Document:

EXHIBIT 4.1

                                                               CUSIP
                                 BTHC VII, INC.

              INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE

                                                               SEE REVERSE FOR
                                  COMMON STOCK               CERTAIN DEFINITIONS

                                    SPECIMEN

This
certifies
that

is the owner of

 FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $______ PAR VALUE, OF
                                 BTHC VII, INC.

(hereinafter  called  the  "Corporation"),  transferable  on  the  books  of the
Corporation by the holder hereof in person or by duly authorized attorney,  upon
surrender of the Certificate properly endorsed.  This certificate and the shares
represented hereby are issued and shall be held subject to all the provisions of
the  Articles of  Incorporation  and the Bylaws of the  Corporation,  as amended
(copies of which are on file at the  office of the  Transfer  Agent),  to all of
which  the  holder  of this  Certificate  by  acceptance  hereof  assents.  This
Certificate  is not valid unless  countersigned  and  registered by the Transfer
Agent and  Registrar.  Witness  the  facsmile  seal of the  Corporation  and the
facsimile signatures of its duly authorized officers.

DATE:

                            [CORPORATE SEAL OMITTED]

                               Countersigned:
PRESIDENT                                    SECURITIES TRANSFER CORPORATION
                                             P.O. Box 701629
                                             Dallas, TX 75370
                                          By:

SECRETARY                                    ___________________________________
                                             TRANSFER AGENT-AUTHORIZED SIGNATURESubscription Agreement

    SUBSCRIPTION
      AGREEMENT

     

    SUBSCRIPTION
      AGREEMENT (this “Agreement”)
      made
      as of the date set forth on the signature page hereof between BioSante
      Pharmaceuticals, Inc., a Delaware corporation (the “Company”)
      and
      the undersigned (the “Subscriber”).

     

    WITNESSETH:

     

    WHEREAS,
      the Company is offering in a private placement to accredited investors (the
      “Offering”)
      of a
      minimum of 3,500,000 shares of its common stock, par value $0.0001 per share
      (the “Common
      Stock”)
      and a
      maximum of 3,812,978 shares of Common Stock at a price equal to $2.00 per share
      (the “Offering
      Price”),
      and
      warrants to purchase shares of Common Stock equal to thirty five percent (35%)
      of the total number of shares sold to Subscribers in the Offering at an exercise
      price per share equal to $2.75 (the “Warrants”).
      The
      Warrants are exercisable beginning on the date that is six months and one day
      after the Closing Date and continuing for a four year and nine-month period.
      The
      shares of Common Stock and Warrants offered hereby are sometimes referred to
      as
      the “Securities;”
      and

     

    WHEREAS,
      the Subscriber desires to purchase that number of Securities set forth on the
      signature page hereof on the terms and conditions hereinafter set forth;
      and

     

    WHEREAS,
      the Company has engaged Rodman & Renshaw, LLC (the “Placement
      Agent”)
      as
      placement agent for the Offering on a “best-efforts” basis.

     

    NOW,
      THEREFORE, in consideration of the premises and the mutual representations
      and
      covenants hereinafter set forth, the parties hereto agree as
      follows:

     

    

    I.  SUBSCRIPTION
      FOR SECURITIES AND REPRESENTATIONS BY SUBSCRIBER

     

    1.1  Subject
      to the terms and conditions hereinafter set forth, the Subscriber hereby
      irrevocably subscribes for and agrees to purchase from the Company such
      Securities as is set forth upon the signature page hereof and the Company agrees
      to sell such Securities to the Subscriber for said purchase price. The purchase
      price is payable by wire transfer of immediately available funds
      contemporaneously with the execution and delivery of this Agreement by the
      Subscriber. All wires should be sent to: 

     

    Bank:
      JP
      Morgan Chase Bank, N.A.

    4
      Metro
      Tech Center

    22nd
      Floor

    Brooklyn,
      New York 11245

    

    Name
      on
      Account: Continental Stock Transfer & Trust Company A/A.F  BioSante
      Pharmaceuticals, Inc.

    

    ABA#
      021000021

    Account#:
      xxxxxxxxx

    Attn:
      Sally Omrow

     

    Certificates
      for the shares of Common Stock and the Warrants will be delivered by the Company
      to the Subscriber promptly following the Closing (as herein defined).
      Notwithstanding the foregoing, the Subscriber acknowledges that, although the
      Company intends to file on the next business day hereafter or as soon as
      practicable hereafter a listing application with the American Stock Exchange
      (“AMEX”)
      containing all information required by the rules and regulations of AMEX, final
      approval by AMEX is required in connection with the listing of the Common Stock
      to be eligible for trading on AMEX. The Company shall use its reasonable best
      efforts to cause AMEX to approve the listing application for the Securities
      as
      soon as practicable.

     

    1.2  The
      Subscriber recognizes that the purchase of Securities involves a high degree
      of
      risk in that (i) the Company remains an early stage business with a limited
      operating history and will require funds in addition to the proceeds of the
      Offering; (ii) an investment in the Company is highly speculative and only
      investors who can afford the loss of their entire investment should consider
      investing in the Company; (iii) the Subscriber may not be able to liquidate
      the
      Subscriber’s investment in the Company; (iv) transferability of the Securities
      is extremely limited; and (v) in the event of a disposition, the Subscriber
      could sustain the loss of its entire investment. 

     

    1.3  The
      Subscriber represents that the Subscriber is an “accredited investor” as such
      term is defined in Rule 501 of Regulation D promulgated under the Securities
      Act
      of 1933, as amended, (the “Act”),
      as
      indicated by the responses to the questions contained in Section VII hereof,
      and
      that the Subscriber is able to bear the economic risk and illiquidity of an
      investment in the Securities.

     

    1.4  The
      Subscriber hereby acknowledges and represents that (i) the Subscriber has prior
      investment experience, including investment in non-listed and unregistered
      securities, or that the Subscriber has employed the services of an investment
      advisor, attorney and/or accountant to read all of the documents furnished
      or
      made available by the Company both to the Subscriber and to all other
      prospective investors to evaluate the merits and risks of such an investment
      on
      the Subscriber’s behalf; (ii) the Subscriber recognizes the highly speculative
      nature of an investment in the Securities; and (iii) the Subscriber is able
      to
      bear the economic risk and illiquidity which the Subscriber assumes by investing
      in the Securities.

     

    1.5  The
      Subscriber (i) hereby represents that the Subscriber has been furnished by
      the
      Company during the course of this transaction with and has carefully read the
      Company’s SEC Filings (as hereafter defined), including without limitation the
      Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
      2005, the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
      March 31, 2006, the additional risk factors specific to the Common Stock and
      the
      Offering contained in Schedule
      1.5
      (together with the SEC Filings, the “Offering
      Documents”),
      and
      all other information regarding the Company which the Subscriber has requested
      or desired to know; (ii) has been afforded the opportunity to ask questions
      of
      and receive answers from duly authorized officers or other representatives
      of
      the Company concerning the terms and conditions of the Offering; and (iii)
      has
      received any additional information which the Subscriber has
      requested.

     

    1.6  To
      the
      extent necessary, the Subscriber has retained, at its own expense, and relied
      upon the advice of appropriate professionals regarding the investment, tax
      and
      legal merits and consequences of this Agreement and its purchase of the
      Securities hereunder.

     

    1.7  The
      Subscriber hereby acknowledges that the Offering has not been reviewed by the
      United States Securities and Exchange Commission (the “SEC”)
      because of the Company’s representations that this Offering is intended to be
      exempt from the registration requirements of Section 5 of the Act pursuant
      to
      Sections 3(b), 4(2) and/or 4(6) thereof and Regulation D promulgated under
      the
      Act. The Subscriber agrees that the Subscriber will not, directly or indirectly,
      offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers
      to
      buy, purchase or otherwise acquire or take a pledge of) any of the Securities,
      except in compliance with the Act and the rules and regulations promulgated
      thereunder.

     

    1.8  The
      Subscriber understands that none of the Securities have been registered under
      the Act by reason of a claimed exemption under the provisions of the Act which
      depends, in part, upon the Subscriber’s investment intention. In this
      connection, the Subscriber hereby represents that the Subscriber is purchasing
      the Securities for the Subscriber’s own account for investment and not with a
      view toward the resale or distribution thereof to others. The Subscriber, if
      an
      entity, was not formed for the purpose of purchasing the Securities. The
      Subscriber understands that Rule 144 promulgated under the Act requires, among
      other conditions, a one-year holding period prior to the resale (in limited
      amounts) of securities acquired in a non-public offering without having to
      satisfy the registration requirements under the Act.

     

    1.9  The
      Subscriber understands and hereby acknowledges that the Company is under no
      obligation to register the Securities under the Act or any applicable state
      securities or “blue sky” laws (collectively, “Securities
      Laws”)
      other
      than as set forth in Section V. Prior to the Legend Removal Date (as hereafter
      defined), the Subscriber consents that the Company may, if it desires, permit
      the transfer of the Securities out of the Subscriber’s name only when the
      Subscriber’s request for transfer is accompanied by an opinion of counsel
      reasonably satisfactory to the Company that neither the sale nor the proposed
      transfer results in a violation of the Act or any applicable state “blue sky”
laws. 

     

    1.10  So
      long
      as required by Section 5.13, the Subscriber consents to the placement of a
      legend on any certificate or other document evidencing the Securities indicating
      that such Securities have not been registered under the Act or any state
      securities or “blue sky” laws and setting forth or referring to the restrictions
      on transferability and sale thereof contained in this Agreement. The Subscriber
      is aware that the Company will make a notation in its appropriate records and
      issue “stop transfer” instructions to its transfer agent with respect to the
      restrictions on the transferability of such Securities.

     

    1.11  The
      Subscriber understands that the Company will review this Agreement and, if
      such
      Subscriber is an individual, hereby gives authority to the Company to call
      Subscriber’s bank or place of employment (in a call in which the Placement Agent
      participates) or otherwise review the financial standing of the Subscriber;
      and
      it is further agreed that upon their mutual agreement the Placement Agent and
      the Company reserve the unrestricted right, without further documentation or
      agreement on the part of the Subscriber, to reject or limit any subscription,
      to
      accept subscriptions for Securities and to close the Offering to the Subscriber
      at any time.

     

    1.12  The
      Subscriber hereby represents that the address of the Subscriber furnished by
      the
      Subscriber on the signature page hereof is the Subscriber’s principal residence
      if the Subscriber is an individual or its principal business address if it
      is a
      corporation or other entity.

     

    1.13  The
      Subscriber represents that the Subscriber has full power and authority
      (corporate, statutory and other-wise) to execute and deliver this Agreement
      and
      to purchase the Securities subscribed for hereby. This Agreement constitutes
      the
      legal, valid and binding obligation of the Subscriber, enforceable against
      the
      Subscriber in accordance with its terms.

     

    1.14  If
      the
      Subscriber is a corporation, partnership, limited liability company, trust,
      employee benefit plan, individual retire-ment account, Keogh Plan, or other
      entity, then (a) it is authorized and qualified to become an investor in the
      Company and the person signing this Agreement on behalf of such entity has
      been
      duly authorized by such entity to do so, and (b) it is duly organized, validly
      existing and in good standing under the laws of the jurisdiction of its
      organization.

     

    1.15  The
      Subscriber represents and warrants that it has not engaged, consented to nor
      authorized any broker, finder or intermediary to act on its behalf, directly
      or
      indirectly, as a broker, finder or intermediary in connection with the
      transactions contemplated by this Agreement. The Subscriber shall indemnify
      and
      hold harmless the Company from and against all fees, commissions or other
      payments owing to any such person or firm acting on behalf of such Subscriber
      hereunder.

     

    1.16  The
      Subscriber acknowledges that (a) the Company has engaged, consented to and
      authorized the Placement Agent in connection with the transactions contemplated
      by this Agreement, (b) the Company shall pay the Placement Agent a commission
      and reimburse the Placement Agent's expenses and the Company shall indemnify
      and
      hold harmless the Subscriber from and against all fees, commissions or other
      payments owing by the Company to the Placement Agent or any other person or
      firm
      acting on behalf of the Company hereunder, (c) registered representatives of
      the
      Placement Agent and/or its designees (including, without limitation, registered
      representatives of the Placement Agent and/or its designees who participate
      in
      the Offering and sale of the securities sold in the Offering) will be paid
      a
      portion of the commissions paid to the Placement Agent and (d) the Placement
      Agent has not independently verified any information (financial, legal or
      otherwise) and makes no representation or warranty, express or implied, as
      to,
      and assumes no responsibility for, the accuracy or completeness of the
      information contained in the Offering Documents.

     

    1.17  The
      Subscriber, whose name appears on the signature line below, shall be the
      beneficial owner of the Securities for which such Subscriber
      subscribes.

     

    1.18  The
      Subscriber understands, acknowledges and agrees with the Company as
      follows:

     

    (a)  The
      Company may terminate the Offering or reject any subscription at any time in
      its
      sole discretion. The execution of this Agreement by the Subscriber or
      solicitation of the investment contemplated hereby shall create no obligation
      on
      the part of the Company or the Placement Agent to accept any subscription or
      complete the Offering.

     

    (b)  The
      Subscriber hereby acknowledges and agrees that the subscription hereunder is
      irrevocable by the Subscriber, and that, except as required by law, the
      Subscriber is not entitled to cancel, terminate or revoke this Agreement or
      any
      agreements of the Subscriber hereunder and that if the Subscriber is an
      individual this Agreement shall survive the death or disability of the
      Subscriber and shall be binding upon and inure to the benefit of the parties
      and
      their heirs, executors, administrators, successors, legal representatives and
      permitted assigns. 

     

    (c)  No
      federal or state agency or authority has made any finding or determination
      as to
      the accuracy or adequacy of the Offering Documents or as to the fairness of
      the
      terms of the Offering nor any recommendation or endorsement of the Securities.
      Any representation to the contrary is a criminal offense. In making an
      investment decision, the Subscriber must rely on its own examination of the
      Company and the terms of the Offering, including the merits and risks
      involved.

     

    1.19  Other
      than the transaction contemplated hereunder, the Subscriber has not directly
      or
      indirectly, nor has any Person acting on behalf of or pursuant to any
      understanding with the Subscriber, executed any disposition, including “short
      sales” as defined in Rule 200 of Regulation SHO under the Exchange Act, in
      the securities of the Company during the period commencing from the time that
      the Subscriber first received a term sheet (written or oral) from the Company
      or
      any other Person setting forth the material terms of the transactions
      contemplated hereunder until the date hereof (the “Discussion Time”).
      Notwithstanding the foregoing, in the case of a Subscriber that is a
      multi-managed investment vehicle whereby separate portfolio managers manage
      separate portions of such Subscriber’s assets and the portfolio managers have no
      direct knowledge of the investment decisions made by the portfolio managers
      managing other portions of the Subscriber’s assets, the representation set forth
      above shall only apply with respect to the portion of assets managed by the
      portfolio manager that made the investment decision to purchase the Securities
      covered by this Agreement. Other than to other Persons party to this Agreement,
      the Subscriber has maintained the confidentiality of all disclosures made to
      it
      in connection with this transaction (including the existence and terms of this
      transaction).

     

    II.  REPRESENTATIONS
      BY THE COMPANY

     

    The
      Company hereby represents and warrants to the Subscriber and the Placement
      Agent
      that:

     

    2.1  Organization
      and Qualification.
      The
      Company is a corporation duly organized, validly existing and in good standing
      under the laws of the State of Delaware and has full corporate power and lawful
      authority to conduct its business as presently conducted. The Company is duly
      qualified to do business as a foreign corporation and is in good standing in
      each jurisdiction in which the nature of the business presently conducted by
      it
      or the properties owned, leased or operated by it, makes such qualification
      or
      licensing necessary and where the failure to be so qualified or licensed would
      have a material adverse effect upon the business, prospects or financial
      condition of the Company (a “Material
      Adverse Effect”).

     

    2.2  Capitalization
      and Voting Rights.
      The
      authorized capital stock of the Company is as set forth in its most recent
      SEC
      Filing (as hereafter defined), 19,160,694 shares of common stock and 391,286
      shares of class C special stock of which are issued and outstanding as of June
      29, 2006. All issued and outstanding shares of capital stock of the Company
      are
      validly issued, fully paid and nonassessable. Except as set forth in this
      Agreement or in the SEC Filings, there are no outstanding options, warrants,
      agreements, commitments, convertible securities, preemptive rights or other
      rights to subscribe for or to purchase any shares of capital stock of the
      Company nor are there any agreements, promises or commitments to issue any
      of
      the foregoing. Except as set forth in the SEC Filings, in this Agreement and
      as
      otherwise required by law, there are no restrictions upon the voting or transfer
      of the Securities pursuant to the Company's Amended and Restated Certificate
      of
      Incorporation, as amended, (the “Certificate
      of Incorporation”),
      By-laws or other governing documents or any agreement or other instruments
      to
      which the Company is a party or by which the Company is bound; provided,
      however, that the Securities will be subject to restrictions on transfer and
      Securities Laws (as hereafter defined) as provided herein. No securityholder
      has
      the right to include any securities in the Registration Statement (as
      hereinafter defined) or otherwise cause the Company to effect registration
      of
      any of the Company’s securities under the Act, except for investors in the
      Company’s prior private placements, which rights the Company has to date
      satisfied.

     

    2.3  Authorization;
      Enforceability.
      The
      Company has all corporate right, power and authority to enter into this
      Agreement and to consummate the transactions contemplated hereby. All corporate
      action on the part of the Company, its directors and stockholders necessary
      for
      the authorization, execution, delivery and performance of this Agreement by
      the
      Company, the authorization, sale, issuance and delivery of the Securities and
      the performance of the Company's obligations hereunder has been taken. This
      Agreement has been duly executed and delivered by the Company and constitutes
      a
      legal, valid and binding obligation of the Company, enforceable against the
      Company in accordance with its terms, subject to laws of general application
      relating to bankruptcy, insolvency and the relief of debtors and rules of law
      governing specific performance, injunctive relief or other equitable remedies,
      and to limitations of public policy. The Securities and the issuance of shares
      of Common Stock upon issuance of the Warrants (the “Warrant
      Shares”)
      have
      been duly and validly authorized and, upon the issuance and delivery thereof
      and
      payment therefor as contemplated by this Agreement and the terms of the
      Warrants, will be free and clear of liens (other than any liens created by
      or
      imposed on the holders thereof through no action of the Company), duly and
      validly authorized and issued, fully paid and nonassessable. The Company has
      reserved a sufficient number of shares of Common Stock for its authorized but
      unissued shares for issuance upon exercise of the Warrants. The issuance and
      sale of the Securities contemplated hereby will not give rise to any preemptive
      rights or rights of first refusal on behalf of any person.

     

    2.4  No
      Conflict; Governmental Consents.

     

    (a)  The
      execution and delivery by the Company of this Agreement, the consumma-tion
      of
      the transactions contemplated hereby and the offer and sale of the Securities
      will not result in the violation of any law, statute, rule, regulation, order,
      writ, injunction, judgment or decree of any court or governmental authority
      to
      or by which the Company is bound that would have a material adverse effect
      upon
      the business or financial condition of the Company, or of any provision of
      the
      Certificate of Incorporation or By-laws of the Company, and will not conflict
      with, or result in a breach or violation of, any of the terms or provisions
      of,
      or constitute (with due notice or lapse of time or both) a default under, any
      lease, loan agreement, mortgage, security agreement, trust indenture or other
      agreement or instrument to which the Company is a party or by which it is bound
      or to which any of its properties or assets is subject, nor result in the
      creation or imposition of any lien upon any of the properties or assets of
      the
      Company that would have a material adverse effect upon the business or financial
      condition of the Company.

     

    (b)  No
      consent, waiver, approval, authorization or other order of any governmental
      authority or other third-party is required to be obtained by the Company in
      connection with the authorization, execution and delivery of this Agreement
      or
      with the authorization, issuance and sale of the Securities, except for such
      consents, waivers, approvals, authorizations, orders or filings as may be
      required to be obtained or made, and which shall have been obtained or made
      at
      or prior to the required time and except for such consents, waivers, approvals,
      authorizations, orders or filings that would not have a Material Adverse
      Affect.

     

    2.5  Licenses.
      The
      Company has all licenses, permits and other governmental authorizations
      currently required for the conduct of its business or ownership of properties
      and is in all material respects complying therewith, except for any licenses,
      permits or other governmental authorizations which would not materially
      adversely affect the business, property, financial condition, or results of
      operations of the Company.

     

    2.6  Litigation.
      Except
      as set forth in the SEC Reports, there is no action, suit, inquiry, notice
      of
      violation, proceeding or investigation pending or, to the knowledge of the
      Company, threatened against or affecting the Company or any of its properties
      before or by any court, arbitrator, governmental or administrative agency or
      regulatory authority (federal, state, county, local or foreign) (collectively,
      an “Action”)
      which
      (i) adversely affects or challenges the legality, validity or enforceability
      of
      this Agreement or the Securities or (ii) could, if there were an unfavorable
      decision, have or reasonably be expected to result in a Material Adverse Effect.
      Except as set forth in the SEC Reports, neither the Company, 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 the Company has not received
      any notice or indication from the SEC that there is pending or contemplated
      any
      investigation by the SEC involving the Company or any current or former director
      or officer of the Company. The SEC has not issued any stop order or other order
      suspending the effectiveness of any registration statement filed by the Company
      under the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”)
      or the
      Act. 

     

    2.7  Accuracy
      of Report.
      The
      Company has filed all reports, schedules, forms, statements and other documents
      required to be filed by it under the Act and the Exchange Act, including
      pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the
      date
      hereof (the foregoing materials, including the exhibits thereto and documents
      incorporated by reference therein, being collectively referred to herein as
      the
“SEC
      Reports”)
      on a
      timely basis or has received a valid extension of such time of filing and has
      filed any such SEC Reports prior to the expiration of any such extension. As
      of
      their respective dates, the SEC Reports complied in all material respects with
      the requirements of the Act and the Exchange Act, as applicable, and the rules
      and regulations of the Commission promulgated thereunder, as applicable, and
      none of the SEC Reports, when filed, contained any untrue statement of a
      material fact or omitted to state a material fact required to be stated therein
      or necessary in order to make the statements therein, in the light of the
      circumstances under which they were made, not misleading.

     

    2.8  Investment
      Company.
      The
      Company is not and, upon completion of the Offering, will not be an “investment
      company” within the meaning of such term under the Investment Company Act of
      1940, as amended, and the rules and regulations of the SEC
      thereunder.

     

    2.9  Patents
      and Trademarks.
      The
      Company has, or has rights to use, all patents, patent applications, trademarks,
      trademark applications, service marks, trade names, trade secrets, inventions,
      copyrights, licenses and other intellectual property rights and similar rights
      necessary or material for use in connection with their respective businesses
      as
      described in the SEC Reports and which the failure to so have could have a
      Material Adverse Effect (collectively, the “Intellectual
      Property Rights”).
      Except as set forth on Schedule 2.9, the Company has not received a notice
      (written or otherwise) that the Intellectual Property Rights used by the Company
      or violates or infringes upon the rights of any Person (as hereinafter defined).
      To the knowledge of the Company, all such Intellectual Property Rights are
      enforceable and there is no existing infringement by another Person of any
      of
      the Intellectual Property Rights that could have a Material Adverse Effect.
      The
      Company has taken reasonable security measures to protect the secrecy,
      confidentiality and value of all of their intellectual properties, except where
      failure to do so could not, individually or in the aggregate, reasonably be
      expected to have a Material Adverse Effect.

     

    2.10  No
      Material Adverse Change.
      Since
      the date of the latest audited financial statements included within the SEC
      Reports, except as specifically disclosed in a subsequent SEC Report, (i) there
      has been no event, occurrence or development that has had or that could
      reasonably be expected to result in a Material Adverse Effect, (ii) the Company
      has not incurred any liabilities (contingent or otherwise) other than (A) trade
      payables and accrued expenses incurred in the ordinary course of business
      consistent with past practice and (B) liabilities not required to be reflected
      in the Company’s financial statements pursuant to GAAP or disclosed in filings
      made with the SEC, (iii) the Company has not altered its method of accounting,
      except as otherwise required pursuant to GAAP, (iv) the Company has not declared
      or made any dividend or distribution of cash or other property to its
      stockholders or purchased, redeemed or made any agreements to purchase or redeem
      any shares of its capital stock and (v) the Company has not issued any equity
      securities to any officer, director or Affiliate, except pursuant to existing
      Company stock plans. The Company does not have pending before the SEC any
      request for confidential treatment of information. Except for the issuance
      of
      the Securities contemplated by this Agreement, no event, liability or
      development has occurred or exists with respect to the Company or its
      Subsidiaries or their respective business, properties, operations or financial
      condition, that would be required to be disclosed by the Company under
      applicable securities laws at the time this representation is made that has
      not
      been publicly disclosed as of June 28, 2006.

     

    2.11  Financial
      Statements.
      The
      financial statements included in the Company's most recent Annual Report on
      Form
      10-K for the fiscal year ended December 31, 2005 and all other reports filed
      by
      the Company with the SEC pursuant to the Exchange Act since January 1, 2006
      and
      prior to the date hereof (collectively, the “SEC
      Filings”)
      present fairly and accurately in all material respects the financial position
      of
      the Company as of the dates shown and its results of operations and cash flows
      for the periods shown, and such financial statements have been prepared in
      conformity with generally accepted accounting principles (“GAAP”)
      applied on a consistent basis (except as may be indicated thereon or in the
      notes thereto and subject, in the case of unaudited financial statements, to
      normal adjustments). The Company has accounted for all option grants and other
      incentive-based stock awards in, compliance under GAAP, as in effect on the
      respective date of grant or award or as otherwise required by GAAP’s effect at
      the time of the SEC filing. Except as set forth in the financial statements
      of
      the Company included in the SEC Filings filed prior to the date hereof, to
      the
      Company's knowledge, the Company has no liabilities, contingent or otherwise,
      except those which individually or in the aggregate are not material to the
      financial condition or operating results of the Company.

     

    2.12  Compliance
      with Laws.
      Neither
      the Company nor, to the Company's knowledge, any Person (as hereafter defined)
      acting on the Company’s behalf and in accordance with the Company’s
      instructions, has conducted any general solicitation or general advertising
      (as
      those terms are used in Regulation D of the Act) in connection with the offer
      or
      sale of the Securities. Assuming the accuracy of the Subscribers’
representations and warranties set forth in Article III, no registration under
      the Act is required for the offer and sale of the Securities by the Company
      to
      the Subscribers. Neither the Company nor any of its Affiliates (as hereafter
      defined), nor, to the Company's knowledge, any Person acting on the Company’s or
      on the behalf of its Affiliates and in accordance with the Company’s
      instructions, has, directly or indirectly, made any offers or sales of any
      security of the Company or solicited any offers to buy any security of the
      Company, under circumstances that would adversely affect reliance by the Company
      on Section 4(2) of the Act for the exemption from registration for the
      transactions contemplated hereby or would require registration of the Securities
      under the Act. Except as set forth in Schedule 2.12, the Company is in
      compliance with the requirements of AMEX for continued listing of the Common
      Stock thereon and has not received any notification that, and has no knowledge
      that, the AMEX is contemplating terminating such listing nor, to the Company's
      knowledge, is there any basis therefore. The transactions contemplated by this
      Agreement will not contravene the rules and regulations of the AMEX, however,
      the approval of the AMEX will be required for the issuance and sale of the
      Shares and the Warrant Shares and the Company will use commercially reasonable
      efforts to obtain such approval. The Company intends to file on the next
      business day after the date of this Agreement or as soon as practicable
      hereafter a subsequent listing application for listing the Securities on and
      hereby represents and warrants to the Placement Agent and the Subscriber that
      it
      will take any other necessary action in accordance with the rules of the AMEX
      to
      enable the Securities to trade on the AMEX.

     

    2.13  Insurance.
      The
      Company is insured by insurers of recognized financial responsibility against
      such losses and risks and in such amounts as are prudent and customary in the
      businesses in which the Company is engaged, including, but not limited to,
      directors and officers insurance coverage in the amount of $5,000,000. The
      Company has no reason to believe that it will not be able to renew its existing
      insurance coverage as and when such coverage expires or to obtain similar
      coverage from similar insurers as may be necessary to continue its business
      without a significant increase in cost.

     

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

     

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

     

    2.16  Disclosure.
      Except
      with respect to the material terms and conditions of the transactions
      contemplated by this Agreement and the Warrants, the Company confirms that,
      neither it nor any other Person acting on its behalf has provided any of the
      Subscribers or their agents or counsel with any information that it believes
      constitutes or might constitute material, non-public information. The Company
      understands and confirms that the Subscribers will rely on the foregoing
      representation in effecting transactions in securities of the Company. All
      disclosure furnished by or on behalf of the Company to the Subscribers regarding
      the Company, its business and the transactions contemplated hereby, including
      the Offering Documents, with respect to the representations and warranties
      made
      herein are true and correct with respect to such representations and warranties
      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 Company
      acknowledges and agrees that no Subscriber makes or has made any representations
      or warranties with respect to the transactions contemplated hereby other than
      those specifically set forth in Section III hereof.

     

    2.17  Accountants.
      The
      Company’s accountants are set forth on Schedule
      2.17.
      To the
      knowledge of the Company, such accountants, who the Company expects will express
      their opinion with respect to the financial statements to be included in the
      Company’s Annual Report on Form 10-K for the year ended December 31, 2006, are a
      registered public accounting firm as required by the Act. 

     

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

     

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

     

    2.20  Form
      S-3 Eligibility.
      The
      Company is eligible to register the resale of the Common Stock sold hereunder
      and issuable upon exercise of the Warrants for resale by the Subscriber on
      Form
      S-3 promulgated under the Securities Act.

     

    III.  TERMS
      OF SUBSCRIPTION

     

    3.1  The
      Offering is for a minimum of 3,500,000 shares of Common Stock and a maximum
      of
      up to 3,812,978 shares of Common Stock and Warrants to purchase thirty five
      percent (35%) of the total number of shares of Common Stock sold to Subscribers
      in the Offering. The Securities are offered on a “best efforts” basis.

     

    3.2  Upon
      the
      mutual consent of the Company and the Placement Agent, this Offering may close
      (the “Closing”)
      on
      receipt of subscriptions to purchase 3,500,000 shares of Common Stock and
      receipt of at least $7,000,000 in an escrow account established with Continental
      Stock Transfer & Trust Company (the “Escrow
      Agent”)
      as
      payment for such subscriptions, and prior to the sale of all 3,812,978 shares
      of
      Common Stock. The Closing shall occur at the discretion of the Company and
      the
      Placement Agent following receipt for subscriptions for at least 3,500,000
      shares of Common stock and receipt by the Escrow Agent of $7,000,000 as payment
      for such subscriptions (the “Closing
      Date”).
      The
      purchase price is payable by wire transfer of immediately available funds as
      provided in Section 1.1.

     

    3.3  The
      Subscriber hereby authorizes and directs the Company to deliver the Securities
      to be issued to the Subscriber pursuant to this Agreement directly to the
      Subscriber’s account maintained by the Placement Agent or, if no such account
      exists, to the residential or business address indicated on the signature page
      hereto.

     

    3.4  The
      Subscriber hereby authorizes and directs the Company to return any funds related
      to unaccepted subscriptions to the same account from which the funds were drawn,
      including any customer account maintained with the Placement Agent.

     

    IV.  CONDITIONS
      TO OBLIGATIONS OF THE SUBSCRIBERS AND THE COMPANY

     

    4.1  The
      Subscribers’ obligation to purchase the Securities at the Closing is subject to
      the fulfillment on or prior to the Closing Date of the following conditions,
      which conditions may be waived at the option of each Subscriber to the extent
      permitted by law:

     

    (a)  Representations
      and Warranties.
      The
      representations and warranties made by the Company in Section II hereof shall
      be
      true and correct in all material respects when made, and shall be true and
      correct in all material respects on the Closing Date with the same force and
      effect as if they had been made on and as of said date. 

     

    (b)  Covenants.
      All
      covenants, agreements and conditions contained in this Agreement to be performed
      by the Company on or prior to such purchase shall have been performed or
      complied with in all material respects.

     

    (c)  No
      Legal Order Pending.
      There
      shall not then be in effect any legal or other order enjoining or restraining
      the transactions contemplated by this Agreement.

     

    (d)  No
      Law
      Prohibiting or Restricting Such Sale.
      There
      shall not be in effect any law, rule or regulation prohibiting or restricting
      such sale or requiring any consent or approval of any person to issue the
      Securities which consent or approval shall not have been obtained (except as
      may
      otherwise be provided in this Agreement).

     

    (e)  Legal
      Opinion.
      Upon
      the Closing, counsel to the Company shall have delivered to the Placement Agent
      for the benefit of the Subscribers a legal opinion with respect to such legal
      matters relating to this Agreement and the Offering as the Placement Agent
      may
      reasonably require.

     

    (f)  Minimum
      Subscriptions.
      The
      Company shall have received and accepted valid subscriptions for an aggregate
      of
      not less than 3,500,000 shares of Common Stock and the Escrow Agent shall have
      received at least $7,000,000 as payment for such subscriptions.

     

    4.2  The
      Company’s obligation to sell the Securities at the Closing is subject to the
      fulfillment on or prior to the Closing Date of the following conditions, which
      conditions may be waived at the option of the Company to the extent permitted
      by
      law:

     

    (a)  Acknowledgements,
      Representations and Warranties.
      The
      acknowledgements, representations and warranties made by the Subscriber in
      Section I hereof shall be true and correct in all respects when made, and shall
      be true and correct in all material respects on the Closing Date with the same
      force and effect as if they had been made on and as of said date; provided,
      however,
      that
      any acknowledgement, representation or warranty made by the Subscriber that
      is
      not true and correct and as a result the Subscriber is not an “accredited
      investor” under Rule 501 under Regulation D of the Act or the Company is not
      able to rely upon a private placement exemption under Rule 506 under Regulation
      D of the Act for the issuance of the Securities will automatically be deemed
      to
      be material. If any such representations, warranties or acknowledgements shall
      not be true and accurate in any respect prior to the Closing, the undersigned
      shall give immediate written notice of such fact to the Company, to the
      Placement Agent, and to his representatives, if any, specifying which
      representations, warranties or acknowledgements are not true and accurate and
      the reason therefor.

     

    (b)  Covenants.
      All
      covenants, agreements and conditions contained in this Agreement to be performed
      by the Subscriber on or prior to such purchase shall have been performed or
      complied with in all material respects.

     

    (c)  No
      Legal Order Pending.
      There
      shall not then be in effect any legal or other order enjoining or restraining
      the transactions contemplated by this Agreement.

     

    (d)  No
      Law
      Prohibiting or Restricting Such Sale.
      There
      shall not be in effect any law, rule or regulation prohibiting or restricting
      such sale or requiring any consent or approval of any person to issue the
      Securities which consent or approval shall not have been obtained (except as
      may
      otherwise be provided in this Agreement).

     

    V.  REGISTRATION
      RIGHTS.

     

    5.1  As
      used
      in this Agreement, the following terms shall have the following
      meanings:

     

    (a)  “Affiliate”
shall
      mean, with respect to any Person (as defined below), any other Person
      controlling, controlled by, or under direct or indirect common control with,
      such Person (for the purposes of this definition “control,” when used with
      respect to any specified Person, shall mean the power to direct the management
      and policies of such person, directly or indirectly, whether through ownership
      of voting securities, by contract or otherwise; and the terms “controlling” and
“controlled” shall have meanings correlative to the foregoing).

     

    (b)  “Business
      Day”
shall
      mean a day, Monday through Friday, on which banks are generally open for
      business in each of New York, New York; and Chicago, Illinois.

     

    (c)  “Holders”
shall
      mean the Subscriber and any person holding Registrable Securities as defined
      below, or any person to whom the rights under Section V have been
      transferred in accordance with Section 5.10 hereof, and who, if known by
      the Company, shall be specifically named by the Company as selling stockholders
      in the Registration Statement (as defined below).

     

    (d)  “Person”
shall
      mean any person, individual, corporation, limited liability company,
      partnership, trust or other nongovernmental entity or any governmental agency,
      court, authority or other body (whether foreign, federal, state, local or
      otherwise).

     

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

     

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

     

    (g)  The
      terms
“register,”
      “registered”
and
      “registration”
refer
      to the registration effected by preparing and filing with the SEC a registration
      statement in compliance with the Act, and the declaration or ordering by the
      SEC
      of the effectiveness of such registration statement.

     

    (h)  “Registrable
      Securities”
shall
      mean (i) the Common Stock, and (ii) the shares of Common Stock issuable upon
      exercise of the Warrants; provided, however, that securities shall only be
      treated as Registrable Securities if and only for so long as they (A) have
      not
      been disposed of pursuant to a registration statement declared effective by
      the
      SEC, (B) have not been sold in a transaction exempt from the registration and
      prospectus delivery requirements of the Act so that all transfer restrictions
      and restrictive legends with respect thereto are removed upon the consummation
      of such sale, and (C) are held by a Holder or a permitted transferee pursuant
      to
      Section 5.10; provided that any such securities shall cease to be
      Registrable Securities at such time as the Holder may sell all such securities
      of the Company then held by such Holder under Rule 144(k) under the
      Act.

     

    (i)  “Registration
      Expenses”
shall
      mean all expenses incurred by the Company in complying with Section 5.2
      hereof, including, without limitation, all registration, qualification and
      filing fees, printing expenses, escrow fees, fees and expenses of counsel for
      the Company, blue sky fees and expenses and the expense of any special audits
      incident to, or required by, any such registration (but excluding the aggregate
      fees of legal counsel for all Holders).

     

    (j)  “Registration
      Statement”
shall
      have the meaning ascribed to such term in Section 5.2 (a).

     

    (k)  “Registration
      Period”
shall
      have the meaning ascribed to such term in Section 5.4 (a).

     

    (l)  “Selling
      Expenses”
shall
      mean all underwriting discounts and selling commissions applicable to the sale
      of Registrable Securities and the aggregate fees and expenses of legal counsel
      for all Holders.

     

    5.2  (a)The
      Company shall, as soon as reasonably practicable, but not later than thirty
      (35)
      days after the Closing Date (the “Filing
      Date”),
      (i)
      use its reasonable best efforts to file with the SEC a shelf registration
      statement on Form S-3 (or if not eligible for such form, on such other form
      on
      which the Company is eligible) (the “Registration
      Statement”)
      with
      respect to the resale of the Registrable Securities for an offering to be made
      on a continuous basis pursuant to Rule 415 under the Act and cause such
      Registration Statement declared effective by the SEC within the earlier of
      (a)
      90 days from the Closing Date or (b) the tenth (10th) business day following
      the
      date on which the Company is notified by the SEC that the SEC will not be
      reviewing the Registration Statement or that the SEC has no further comment
      on
      the Registration Statement (such earlier date is referred to as the
“Effectiveness
      Date”)
      and
      (ii) cause such Registration Statement to remain effective for the Registration
      Period. The Registration Statement shall contain (unless otherwise directed
      by
      at least a majority in interest of the Holders) substantially the “Plan
      of Distribution”
      attached hereto as Annex
      A.
      The
      Company shall telephonically request effectiveness of a Registration Statement
      as of 5:00 pm Eastern Time on a trading day. The Company shall immediately
      notify the Holders via facsimile of the effectiveness of a Registration
      Statement on the same trading day that the Company telephonically confirms
      effectiveness with the SEC, which shall be the date requested for effectiveness
      of a Registration Statement. The Company shall, by 9:30 am Eastern Time on
      the
      trading day after the day the Registration Statement is declared effective
      (as
      defined in the Subscription Agreement), file a final Prospectus with the SEC
      if
      required by Rule 424. 

     

    (b) If:
      (i) a
      Registration Statement is not filed on or prior to its Filing Date (if the
      Company files a Registration Statement without affording the Holders the
      opportunity to review and comment on the same as required by Section 5.4(b)
      or
      (ii) a Registration Statement filed or required to be filed hereunder is not
      declared effective by the Commission by its Effectiveness Date, or (iii) after
      the Effectiveness Date, a Registration Statement ceases for any reason to remain
      continuously effective as to all Registrable Securities for which it is required
      to be effective as to all of the Registrable Securities for which it is required
      to be effective, or the Holders are otherwise not permitted to utilize the
      Prospectus therein to sell Registrable Securities at any time other than during
      a Permitted Black-Out Period (as defined herein) (any such failure or breach
      being referred to as an “Event”,
      and
      for purposes of clause (i) or (ii) the date on which such Event occurs, or
      for
      purposes of clause (iii) the first date on which the Holders are not permitted
      to utilize the Prospectus, being referred to as “Event
      Date”),
      then
      in addition to any other rights the Holders may have hereunder or under
      applicable law, on each such Event Date and on each monthly anniversary of
      each
      such Event Date (if the applicable Event shall not have been cured by such
      date)
      until the applicable Event is cured, the Company shall pay to each Holder an
      amount in cash, as partial liquidated damages and not as a penalty, equal to
      2%
      of the aggregate purchase price paid for the Securities held by such Holder
      pursuant to the Subscription Agreement for any Registrable Securities then
      held
      by such Holder. Notwithstanding the foregoing, the partial liquidated damages
      shall not exceed a maximum of 24% of the aggregate purchase price paid for
      the
      Securities held by such Holder pursuant to the Subscription Agreement for any
      Registrable Securities then held by such Holder. If the Company fails to pay
      any
      partial liquidated damages pursuant to this Section in full within seven days
      after the date payable, the Company will pay interest thereon at a rate of
      18%
      per annum (or such lesser maximum amount that is permitted to be paid by
      applicable law) to the Holder, accruing daily from the date such partial
      liquidated damages are due until such amounts, plus all such interest thereon,
      are paid in full. The partial liquidated damages pursuant to the terms hereof
      shall apply on a daily pro-rata basis for any portion of a month prior to the
      cure of an Event.

     

    5.3  All
      Registration Expenses incurred in connection with any registration,
      qualification, exemption or compliance pursuant to Section 5.2 shall be borne
      by
      the Company. All Selling Expenses relating to the sale of securities registered
      by or on behalf of Holders shall be borne by such Holders pro rata on the basis
      of the number of securities so registered.

     

    5.4  In
      the
      case of the registration, qualification, exemption or compliance effected by
      the
      Company pursuant to this Agreement, the Company shall, upon reasonable request,
      inform each Holder as to the status of such registration, qualification,
      exemption and compliance. At its expense the Company shall:

     

    (a)  use
      its
      reasonable best efforts to keep such registration, and any qualification,
      exemption or compliance under state securities laws which the Holders reasonably
      request the Company to obtain, continuously effective as to all Registrable
      Securities until the earlier of: (i) the Holders having completed the
      distribution of the Registrable Securities described in the Registration
      Statement relating thereto; or (ii) with respect to any Holder, such time as
      all
      Registrable Securities then held by such Holder may be sold in compliance with
      Rule 144(k) under the Act. The period of time during which the Company is
      required hereunder to keep the Registration Statement effective is referred
      to
      herein as the “Registration
      Period”;
      

     

    (b)  The
      Company shall deliver a draft of the Registration Statement or any amendment
      or
      supplement thereto, which changes as modifies any information regarding a
      Holder, a Holder’s beneficial ownership of the Company’s securities or any
      information under the caption “Plan of Distribution” to the Holders at least
      five (5) business days prior to filing such Registration Statement, amendment
      or
      supplement. Notify the Holders of Registrable Securities to be sold (which
      notice shall, pursuant to clauses (iii) through (vi) hereof, be accompanied
      by
      an instruction to suspend the use of the Prospectus until the requisite changes
      have been made) as promptly as reasonably possible (and, in the case of (i)(A)
      below, not less than one trading day prior to such filing) and (if requested
      by
      any such Person) confirm such notice in writing no later than one trading day
      following the day (i)(A) when a Prospectus or any Prospectus supplement or
      post-effective amendment to a Registration Statement is proposed to be filed;
      and (B) with respect to a Registration Statement or any post-effective
      amendment, when the same has become effective; (ii) of any request by the SEC
      or
      any other Federal or state governmental authority for amendments or supplements
      to a Registration Statement or Prospectus; (iii) of the issuance by the SEC
      or
      any other federal or state governmental authority of any stop order suspending
      the effectiveness of a Registration Statement covering any or all of the
      Registrable Securities or the initiation of any Proceedings for that purpose;
      (iv) of the receipt by the Company of any notification with respect to the
      suspension of the qualification or exemption from qualification of any of the
      Registrable Securities for sale in any jurisdiction, or the initiation or
      threatening of any Proceeding for such purpose; (v) of the occurrence of any
      event or passage of time that makes the financial statements included in a
      Registration Statement ineligible for inclusion therein or any statement made
      in
      a Registration Statement or Prospectus or any document incorporated or deemed
      to
      be incorporated therein by reference untrue in any material respect or that
      requires any revisions to a Registration Statement, Prospectus or other
      documents so that, in the case of a Registration Statement or the Prospectus,
      as
      the case may be, it will not contain any untrue statement of a material fact
      or
      omit to state any material fact required to be stated therein or necessary
      to
      make the statements therein, in light of the circumstances under which they
      were
      made, not misleading; and (vi) the occurrence or existence of any pending
      corporate development with respect to the Company that the Company believes
      may
      be material and that, in the determination of the Company, makes it not in
      the
      best interest of the Company to allow continued availability of a Registration
      Statement or Prospectus; provided that any and all of such information shall
      remain confidential to each Holder until such information otherwise becomes
      public, unless disclosure by a Holder is required by law; provided,
      further,
      notwithstanding each Holder’s agreement to keep such information confidential,
      the Holders make no acknowledgement that any such information is material,
      non-public information;

     

    (c)  Use
      its
      reasonable best efforts to obtain the withdrawal of (i) any order suspending
      the
      effectiveness of a Registration Statement, or (ii) any suspension of the
      qualification (or exemption from qualification) of any of the Registrable
      Securities for sale in any jurisdiction, at the earliest reasonably practicable
      moment;

     

    (d)  furnish
      to each Holder, without charge, at least one copy of such Registration Statement
      and any post-effective amendment or supplement thereto, including financial
      statements and schedules, and, if the Holder so requests in writing, all
      exhibits (excluding those incorporated by reference) in the form filed with
      the
      SEC;

     

    (e)  during
      the Registration Period, deliver to each Holder, without charge, a reasonable
      number of copies of the prospectus included in such Registration Statement
      and
      any amendment or supplement thereto as such Holder may reasonably request;
      and
      the Company consents to the use, consistent with the provisions hereof, of
      the
      prospectus and any amendment or supplement thereto by each of the selling
      Holders of Registrable Securities in connection with the offering and sale
      of
      the Registrable Securities covered by the prospectus and any amendment or
      supplement thereto;

     

    (f)  during
      the Registration Period, deliver to each Holder, without charge, upon request,
      (i) a copy of the full Registration Statement (excluding exhibits); (ii) all
      exhibits excluded by the parenthetical to the immediately preceding clause
      (i);
      and (iii) such other documents as may be reasonably requested by the
      Holder;

     

    (g)  prior
      to
      any public offering of Registrable Securities pursuant to the Registration
      Statement, register or qualify or obtain an exemption for the offer and sale
      under the securities or blue sky laws of such jurisdictions as any such Holders
      reasonably request in writing, provided that the Company shall not for any
      such
      purpose be required to qualify generally to transact business as a foreign
      corporation in any jurisdiction where it is not so qualified or to consent
      to
      general service of process in any such jurisdiction, and do any and all other
      acts or things reasonably necessary or advisable to enable the offer and sale
      in
      such jurisdictions of the Registrable Securities covered by the Registration
      Statement.

     

    (h)  cooperate
      with the Holders to facilitate the timely preparation and delivery of
      certificates representing Registrable Securities to be sold pursuant to the
      Registration Statement, free of any restrictive legends to the extent not
      required at such time as determined by the Company after consultation with
      legal
      counsel and in such denominations and registered in such names as Holders may
      request;

     

    (i)  upon
      the
      occurrence of any event contemplated by Section 5.4(b)(v) above, the Company
      shall promptly prepare a post-effective amendment to the Registration Statement
      or a supplement to the related prospectus, or file any other required document
      so that, as thereafter delivered to purchasers of the Registrable Securities
      included therein, the prospectus will not include any untrue statement of a
      material fact or omit to state any material fact necessary to make the
      statements therein, in the light of the circumstances under which they were
      made, not misleading; 

     

    (j)  use
      its
      reasonable best efforts to comply in all material respects with all applicable
      rules and regulations of the SEC, and make generally available to the Holders
      not later than 45 days (or 90 days if the fiscal quarter is the fourth fiscal
      quarter) after the end of its fiscal quarter in which the first anniversary
      date
      of the effective date of the Registration Statement occurs, an earnings
      statement satisfying the provisions of Section 11(a) of the Act;
      and

     

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

     

    5.5  The
      Holders shall have no right to take any action to restrain, enjoin or otherwise
      delay any registration pursuant to Section 5.2 hereof as a result of any
      controversy that may arise with respect to the interpretation or implementation
      of this Agreement.

     

    5.6  (a)To
      the
      extent permitted by law, the Company shall indemnify each Holder, each
      underwriter of the Registrable Securities and each person controlling such
      Holder and each such underwriter within the meaning of Section 15 of the Act,
      with respect to which any registration, qualification or compliance has been
      sought pursuant to this Agreement, against all claims, losses, expenses, costs,
      damages and liabilities (or action in respect thereof), including any of the
      foregoing incurred in settlement of any litigation, commenced or threatened
      (subject to Section 5.6(c) below), arising out of or based on (i) any untrue
      statement (or alleged untrue statement) of a material fact contained in any
      registration statement, prospectus or offering circular, or any amendment or
      supplement thereof, incident to any such registration, qualification or
      compliance, or based on any omission (or alleged omission) to state therein
      a
      material fact required to be stated therein or necessary to make the statements
      therein not misleading in light of the circumstances in which they were made,
      or
      (ii) any violation or alleged violation by the Company of the Act, the Exchange
      Act, or any rule or regulation promulgated under the Act or the Exchange Act,
      and shall reimburse each Holder, each underwriter of the Registrable Securities
      and each person controlling such Holder and each such underwriter, for
      reasonable legal and other expenses, in connection with investigating or
      defending any such claim, loss, damage, liability or action as and when
      incurred; provided that the Company shall not be liable in any such case to
      the
      extent that any untrue statement or omission thereof is made in reliance upon
      and in conformity with written information furnished to the Company by or on
      behalf of such Holder or underwriter and stated to be specifically for use
      in
      preparation of such registration statement, prospectus or offering circular;
      provided that the Company shall not be liable in any such case where the claim,
      loss, damage or liability arises out of or is related to the failure of the
      Holder to comply with the covenants and agreements contained in Section 5.7
      hereof, and except that the foregoing indemnity agreement is subject to the
      condition that, insofar as it relates to any such untrue statement or alleged
      untrue statement or omission made in the preliminary prospectus but eliminated
      or remedied in the amended prospectus on file with the SEC at the time the
      registration statement becomes effective or in the amended prospectus filed
      with
      the SEC pursuant to Rule 424(b) of the Act or in the prospectus subject to
      completion under Rule 434 of the Act, which together meet the requirements
      of
      Section 10(a) of the Act (the “Final
      Prospectus”),
      such
      indemnity agreement shall not inure to the benefit of any such Holder, any
      such
      underwriter or any such controlling person, with respect to any Losses relating
      to a sale made after the date of the final Prospectus if, and only if, (x)
      the
      Company complied with Section 5.4(b)
      and (y)
      if a copy of the Final Prospectus furnished by the Company to the Holder for
      delivery was not furnished to the person or entity asserting the loss,
      liability, claim or damage at or prior to the time such furnishing is required
      by the Act and the Final Prospectus would have cured the defect giving rise
      to
      such loss, liability, claim or damage. Notwithstanding any provision herein
      to
      the contrary, the Company shall reimburse each Holder, upon such Holder's
      demand, for all reasonably necessary expenses and costs which are incurred,
      as
      and when incurred, by such Holder as a result of the indemnification claims
      described in this Section 5.6(a). Such demand may be made from time to time
      prior to resolution of the claim. In no event shall the Company be liable for
      the expenses and costs of more than one counsel on behalf of the Holders unless
      in the reasonable judgment of a Holder, based upon written advice of its
      counsel, a conflict of interest exists between the Holders with respect to
      such
      claims, in which case the Company shall reimburse the Holders for additional
      attorneys. 

     

    (b)  Each
      Holder will severally, if Registrable Securities held by such Holder are
      included in the securities as to which such registration, qualification or
      compliance is being effected, indemnify the Company, each of its directors
      and
      officers, each underwriter of the Registrable Securities and each person who
      controls the Company and each underwriter of the Registrable Securities within
      the meaning of Section 15 of the Act, against all claims, losses, expenses,
      costs, damages and liabilities (or actions in respect thereof), including any
      of
      the foregoing incurred in settlement of any litigation, commenced or threatened
      (subject to Section 5.6(c) below), arising out of or based on any untrue
      statement of a material fact contained in any registration statement, prospectus
      or offering circular, or any amendment or supplement thereof, incident to any
      such registration, qualification or compliance or based on any omission to
      state
      therein a material fact required to be stated therein or necessary to make
      the
      statements therein not misleading in light of the circumstances in which they
      were made, and will reimburse the Company, such directors and officers, each
      underwriter of the Registrable Securities and each person controlling the
      Company and each underwriter of the Registrable Securities for reasonable legal
      and any other expenses or costs reasonably incurred in connection with
      investigating or defending any such claim, loss, damage, liability or action
      as
      incurred, in each case to the extent, but only to the extent, that such untrue
      statement or omission thereof is made in reliance upon, and in conformity with,
      written information furnished to the Company by or on behalf of the Holder
      and
      stated to be specifically for use in preparation of such registration statement,
      prospectus or offering circular; provided that the indemnity shall not apply
      to
      the extent that such claim, loss, damage or liability results from the fact
      that
      a current copy of the prospectus was not made available to the Holder and such
      current copy of the prospectus would have cured the defect giving rise to such
      loss, claim, expense, costs, damage or liability. Notwithstanding the foregoing,
      in no event shall a Holder be liable for any such claims, losses, expenses,
      costs, damages or liabilities in excess of the proceeds received by such Holder
      in that offering, except in the event of fraud by such Holder.

     

    (c)  Each
      party entitled to indemnification under this Section 5.6 (the “Indemnified
      Party”)
      shall
      give notice to the party required to provide indemnification (the “Indemnifying
      Party”)
      promptly after such Indemnified Party has actual knowledge of any claim as
      to
      which indemnity may be sought, and shall permit the Indemnifying Party to assume
      the defense of any such claim or any litigation resulting therefrom, provided
      that counsel for the Indemnifying Party, who shall conduct the defense of such
      claim or litigation, shall be approved by the Indemnified Party (whose approval
      shall not unreasonably be withheld), and the Indemnified Party may participate
      in such defense with its own counsel at such Indemnified Party’s expense unless
      the named parties to any proceeding covered hereby (including any impleaded
      parties) include both the Company or any others the Company may designate and
      one or more Indemnified Persons, and representation of the Indemnified Persons
      and such other parties by the same counsel would be inappropriate due to actual
      or potential differing interests between them, and provided further that the
      failure of any Indemnified Party to give notice as provided herein shall not
      relieve the Indemnifying Party of its obligations under this Agreement, except
      to the extent such failure is materially prejudicial to the Indemnifying Party
      in defending such claim or litigation. An Indemnifying Party shall not be liable
      for any settlement of an action or claim effected without its written consent
      (which consent will not be unreasonably withheld).

     

    (d)  If
      the
      indemnification provided for in this Section 5.6 is held by a court of competent
      jurisdiction to be unavailable to an Indemnified Party with respect to any
      loss,
      liability, claim, damage, cost or expense referred to therein, then the
      Indemnifying Party, in lieu of indemnifying such Indemnified Party thereunder,
      shall contribute to the amount paid or payable by such Indemnified Party as
      a
      result of such loss, liability, claim, damage, cost or expense in such
      proportion as is appropriate to reflect the relative fault of the Indemnifying
      Party on the one hand and of the Indemnified Party on the other in connection
      with the statements or omissions which resulted in such loss, liability, claim,
      damage, cost or expense as well as any other relevant equitable considerations.
      The relative fault of the Indemnifying Party and of the Indemnified Party shall
      be determined by reference to, among other things, whether the untrue or alleged
      untrue statement of a material fact or the omission to state a material fact
      relates to information supplied or which should have been supplied by the
      Indemnifying Party or by the Indemnified Party and the parties’ relative intent,
      knowledge, access to information and opportunity to correct or prevent such
      statement or omission. The amount paid or payable by a party as a result of
      any
      Losses shall be deemed to include, subject to the limitations set forth in
      this
      Agreement, any reasonable attorneys’ or other fees or expenses incurred by such
      party in connection with any Proceeding to the extent such party would have
      been
      indemnified for such fees or expenses if the indemnification provided for in
      this Section was available to such party in accordance with its terms.

     

    The
      parties hereto agree that it would not be just and equitable if contribution
      pursuant to this Section 5.6(d) were determined by pro rata allocation or by
      any
      other method of allocation that does not take into account the equitable
      considerations referred to in the immediately preceding paragraph.
      Notwithstanding the provisions of this Section 5.6(d), no Holder shall be
      required to contribute, in the aggregate, any amount in excess of the amount
      by
      which the net proceeds actually received by such Holder from the sale of the
      Registrable Securities subject to the Proceeding exceeds the amount of any
      damages that such Holder has otherwise been required to pay by reason of such
      untrue statement or omission, except in the case of fraud or willful misconduct
      by such Holder.

     

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

     

    5.7  (a)Subject
      to the limitations set forth in Section 5.7(b) below, upon receipt of any notice
      from the Company of the happening of any event requiring the preparation of
      a
      supplement or amendment to a prospectus relating to Registrable Securities
      so
      that, as thereafter delivered to the Holders, such prospectus will not contain
      an untrue statement of a material fact or omit to state any material fact
      required to be stated therein or necessary to make the statements therein not
      misleading, each Holder shall forthwith discontinue disposition of Registrable
      Securities pursuant to the registration statement contemplated by Section 5.2
      until its receipt of copies of the supplemented or amended prospectus from
      the
      Company and, if so directed by the Company, each Holder shall deliver to the
      Company all copies, other than permanent file copies then in such Holder’s
      possession, of the prospectus covering such Registrable Securities current
      at
      the time of receipt of such notice.

     

    (b)  Any
      Holder of the Company’s outstanding Common Stock shall suspend, upon request of
      the Company, any disposition of Registrable Securities pursuant to the
      Registration Statement and prospectus contemplated by Section 5.2 during
      any period, not to exceed two 30-day periods within any 12-month period (each,
      a
“Permitted
      Black-Out Period”),
      when
      the Company determines in good faith that offers and sales pursuant thereto
      should not be made by reason of the presence of material undisclosed
      circumstances or developments with respect to which the disclosure that would
      be
      required in such a prospectus is premature because it would have an adverse
      effect on the Company. The period of time in which the disposition of
      Registrable Securities pursuant to the Registration Statement and prospectus
      is
      so suspended shall be referred to as a “Black-Out
      Period.”
The
      Company agrees to so advise the Holders promptly of the commencement and
      termination of any such Black-Out Period, and the Holders agree to keep the
      fact
      of such Black-Out Period confidential.

     

    (c)  As
      a
      condition to the inclusion of its Registrable Securities, each Holder shall
      furnish to the Company such information regarding the securities of the Company
      owned beneficially or of record by such Holder and the distribution proposed
      by
      such Holder as the Company may request in writing because it is required in
      connection with any registration, qualification or compliance referred to in
      this Section V. Any sale of any Registrable Securities by any Holder shall
      constitute a representation and warranty by such Holder that the required
      information relating to such Holder’s beneficial ownership of the Company’s
      securities and its plan of distribution is as set forth in the prospectus
      delivered by such Holder in connection with such disposition, that such
      prospectus does not as of the time of such sale contain any untrue statement
      of
      a material fact relating to such Holder or its plan of distribution and that
      such prospectus does not as of the time of such sale omit to state any material
      fact relating to such Holder’s beneficial ownership of the Company’s securities
      or its plan of distribution necessary to make the statements in such prospectus,
      in the light of the circumstances under which they were made, not
      misleading.

     

    (d)  With
      respect to any sale of Registrable Securities pursuant to a Registration
      Statement filed pursuant to this Section V, each Holder hereby covenants with
      the Company not to make any sale of the Registrable Securities without
      effectively causing the prospectus delivery requirements under the Act to be
      satisfied.

     

    (e)  Each
      Holder acknowledges and agrees that the Registrable Securities sold pursuant
      to
      the Registration Statement described in this Section are not transferable on
      the
      books of the Company unless the stock certificate submitted to the transfer
      agent evidencing such Registrable Securities is accompanied by a certificate
      reasonably satisfactory to the Company to the effect that (i) the
      Registrable Securities have been sold in accordance with such Registration
      Statement and (ii) the requirement of delivering a current prospectus has
      been satisfied.

     

    (f)  Each
      Holder shall not take any action with respect to any distribution deemed to
      be
      made pursuant to such registration statement, which would constitute a violation
      of Regulation M under the Exchange Act or any other applicable rule, regulation
      or law.

     

    (g)  At
      the
      end of the Registration Period, the Holders of Registrable Securities included
      in the Registration Statement shall discontinue sales of shares pursuant to
      such
      Registration Statement upon receipt of notice from the Company of its intention
      to remove from registration the shares covered by such Registration Statement
      which remain unsold.

     

    5.8  With
      a
      view to making available to the Holders the benefits of certain rules and
      regulations of the SEC which at any time permit the sale of the Registrable
      Securities to the public without registration, the Company shall use its
      reasonable best efforts:

     

    (a)  to
      make
      and keep public information available, as those terms are understood and defined
      in Rule 144 under the Act, at all times;

     

    (b)  to
      file
      with the SEC in a timely manner all reports and other documents required of
      the
      Company under the Exchange Act; and 

     

    (c)  so
      long
      as a Holder owns any Registrable Securities, to furnish to such Holder upon
      any
      reasonable request a written statement by the Company as to its compliance
      with
      Rule 144 under the Act, and of the Exchange Act, and a copy of the most
      recent annual or quarterly report of the Company, and such other reports and
      documents of the Company as such Holder may reasonably request in availing
      itself of any rule or regulation of the SEC allowing a Holder to sell any such
      securities without registration.

     

    5.9  With
      the
      written consent of the Company and the Holders holding a majority of the
      Registrable Securities that are then outstanding, any provision of this Section
      V may be waived (either generally or in a particular instance, either
      retroactively or prospectively and either for a specified period of time or
      indefinitely) or amended. Upon the effectuation of each such waiver or
      amendment, the Company shall promptly give written notice thereof to the
      Holders, if any, who have not previously received notice thereof or consented
      thereto in writing.

     

    5.10  The
      rights and obligations of the Holders under this Section V may not be assigned
      or transferred to or assumed by any transferee or assignee except (i) to a
      transferee that acquires at least 20% of such Holder's Registrable Securities
      or
      (ii) to an Affiliate or limited or general partner of a Holder; provided that
      such transfer was not in violation of this Agreement or the Securities Laws;
      and
      provided, further, that any person to whom the rights under this Section V
      have
      been transferred in accordance with this Section 5.10 has assumed the
      obligations of a Holder hereunder and a copy of such written assignment and
      assumption is provided to the Company.

     

    5.11  No
      Piggyback on Registrations.
      Neither
      the Company nor any of its security holders (other than the Holders in such
      capacity pursuant hereto) may include securities of the Company in the
      Registration Statement other than the Registrable Securities. The Company shall
      not file any other registration statements until the Registration Statement
      is
      filed by the Company with the SEC or permit any other registration statement
      filed by the Company to be declared effective until the Registration Statement
      is declared effective by the SEC, provided that this Section 5.11 shall not
      prohibit the Company from filing amendments to registration statements already
      filed or registration statements on Form S-8 or S-4 (or their then
      equivalent).

     

    5.12  Piggy-Back
      Registrations.
      If at
      any time during the Registration Period there is not an effective Registration
      Statement covering all of the Registrable Securities and the Company shall
      determine to prepare and file with the SEC a registration statement relating
      to
      an offering for its own account or the account of others under the Act of any
      of
      its equity securities, other than on Form S-4 or Form S-8 (each as promulgated
      under the Act) or their then equivalents relating to equity securities to be
      issued solely in connection with any acquisition of any entity or business
      or
      equity securities issuable in connection with the stock option or other employee
      benefit plans, then the Company shall send to each Holder a written notice
      of
      such determination and, if within fifteen (15) days after the date of such
      notice, any such Holder shall so request in writing, the Company shall include
      in such registration statement all or any part of such Registrable Securities
      such Holder requests to be registered.

     

    5.13  Legend
      Removal.

     

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

     

    (b)  Certificates
      evidencing the Shares and Warrant Shares shall not contain any legend (including
      the legends referred to in Section 1.16), (i) following any sale of such Shares
      or Warrant Shares pursuant to Rule 144, or (ii) if such Shares or Warrant Shares
      are eligible for sale under Rule 144(k), or (iii) if such legend is not required
      under applicable requirements of the Act (including judicial interpretations
      and
      pronouncements issued by the staff of the Commission). The Company shall cause
      its counsel to issue a legal opinion to the Company’s transfer agent promptly
      after such time as the legend is no longer required pursuant to this Section
      if
      required by the Company’s transfer agent to effect the removal of the legend
      hereunder. The Company agrees that following such time as such legend is no
      longer required under this Section 4.1(b), it will, no later than three trading
      days following the delivery by a Subscriber to the Company or the Company’s
      transfer agent of a certificate representing Shares or Warrant Shares, as the
      case may be, issued with a restrictive legend (such third Trading Day, the
      “Legend
      Removal Date”),
      deliver or cause to be delivered to such Subscriber a certificate representing
      such shares that is free from all restrictive and other legends. The Company
      may
      not make any notation on its records or give instructions to any transfer agent
      of the Company that enlarge the restrictions on transfer set forth in this
      Section. Certificates for Securities subject to legend removal hereunder shall
      be transmitted by the transfer agent of the Company to the Subscribers by
      crediting the account of the Subscriber’s prime broker with the Depository Trust
      Company System.

     

    VI.  MISCELLANEOUS

     

    6.1  From
      the
      date hereof until 45 days after the date the Registration Statement is declared
      effective, except as otherwise provided below, the Company shall not issue
      shares of Common Stock or any options, warrants, rights or other securities
      convertible into or exchangeable for Common Stock. The restriction on issuance
      by the Company of securities under this Section shall not apply to: (i) the
      issuance of any shares of Common Stock upon the exercise of any options or
      warrants outstanding as of the Closing Date; (ii) the issuance of any shares
      of
      Common Stock upon the conversion of any shares of class C special stock of
      the
      Company; (iii) the grant of any options with an exercise price no less than
      the
      closing sale price of the Common Stock on the date of grant pursuant to the
      Company’s Amended and Restated 1998 Stock Plan; (iv) any rights offering of
      securities, including rights to purchase Common Stock, by the Company to all
      of
      its stockholders; or (v) the issuance of any shares of Common Stock or other
      equity securities to Paladin Labs as described in Schedule 2.2 to this
      Agreement.

     

    6.2  From
      the
      date hereof until the one year anniversary of the Closing Date, the Company
      shall be prohibited from effecting or entering into an agreement to effect
      any
      subsequent financing involving a “Variable Rate Transaction”. The term
“Variable
      Rate Transaction”
shall
      mean a transaction in which the Company issues or sells (i) any debt or equity
      securities that are convertible into, exchangeable or exercisable for, or
      include the right to receive additional shares of Common Stock either (A) at
      a
      conversion, exercise or exchange rate or other price that is based upon and/or
      varies with the trading prices of or quotations for the shares of Common Stock
      at any time after the initial issuance of such debt or equity securities, or
      (B)
      with a conversion, exercise or exchange price that is subject to being reset
      at
      some future date after the initial issuance of such debt or equity security
      or
      upon the occurrence of specified or contingent events directly or indirectly
      related to the business of the Company or the market for the Common Stock or
      (ii) enters into any agreement, including, but not limited to, an equity line
      of
      credit, whereby the Company may sell securities at a future determined price.
      Any Subscriber shall be entitled to obtain injunctive relief against the Company
      to preclude any such issuance, which remedy shall be in addition to any right
      to
      collect damages.

     

    6.3  Any
      notice or other communication given hereunder shall be deemed sufficient in
      writing and sent by (a) telecopy or facsimile at the address or number
      designated below (if delivered on a business day during normal business hours
      where such notice is to be received); or (b) registered or certified mail,
      return receipt requested, or delivered by hand against written receipt therefor,
      addressed to BioSante Pharmaceuticals, Inc., 111 Barclay Boulevard,
      Lincolnshire, Illinois 60069, Facsimile: (847) 478-9260, Attention: Stephen
      M.
      Simes, President and Chief Executive Officer. Notices shall be deemed to have
      been given or delivered on the date of mailing, except notices of change of
      address, which shall be deemed to have been given or delivered when
      received.

     

    6.4  Except
      as
      set forth in Section 5.9 and except with respect to Sections 6.1 and 6.2 (which
      Sections may be amended with the written consent of the Company and the Holders
      holding at least 66 2/3% of the Registrable Securities that are then
      outstanding), this Agreement shall not be changed, modified or amended except
      by
      a writing signed by the parties to be charged, and this Agreement may not be
      discharged except by performance in accordance with its terms or by a writing
      signed by the party to be charged.

     

    6.5  Upon
      the
      execution and delivery of this Agreement by the Subscriber, this Agreement
      shall
      become a binding obligation of the Subscriber with respect to the purchase
      of
      Securities as herein provided, subject to acceptance by the Company and the
      Placement Agent; subject, however, to the right hereby reserved to the Company
      to enter into the same agreements with other subscribers and to add and/or
      delete other persons as subscribers.

     

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

     

    6.7  Notwithstanding
      the place where this Agreement may be executed by any of the parties hereto,
      the
      parties expressly agree that all the terms and provisions hereof shall be
      construed in accordance with and governed by the laws of the State of Delaware
      without regard to principles of conflicts of law.

     

    6.8  The
      holding of any provision of this Agreement to be invalid or unenforceable by
      a
      court of competent jurisdiction shall not affect any other provision of this
      Agreement, which shall remain in full force and effect. If any provision of
      this
      Agreement shall be declared by a court of competent jurisdiction to be invalid,
      illegal or incapable of being enforced in whole or in part, such provision
      shall
      be interpreted so as to remain enforceable to the maximum extent permissible
      consistent with applicable law and the remaining conditions and provisions
      or
      portions thereof shall nevertheless remain in full force and effect and
      enforceable to the extent they are valid, legal and enforceable, and no
      provisions shall be deemed dependent upon any other covenant or provision unless
      so expressed herein.

     

    6.9  It
      is
      agreed that a waiver by either party of a breach of any provision of this
      Agreement shall not operate, or be construed, as a waiver of any subsequent
      breach by that same party.

     

    6.10  The
      parties agree to execute and deliver all such further documents, agreements
      and
      instruments and take such other and further action as may be necessary or
      appropriate to carry out the purposes and intent of this Agreement.

     

    6.11  This
      Agreement may be executed in two or more counterparts each of which shall be
      deemed an original, but all of which shall together constitute one and the
      same
      instrument.

     

    6.12  The
      Subscriber agrees not to issue any public statement with respect to the
      Subscriber’s investment or proposed investment in the Company or the terms of
      any agreement or covenant between them and the Company without the Company’s
      prior written consent, except such disclosures as may be required under
      applicable law or under any applicable order, rule or regulation.

     

    6.13  Nothing
      in this Agreement shall create or be deemed to create any rights in any person
      or entity not a party to this Agreement, except for the Placement Agent and
      the
      holders of Registrable Securities.

     

    6.14  Any
      pronoun herein shall include all genders and/or the plural or singular as
      appropriate from the context. 

     

    
      	
              SIGNATURE
                PAGE

               

            	 	
              Date
                Signed: July 7 , 2006

               

            
	
              Number
                of shares:

               

            	 	 
	
              Multiplied
                by Offering Price per share:

               

            	
              x

               

            	
              $____                                 
                

               

            
	
              Equals
                subscription amount:

               

            	
              =

               

            	 

    

    

    Warrants
      (multiply
      the number of shares by 35%):  _______________

     

    “INVESTOR”
      (Name
      in which securities should be issued)

     

    By:
      
      
        

      

    

     

    Print
      Name: 
      
        

      
     

    Title:

    
      

    

     

     

      
        

      
 Address     

    

     

      
        

      

    

    City,
      State and Zip Code  

    

     

      
        

      

    

    Telephone-Business   

    

     

      
        

      

    

    Facsimile-Business    

    

    
      
        

      

    

    Tax
      ID #
      or Social Security #    

    

    

    *The
      attached Certificate of Signatory must also be completed. 

    
      
        

      

    

    

    This
      Subscription Agreement is agreed to and accepted as of July 7,
      2006.

    

    

    BIOSANTE
      PHARMACEUTICALS, INC.

    

    By:
      

    

    ____________________________________ 

    Name:

    Title:
      

    

    
      
        
          

           

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
          

          

        

      

    

    CERTIFICATE
      OF SIGNATORY

    

    (To
      be
      completed if Securities are being subscribed for by an entity)

    

    

    I,______________________________,
      am the____________________________ 

     

    

    of
      _____________________________________________ (the “Entity”).

    

    I
      certify
      that I am empowered and duly authorized by the Entity to execute and carry
      out
      the terms of the Subscription Agreement and to purchase and hold the Securities,
      and certify further that the Subscription Agreement has been duly and validly
      executed on behalf of the Entity and constitutes a legal and binding obligation
      of the Entity.

     

    IN
      WITNESS WHEREOF, I have set my hand this7th day of July, 2006.

    

    

    _______________________________________ 

    (Signature)

    

    
      
        
          --

           

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
          

          

        

      

    

    ANNEX
      A

    

    Plan
      of Distribution

     

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

     

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

            

    

     

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

            

    

     

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

            

    

     

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

            

    

     

    
      	·  	
              privately
                negotiated transactions;

            

    

     

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

            

    

     

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

            

    

     

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

            

    

     

    
      	·  	
              a
                combination of any such methods of sale;
                or

            

    

     

    
      	·  	
              any
                other method permitted pursuant to applicable
                law.

            

    

     

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

     

    Broker-dealers
      engaged by the Selling Stockholders may arrange for other brokers-dealers to
      participate in sales. Broker-dealers may receive commissions or discounts from
      the Selling Stockholders (or, if any broker-dealer acts as agent for the
      purchaser of shares, from the purchaser) in amounts to be negotiated, but,
      except as set forth in a supplement to this Prospectus, in the case of an agency
      transaction not in excess of a customary brokerage commission in compliance
      with
      NASDR Rule 2440; and in the case of a principal transaction a markup or markdown
      in compliance with NASDR IM-2440. 

     

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

     

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

     

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

     

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

     

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

     

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

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