shares or the Warrant Shares thereby
      and
      should not be subject to any stop-transfer restriction.

     

    A
      form of
      written confirmation (from counsel to the Company) that a registration statement
      covering resales of the Conversion Shares or the Warrant Shares, as the case
      may
      be, has been declared effective by the SEC under the 1933 Act is attached hereto
      as Exhibit III.
      

     

    Please
      be
      advised that the Holders have relied upon this instruction letter as an
      inducement to enter into the Agreement and accordingly, each Holder is a third
      party beneficiary of these instructions. Please execute this letter in the
      space
      indicated to acknowledge your agreement to act in accordance with these
      instructions. Should you have any questions concerning this matter, please
      contact me at (732) 390-1797.

     

    
      	 	 	 
	 	
              Very
                truly yours,

            
	 	 
	 	
              INTERPHARM
                HOLDINGS INC.

            
	 
 	 
 	 
 
	
            	By:  	/s/
              Kenneth Cappel
	 	
              

              Name:
                Kenneth Cappel

            
	 	
              Title:
                Executive Vice President 

            

    

    

    

    
      	
              ACKNOWLEDGED
                AND AGREED:

            
	 
	
              Continental
                Stock Transfer & Trust Company,

              17
                Battery Place,

              New
                York, NY 10004-1123

            
	 
	
              By:
                /s/ Gregory Denman

              
                

              

            
	
              Name:
                Gregory Denman

            
	
              Title:
                Vice President

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Exhibit I

     

    FORM
      OF CONVERSION NOTICE

     

    (To
      be
      executed by the registered Holder

    in
      order
      to convert a Convertible Notes)

     

    TO: INTERPHARM
      HOLDINGS INC.

     

    
      	 	
              Re:

            	
              Secured
                Convertible 12% Note due 2009 (this “Note”) issued by Interpharm Holdings,
                Inc. and Interpharm, Inc. to [______________] on or about _______
                [__],
                2008 in the original principal amount of
                $[______________]

            

    

     

    The
      undersigned hereby elects to convert the aggregate principal amount and interest
      indicated below of this Note into shares of common stock, par value $0.01 per
      share (the “Common
      Stock”),
      of
      Interpharm Holdings Inc., a Delaware corporation (the “Corporation”),
      according to the conditions hereof, as of the date written below.

     

    
      	
              Date
                of Conversion:

            	 
	
              Aggregate
                Principal Amount and Interest of Note Being Converted:

            	 
	
              Number
                of Shares of Common Stock to be Issued:

            	 
	
              Applicable
                Conversion Price:

            	 
	 	 
	
              Please
                issue the Common Stock into which this Note are being converted,
                in the
                following name and to the following address:

            
	 	 
	
              Issue
                to:

            	 
	 	 
	
              Authorization:

            	 
	 	
              By:

              
                

              

            
	 	
              Name:
                _______________________________

            
	
              Dated:

            	 
	
              Account
                Number (if electronic book entry transfer):

            	 
	
              Transaction
                Code Number (if electronic book entry transfer):

            	 

    

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    ACKNOWLEDGEMENT

     

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

     

    
      	
            	
              INTERPHARM
                HOLDINGS INC.

            
	 	 
	 	
              By:  

              
                

              

            
	 	
              Name:
                _____________________________________

               

            
	 	
              
                Title: _____________________________________ 

              

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Exhibit II

     

    FORM
      OF
      EXERCISE NOTICE

     

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

     

    To:
      INTERPHARM HOLDINGS INC.

     

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

     

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

     

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

     

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

     

    ____
      “Cash Exercise” 

     

    ____
      “Cashless Exercise” (if permitted)

     

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

     

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

     

    
      	
              Dated:
                _______________, ______

            	
              Name
                of Holder:

            
	 	 
	 	
              (Print)
                _______________________________________

            
	 	
              By: 

              
                

              

            
	 	
              Name: ______________________________________

            
	 	
              Title: _______________________________________

            

    

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    ACKNOWLEDGEMENT

     

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

     

    
      	
            	
              INTERPHARM
                HOLDINGS INC.

            
	 	 
	 	
              By:  

              
                

              

            
	 	
              Name:
                _____________________________________

            
	 	Title:
              ______________________________________
	
            
	
            
	
                

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Exhibit III

     

    [Counsel’s
      Letterhead]

     

    [Transfer
      Agent]

     

    To
      Whom
      It May Concern:

     

    We
      are
      counsel to Interpharm Holdings Inc., a Delaware corporation (the “Company”), and
      have represented the Company in connection with the Company’s recent filing of a
      Registration Statement on Form [SB-2/S-3] (File No. ______) (the “Registration
      Statement”) with the Securities and Exchange Commission (the “SEC”) relating to
      ____ shares of the Company’s common stock of the Company, par value $0.01 per
      share (the “Registrable Securities”), issued or to be issued to the selling
      stockholders (the “Selling Stockholders”) listed in the selling stockholders
      table at pages __ of the final prospectus, a copy of which is attached hereto
      as
Exhibit A.

     

    In
      connection with the foregoing, we advise you that the SEC has entered an order
      declaring the Registration Statement effective under the Securities Act of
      1933,
      as amended (the “1933 Act”), on _______ __, 200__. We have no knowledge that any
      stop order suspending its effectiveness has been issued or that any proceedings
      for that purpose are pending before, or threatened by, the SEC. 

     

    Very
      truly yours,

    

    cc: [LIST
      NAME OF HOLDERS]DEVELOPMENTAL
      AGREEMENT

    

    THIS
DEVELOPMENTAL
      AGREEMENT
is made and entered into as of this
      30th  day of July, 2007, by and between
FUEL FRONTIERS, INC., a Subsidiary Nuclear Solutions,
      Inc.
      (“FFI”) with a place of business at 1025 Connecticut Avenue NW, Suite 1000,
      Washington, DC 20036 and KENTUCKY FUEL ASSOCIATES INC.
(“KFA”), with a place of business at 13050
      Middletown Industrial Boulevard, Suite C, Louisville, Kentucky 40223 (together
      known as the “Parties”).

    

    WHEREAS,
      FFI is in the business of
      researching, developing and implementing technologies for the conversion of
      gas
      to liquid fuels and proposes to construct production facilities for the
      production of synthetic fuels;

    

    WHEREAS,
      KFA possesses certain contacts
      and knowledge that may be beneficial to FFI for the development of a coal to
      gas
      to liquid (CTL) fuels production facility in the State of Kentucky,

    

    WHEREAS,
      the parties are desirous of
      combining their respective skills and expertise and desire to enter this
      Agreement for the development of gas to liquid fuel production facilities in
      the
      State of Kentucky and throughout the United States,

    

    NOW,
      THEREFORE, in consideration of the
      mutual agreements contained herein, the parties desire to enter into this
      Developmental Agreement as follows:

    

    1. Covenants
      of KFA. KFA hereby agrees as follows:

    

    A. KFA
      shall
      utilize their knowledge, experience and contacts to locate and obtain one or
      more sites, located in the State of Kentucky and throughout the United States,
      within FFI’s specifications, suitable for the development of CTL fuel production
      facilities with annual production volumes to be determined. The duties of KFA
      shall include identifying and negotiating the acquisition of suitable land,
      feedstock and offtake agreements and other necessary instruments to reasonably
      develop CTL production facilities. 

    

    B. KFA
      shall
      utilize their knowledge, experience and contacts to consult with and assist
      FFI
      in obtaining permitting, funding, and approval for the development and operation
      of CTL fuel production facilities. Notwithstanding anything herein to the
      contrary, KFA will not, in any event, be deemed as obligated or required to
      provide any form of guarantee or bond which may be required to obtain or secure
      the referenced permitting, funding, approval, or operation of the production
      facility.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    C. KFA
      hereby
      agrees to work exclusively with FFI in locating, developing, and consulting
      on
      coal, gas, and waste to liquid fuel/alternative fuel projects and/or ventures;
      and further agrees to otherwise refrain from engaging in any activities or
      actions that either directly or indirectly competes with the
      CTL businesses of FFI. 

    

    D. KFA
      shall
      provide FFI with an initial funding of two million dollars ($2,000,000.00)
      which
      said payment shall be tendered within 21 days of the execution of this
      Agreement. If said funding is not completed within the allotted time, KFA will
      provide evidence that complete funding is reasonably expected and will indicate
      the date whereupon funding shall be completed. Said funds shall be applied
      by
      FFI towards any and all costs and expenses incurred in the ordinary course
      of
      business for the development, construction and arranging of financing to closure
      of the first KFA/FFI production facility developed, including without limitation
      the following costs: engineering, procurement, administrative, development
      management, financing, legal, operations and maintenance costs for each said
      fuel production facility. For each site located thereafter by KFA and accepted
      by FFI for development of a fuel production facility, KFA shall provide, FFI
      with initial minimum project funding of two million dollars ($2,000,000.00)
      for
      any and all costs and expenses incurred in the ordinary course of business
      for
      the development, construction and arranging of financing to closure of the
      production facility, including without limitation the following costs:
      engineering, procurement, administrative, development management, financing,
      legal, operations and maintenance costs for each said fuel production
      facility.

    

    E.
 In
      consideration for FFI granting KFA the exclusive right to locate and develop
      CTL
      fuel production facilities within the State of Kentucky, KFA hereby agrees
      to
      utilize their knowledge and experience in the development of energy production
      projects to consult with FFI on existing fuel production facility projects.
      

    

    2. Covenants
      of FFI. FFI hereby agrees as follows:

    

    A. FFI
      hereby grants KFA the exclusive right to locate and develop CTL fuel production
      projects within the State of Kentucky; and grants KFA the non-exclusive right
      to
      locate and develop CTL fuel production projects throughout the remaining states.
      KFA will also receive the right of first refusal to match any third party’s
      proposed terms for any CTL facility in the remaining states, subject to FFI
      approval, in conjunction with a review of KFA resources and
      performance.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    B. FFI
      hereby grants KFA the right to negotiate a feedstock and land acquisition
      agreement as part of an overall site development package in coordination with
      and subject to the review and approval of FFI.

    

    C.  In
      consideration for each site located by KFA pursuant to the terms of this
      Agreement, and accepted by FFI for development, FFI agrees to pay KFA (7%)
      of
      the net pre-tax income of each CTL fuel production facility identified by KFA
      and developed by FFI for the entire lifetime of each production facility, to
      be
      distributed on a quarterly basis, within 15 days of FFI and/or its parent
      company Nuclear Solutions, Inc.’s quarterly SEC filing. The computation of the
      quarterly net income shall be in accordance with GAAP accounting standards.
      FFI
      would have the right to retain up to 20% of the quarterly net pre-tax income
      for
      extraordinary expenses; of each production facility; and distributions to KFA
      would be reduced on a pro rata basis of any such retention of funds.

    

    D.  In
      consideration for KFA’s initial minimum funding contribution in section 1 (D.)
      above, FFI hereby grants KFA a two and one half percent (2.5%) equity interest
      in the first CTL facility developed by KFA.

    

    E.  FFI
      is fully responsible for leading on all project financing initiatives for the
      facility including but not limited to bridge financing, senior debt finance,
      equity, leasing and mezzanine finance.

    

    F.  In
      the event that intellectual property developed by FFI, within the scope of
      this
      agreement, specific to CTL/GTL production facilities, is sold or transferred
      to
      a third party, FFI warrants that no intellectual property or technology license
      fees and/or royalties shall be payable by KFA and/or any CTL production
      facilities, established in accordance with this agreement, to said third
      party(s). 

    

    3. Term
      and Termination. This Agreement shall be effective and binding upon
      execution by the parties and continue for a period of 10 years; and shall be
      renewable at the election of the parties for an additional 5 year
      period.

    

    Either
      party shall have the right to
      terminate this Agreement in the event that:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    A. Either
      Party
      fails to perform or comply with any material provision of this Agreement or
      breaches any material representation or warranty, and such failure continues
      for
      a period of ninety (90) days following written notice from one Party to the
      other Party of such failure;

     

    B. Either
      Party
      becomes insolvent, is declared bankrupt, voluntarily files or permits the filing
      of a petition in bankruptcy, makes an assignment for the benefit of creditors
      other than a routine assignment of profits as security for financing, or seeks
      any other similar relief under any bankruptcy laws or related
      statutes;

     

    C. Either
      Party
      engages in conduct which is deceptive, misleading or unethical, and such conduct
      continues for a period of ninety (90) days following written notice from one
      Party to the other Party regarding such conduct.

     

    Termination
      of this Agreement will not
      relieve KFA of its obligations under Section 4 of this Agreement nor will
      termination relieve FFI of the compensation due KFA pursuant to Section 2(C)
      and
      Section 2(D) of this Agreement.

     

    4. Confidential
      Information. KFA agrees that any information received by KFA during any
      furtherance of KFA's obligations in accordance with this contract, which
      concerns the business, financial or other affairs of FFI will be treated by
      KFA
      in full confidence and will not be revealed to any other persons, firms or
      organizations.

    

    A
      confidentiality/non-disclosure agreement governing the terms and conditions
      for
      the protection and disclosure of FFI’s Confidential Information shall be
      executed between Future Fuels, Inc. and KFA and is attached hereto as Appendix
      A. To the extent necessary, KFA shall enter into confidentiality/non-disclosure
      agreements with such other Entities that require KFA to disclose the
      Confidential Information of FFI in order to perform the Services required by
      KFA
      under this Agreement.

    

    5. Assignments.
      This Agreement is personal between the parties and will not be assigned
      by either party without the prior written consent of the other party (such
      consent is not to be unreasonably withheld), except that it may be assigned
      without prior written consent to the successor of either party, to a person,
      firm or corporation acquiring all, or substantially all, of the business and
      assets of either party, to the parent company of FFI, or to a wholly or
      partially owned subsidiary of FFI.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    6. Miscellaneous
      Provisions. KFA agrees that in the performance of its duties, it will,
      to the best of its knowledge, comply with all laws of the United States of
      America and of the various states of the United States, and of any country
      in
      which KFA performs Services, and of the rules and regulations issued by any
      governmental entity of such other country, except to the extent that such
      compliance is prohibited by or penalized under the laws of the United States
      of
      America, including but not limited to the Internal Revenue Code of 1986, as
      amended, and the Export Administration Act of 1969, as amended.

    

    KFA
      understands that this Agreement may be publicly disclosed and agrees that FFI
      shall be entitled to publicly disclose any or all of this Agreement under such
      circumstances and in such manner as FFI shall, in its sole discretion,
      decide.

    

    7. Indemnity.
      KFA must indemnify and save FFI harmless from and against any and all claims
      for
      injury or death to third parties, KFA’s employees or agents and/or damage to
      property of third parties, KFA and/or its employees or agents (including costs
      of litigation and attorneys' fees) in any manner caused by, arising from,
      incident to, or growing out of the Services performed under this Agreement,
      except any such claims which may be caused by the willful misconduct or gross
      negligence of FFI. FFI will notify KFA in writing of any such claims setting
      forth all known details.

    

    8. Notices.
      All notices provided for in this Agreement shall be given in writing, either
      by
      personal delivery of the notice or by the mailing postpaid to the parties
      respectively at the following addresses:

    

    
      	
              If
                to Future Fuels:

            	
              Fuel
                Frontiers, Inc.

            
	 	
              5505
                Connecticut Ave NW

            
	 	
              #191

            
	 	
              Washington,
                DC 20036

            
	 	
              Attention:
                Jack Young, President

            
	 	 
	
              If
                to KFA:

            	
              P.O.
                Box 20257

            
	 	
              Louisville,
                Kentucky 40250

            
	 	
              Attention:
                Garry Sparks, President

            

    

    

    9. Severability.
      In the event that any term or provision of this Agreement is determined to
      be
      unlawful or unenforceable, such term or provision shall be deemed severed from
      this Agreement and all remaining terms and provisions of this Agreement shall
      remain in full force and effect.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    10.  Disclosure.
      Both parties acknowledge and agree that it may be necessary for one party to
      disclose the retention of KFA, the duties performed and the compensation paid,
      should there be proper inquiry from such a source as an authorized U.S. or
      state
      government agency or should either party believe it has a legal obligation
      to
      disclose such information and each party hereby authorizes any such
      disclosures.

    

    11. Entire
      Agreement. This Agreement (including all schedules and exhibits
      thereto), constitute the entire agreement and understanding of the Parties
      hereto and thereto with respect to the subject matter hereof and thereof and
      supersedes all prior written and oral agreements and understandings with respect
      to such subject matter between the Parties.

     

    12. Amendments.
      This Agreement may not be and shall not be deemed or construed to have been
      modified, amended, rescinded, canceled or waived in whole or in part, except
      by
      written instrument signed by the parties hereto.

    

    13. Applicable
      Law. This Agreement shall be deemed to be a contract made under the
      laws of State of New York and for all purposes it, plus any related or
      supplemental documents and notices, shall be construed in accordance with and
      governed by the laws of the State of New York exclusive of its choice of law
      rules. The parties expressly agree that any and all disputes arising out of
      or
      concerning this Agreement shall be arbitrated in accordance with the rules
      and
      procedures of the American Arbitration Association.

    

    14. Relationship
      of the Parties. The rights, duties, obligations and liabilities of the
      Parties under this Agreement will be individual and not joint or collective.
      It
      is not the intention of the Parties to create, nor will this Agreement be deemed
      to create, any partnership, agency, joint venture or trust, or to authorize
      any
      Party to act as an agent, servant or employee for any other Party. Each Party
      shall remain solely responsible for the actions of its own
      employees.

    

    15. Waiver.
      No right under this Agreement may be waived by a Party, except pursuant to
      a
      writing signed by the Party against which enforcement of the waiver is sought.
      Without limitation, no failure or delay on the part of any Party in exercising
      any of its rights under this Agreement, no partial exercise by any Party of
      any
      of its rights under this Agreement, and no course of dealing among the Parties,
      will constitute a waiver of the rights of a Party.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    16. Right
      to Enter. KFA shall be permitted to enter any production facility
      developed under this agreement with the prior written consent of FFI, not to
      be
      unreasonably withheld. 

    

    17. Authority
      to Execute. Each party represents and warrants that it has the legal
      power and authority to enter into this Agreement and that it has not made and
      will not make any commitments to the other inconsistent with such.

    

    18. Counterparts.
      This Agreement may be executed by the Parties in separate counterparts, and
      by
      facsimile, each of which when so executed and delivered will be an original,
      but
      all such counterparts shall together constitute but one and the same
      instrument.

    

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

    

     

    Fuel
      Frontiers, Inc.

    
 

    
      	
              Patrick
                Herda /s/

            	
              7-30-07

            
	
              Name:

            	
              Date

            

    

    

    Title:
      CEO

    

    Kentucky
      Fuel Associates, Inc.

    
 

    
      	
              Gary
                Sparks /s/

            	
              7-30-07

            
	
              Name:

            	
              Date

            

    

    

    Title:
      President

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