Document:

STOCK
      PURCHASE AGREEMENT

     

    DATED
      AS OF MARCH 15, 2005 BETWEEN

     

    CLEVELAND
      BIOLABS, INC.

     

    AND

     

    THE
      PURCHASERS PARTY HERETO

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    TABLE
      OF CONTENTS

    
      
        	 	 	Page
	 	 	 
	
                Section
                  1.

              	
                Authorization
                  and Closing

              	
                1

              
	
                1A.

              	
                Authorization
                  of the Series A Preferred Stock

              	
                1

              
	
                1B.

              	
                Purchase
                  and Sale of the Series A Preferred Stock

              	
                1

              
	
                1C.

              	
                The
                  Closings

              	
                1

              
	
                1D.

              	
                Termination

              	
                1

              
	 	 	 
	
                Section
                  2.

              	
                Conditions
                  of each Purchaser’s Obligation

              	
                2

              
	
                2A.

              	
                Certificate
                  of Designation and Certificate of Incorporation

              	
                2

              
	
                2B.

              	
                Representations
                  and Warranties; Covenants

              	
                2

              
	
                2C.

              	
                Qualifications

              	
                2

              
	
                2D.

              	
                Rights
                  Agreement

              	
                2

              
	
                2E.

              	
                Opinion
                  of the Company’s Counsel

              	
                3

              
	
                2F.

              	
                Secretary’s
                  Certificate

              	
                3

              
	
                2G.

              	
                Reservation
                  of Common Stock

              	
                3

              
	
                2H.

              	
                No
                  Material Adverse Change

              	
                3

              
	
                2I.

              	
                Minimum
                  Investment

              	
                3

              
	
                2J.

              	
                Stock
                  Split

              	
                3

              
	
                2K.

              	
                No
                  Litigation

              	
                3

              
	
                2L.

              	
                Convertible
                  Debt

              	
                3

              
	
                2M.

              	
                IP
                  Comfort Letter

              	
                4

              
	
                2N.

              	
                Stockholder
                  Waiver

              	
                4

              
	
                2O.

              	
                CCF
                  Development Plan

              	
                4

              
	
                2P.

              	
                Other
                  Documents

              	
                4

              
	 	 	 
	
                Section
                  3.

              	
                Conditions
                  of the Company’s Obligation

              	
                4

              
	
                3A.

              	
                Release
                  of Escrow

              	
                4

              
	
                3B.

              	
                Minimum
                  Investment

              	
                4

              
	
                3C.

              	
                Delivery
                  of Documents

              	
                4

              
	 	 	 
	
                Section
                  4.

              	
                Covenants

              	
                4

              
	
                4A.

              	
                Affirmative
                  Covenants

              	
                4

              
	
                4B.

              	
                Current
                  Public Information

              	
                5

              
	
                4C.

              	
                Public
                  Disclosures

              	
                6

              
	
                4D.

              	
                Information
                  and Inspection Rights

              	
                6

              
	
                4E.

              	
                Blue
                  Sky Filings

              	
                7

              
	
                4F.

              	
                Use
                  of Proceeds

              	
                7

              
	
                4G.

              	
                Integration

              	
                7

              
	
                4H.

              	
                Reservation
                  of Shares

              	
                7

              
	
                4I.

              	
                Trading
                  Market

              	
                8

              
	
                4J.

              	
                Conduct
                  of Business by the Company

              	
                8

              
	
                4K.

              	
                Notification

              	
                10

              
	
                4L.

              	
                Reasonable
                  Efforts

              	
                10

              

      

       

       

      
        
          
          

        

        
          i

          
            

          

        

        
          
          

        

      

       

      
        	
                4M.

              	
                Additional
                  Covenants

              	
                10

              
	
                4N.

              	
                Transfer
                  Agent

              	
                11

              
	
                4O.

              	
                Insurance

              	
                11

              
	 	 	 
	
                Section
                  5.

              	
                Representations
                  and Warranties of the Company

              	
                11

              
	
                5A.

              	
                Organization,
                  Corporate Power and Licenses

              	
                11

              
	
                5B.

              	
                Capital
                  Stock and Related Matters

              	
                11

              
	
                5C.

              	
                Validity
                  of Shares; Exemption from Registration

              	
                12

              
	
                5D.

              	
                Authorization:
                  No Breach or Violation

              	
                12

              
	
                5E.

              	
                Financial
                  Statements

              	
                13

              
	
                5F.

              	
                Absence
                  of Undisclosed Liabilities

              	
                13

              
	
                5G.

              	
                No
                  Material Adverse Change

              	
                14

              
	
                5H.

              	
                Contracts
                  and Commitments

              	
                14

              
	
                5I.

              	
                Litigation,
                  etc

              	
                14

              
	
                5J.

              	
                Brokerage

              	
                15

              
	
                5K.

              	
                Governmental
                  Consent, etc

              	
                15

              
	
                5L.

              	
                Employees
                  Employee Matters

              	
                15

              
	
                5M.

              	
                Compliance
                  with Laws and Constituent Documents

              	
                16

              
	
                5N.

              	
                Affiliated
                  Transactions

              	
                16

              
	
                5O.

              	
                Disclosure

              	
                16

              
	
                5P.

              	
                Patents,
                  Copyrights, Trademarks

              	
                16

              
	
                5Q.

              	
                No
                  Other Registration Rights

              	
                18

              
	
                5R.

              	
                Title
                  to Property and Assets

              	
                18

              
	
                5S.

              	
                Taxes

              	
                18

              
	
                5T.

              	
                Solvency:
                  Going Concern

              	
                19

              
	
                5U.

              	
                Investment
                  Company

              	
                19

              
	
                5V.

              	
                Application
                  of Takeover Protections

              	
                19

              
	
                5W.

              	
                Private
                  Placement

              	
                19

              
	
                5X.

              	
                Foreign
                  Corrupt Practice

              	
                20

              
	 	 	 
	
                Section
                  6.

              	
                Representations
                  and Warranties of the Purchasers

              	
                20

              
	
                6A.

              	
                Authorization

              	
                20

              
	
                6B.

              	
                Investment
                  Purpose

              	
                20

              
	
                6C.

              	
                Accredited
                  Investor Status

              	
                20

              
	
                6D.

              	
                Foreign
                  Investors

              	
                20

              
	
                6E.

              	
                Reliance
                  on Exemptions

              	
                21

              
	
                6F.

              	
                Information

              	
                21

              
	
                6G.

              	
                No
                  Governmental Review

              	
                21

              
	
                6H.

              	
                Transfer
                  or Resale

              	
                21

              
	
                6I.

              	
                No
                  Public Market

              	
                21

              
	
                6J.

              	
                Legends

              	
                21

              
	
                6K.

              	
                Investment
                  Experience

              	
                22

              
	 	 	 
	
                Section
                  7.

              	
                Definitions

              	
                22

              
	 	 	 
	
                Section
                  8.

              	
                Miscellaneous

              	
                26

              
	
                8A.

              	
                Expenses

              	
                26

              
	
                8B.

              	
                Remedies

              	
                26

              

      

       

       

      
        
          
          

        

        
          ii

          
            

          

        

        
          
          

        

      

       

      
        	
                8C.

              	
                Consent
                  to Amendments

              	
                26

              
	
                8D.

              	
                Survival
                  of Representations and Warranties

              	
                26

              
	
                8E.

              	
                Successors
                  and Assigns

              	
                27

              
	
                8F.

              	
                Severability

              	
                27

              
	
                8G.

              	
                Counterparts

              	
                27

              
	
                8H.

              	
                Descriptive
                  Headings Interpretation

              	
                27

              
	
                8I.

              	
                Generally
                  Accepted Accounting Principles

              	
                27

              
	
                8J.

              	
                Governing
                  Law Jurisdiction

              	
                28

              
	
                8K.

              	
                Notices

              	
                28

              
	
                8L.

              	
                No
                  Strict Construction

              	
                29

              
	
                8M.

              	
                Indemnification

              	
                29

              
	
                8N.

              	
                Understanding
                  Among the Purchasers

              	
                30

              
	
                8O.

              	
                Entire
                  Agreement

              	
                30

              
	
                8P.

              	
                Notice
                  Rescission and Withdrawal Right

              	
                30

              
	
                8Q.

              	
                Replacement
                  of Securities

              	
                30

              
	
                8R.

              	
                Payment
                  Set Aside

              	
                31

              
	
                8S.

              	
                Adjustments
                  in Share Numbers and Prices

              	
                31

              
	
                8T.

              	
                Further
                  Assurances

              	
                31

              
	
                8U.

              	
                Reliance

              	
                31

              

      

    

     

     

    
      
        
        

      

      
        iii

        
          

        

      

      
        
        

      

    

     

    
      CLEVELAND
        BIOLABS, INC.

       

      STOCK
        PURCHASE AGREEMENT

       

      THIS
        STOCK PURCHASE AGREEMENT (this “Agreement”)
        is
        made as of March 15, 2005 between Cleveland BioLabs, Inc., a Delaware
        corporation (the “Company”),
        and
        those purchasers signatory hereto (collectively, the “Purchasers”
and
        each individually, a “Purchaser”).
        Except as otherwise indicated herein, capitalized terms used herein are defined
        in Section
        7
        hereof.

       

      The
        parties hereto agree as follows:

       

      Section
        1.  Authorization
        and Closing.

       

      1A.  Authorization
        of the Series A Preferred Stock.
        The
        Company shall authorize the issuance and sale to the Purchasers of an aggregate
        minimum of 2,500,000 and an aggregate maximum of 3,000,000 shares of its
        Series
        A Participating Convertible Preferred Stock, par value $.005 per share (the
        “Series
        A Preferred Stock”)
        having
        the rights and preferences set forth in the Certificate of Designation of
        Series
        A Participating Convertible Preferred Stock attached as Exhibit
        A
        hereto
        (the “Certificate
        of Designation”),
        The
        Series A Preferred Stock is convertible into shares of the Company’s Common
        Stock, par value $0.005 per share (“Common
        Stock”)

       

      1B.  Purchase
        and Sale of the Series A Preferred Stock.
        On each
        Funding Date (as defined in Section
        1C
        below),
        the Company shall sell to those Purchasers participating in such Funding
        Date,
        and subject to the terms and conditions set forth herein, such Purchasers
        shall
        purchase from the Company, the number of shares of the Series A Preferred
        Stock
        set forth on such Purchaser’s counterpart signature page hereto, at a purchase
        price of $2.00 per share, for an aggregate maximum purchase price payable
        by all
        Purchasers collectively of up to $6,000,000, payable in accordance with
Section
        1C.

       

      1C.  The
        Closings.
        One or
        more closings of the purchases and sales of the Series A Preferred Stock
        to the
        Purchasers (each such closing, a “Closing”)
        shall
        take place at the offices of Katten Muchin Zavis Rosenman, 525 West Monroe
        Street, Chicago, IL 60661 (or remotely via the exchange of executed documents
        and other closing deliverables), on such date or dates as may agreed to by
        the
        Company and the Placement Agent in accordance with the Escrow Agreement (which
        date or dates are each designated as a “Funding
        Date”).
        On
        each Funding Date, the Company shall simultaneously sell to each Purchaser
        participating thereat, and deliver stock certificates evidencing all of the
        shares of the Series A Preferred Stock to be purchased by such Purchaser
        hereunder, registered in such Purchaser’s name, upon payment of the amount
        reflected on such Purchaser’s counterpart signature page as such Purchaser’s
        aggregate purchase price therefore.

       

      1D.  Termination.
        This
        Agreement may be terminated with respect to a Purchaser at any time prior
        to the
        consummation of the Closing for such Purchaser under the following described
        circumstances:

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (i)  upon
        the
        mutual written consent of the Company and such Purchaser; or

       

      (ii)  by
        either
        of the Company or such Purchaser if the Closing for such Purchaser shall
        not
        have been consummated on or before the Termination Date, provided that the
        right
        to terminate this Agreement under this subsection
        1D(b)
        shall
        not be available to any party whose willful failure to fulfill any material
        obligation under this Agreement has been the cause of, or resulted in, the
        failure of such Closing to occur on or before such date.

       

      If
        the
        Agreement is terminated with respect to any Purchaser pursuant to Section
        1D,
        the
        funds held in Escrow with respect to such Purchaser shall be released and
        delivered to the applicable Purchaser.

       

      Section
        2.  Conditions
        of each Purchaser’s Obligation.
        With
        respect to each Funding Date, the obligation of each Purchaser participating
        thereat to purchase and pay for the Series A Preferred Stock is subject to
        the
        satisfaction or waiver by such Purchaser, at or prior to such Funding Date,
        of
        the following conditions:

       

      2A.  Certificate
        of Designation and Certificate of Incorporation.
        The
        Company shall deliver to the Placement Agent, for the benefit of such Purchaser,
        evidence that its Certificate of Incorporation, as amended to include the
        provisions set forth in the Certificate of Designation (the “Amended
        Certificate”)
        has
        been filed with the Secretary of State of Delaware and is in full force and
        effect under the laws of the State of Delaware as of the applicable Funding
        Date.

       

      2B.  Representations
        and
        Warranties; Covenants.
        The
        representations and warranties contained in Section 5 hereof shall be true
        and
        correct at and as of the applicable Funding Date as though then made, except
        to
        the extent of changes caused by the transactions expressly contemplated herein,
        and the Company shall have performed in all material respects all of the
        covenants required to be performed by it hereunder prior to the applicable
        Funding Date. The Company shall have delivered to the Placement Agent, for
        the
        benefit of such Purchaser, a certificate, duly executed by a senior executive
        officer of the Company, attesting to the satisfaction of the
        foregoing.

       

      2C.  Qualifications.
        All
        filings with or notices to, and all authorizations, approvals or permits
        of, any
        governmental authority or regulatory body of the United States or of any
        State
        that are required in connection with the lawful issuance and sale of the
        Series
        A Preferred Stock pursuant to this Agreement, including, without limitation,
        any
        necessary filings or approvals under “blue sky” laws, shall have been obtained
        and shall be effective as of the applicable Funding Date.

       

      2D.  Rights
        Agreement.
        The
        Company and each person or entity who or which holds Common Stock of the
        Company
        as of the applicable Funding Date (other than other Purchasers, the Placement
        Agent or Affiliates of the Placement Agent) shall have executed and delivered
        to
        the Placement Agent, for the benefit of the Purchaser, a rights agreement
        in
        form and substance as set forth in Exhibit
        B
        attached
        hereto (as may be amended, restated and supplemented from time to time in
        accordance with its terms, the “Rights
        Agreement”)
        and
        the Rights Agreement shall be in full force and effect as of the applicable
        Funding Date.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      2E.  Opinion
        of the Company’s Counsel.
        Katten
        Muchin Zavis Rosenman, counsel for the Company, shall deliver to the Placement
        Agent, for the benefit of the Placement Agent and such Purchaser, an opinion,
        in
        form and substance as set forth in Exhibit
        C
        attached
        hereto.

       

      2F.  Secretary’s
        Certificate.
        The
        Placement Agent shall have received, for the benefit of such Purchaser, from
        the
        Company’s Secretary a certificate having attached thereto: (i) the Amended
        Certificate as in effect at the applicable Funding Date, (ii) the Bylaws
        as in
        effect at the applicable Funding Date, (iii) resolutions approved by the
        Board
        of Directors of the Company (the “Board”)
        authorizing the transactions contemplated hereby, (iv) resolutions approved
        by
        the Company’s stockholders authorizing the filing of the Amended Certificate,
        and (v) a good standing certificate with respect to the Company from the
        State
        of Delaware and each other state in which the Company does business or holds
        assets or property, dated as of a recent date before the applicable Funding
        Date.

       

      2G.  Reservation
        of Common Stock.
        The
        Common Stock issuable upon conversion of the Series A Preferred Stock shall
        have
        been duly authorized and reserved for issuance upon such
        conversion.

       

      2H.  No
        Material Adverse Change.
        From
        the date of this Agreement to the applicable Funding Date, there shall have
        been
        no material adverse change in the business, operations or financial condition
        of
        the Company.

       

      2I.  Minimum
        Investment.
        The
        aggregate purchase price paid, or to be paid, collectively by the Purchasers
        signatory to this Agreement shall be at least $5,000,000.

       

      2J.  Stock
        Split.
        On or
        prior to the initial Funding Date, the Company shall have effected a 596
        for 1
        stock split, effected in the form of a dividend (the “Stock
        Split”).

       

      2K.  No
        Litigation.
        No
        suit, action or other proceeding, or injunction, order, decree or judgment
        relating thereto, shall be threatened or shall be pending in which it is
        sought
        to restrain or prohibit or to obtain damages or other relief in connection
        with
        the transactions contemplated by this Agreement or the other Transaction
        Documents that would reasonably be expected to have a material adverse effect
        on
        the Company, its business, properties, assets, results of operation, prospects,
        condition (financial or otherwise) or liabilities (a “Material
        Adverse Effect”)
        and no
        injunction, judgment, order, decree or ruling with respect thereto shall
        be in
        effect.

       

      2L.  Convertible
        Debt.
        As of
        the initial Funding Date, (a) the Convertible Debt shall be cancelled, (b)
        such
        cancellation of indebtedness shall be accepted by the Company as payment
        of the
        purchase price for shares of Series A Preferred Stock at $2.00 per share,
        (c)
        the Company shall be released and forever discharged from all of its obligations
        pursuant to the Convertible Debt, and (d) the Company shall have delivered
        to
        the Placement Agent, for the benefit of such Purchaser, satisfactory evidence
        of
        the foregoing.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      2M.  IP
        Comfort Letter.
        Howrey,
        Simon, Arnold & White, LLP, counsel to the Company for Intellectual Property
        matters, shall deliver to the Placement Agent, for the benefit of the Placement
        Agent and such Purchaser, a letter, in form and substance as set forth in
        Exhibit
        D
        attached
        hereto.

       

      2N.  Stockholder
        Waiver.
        Each
        person or entity who or which holds Common Stock of the Company as of the
        applicable Funding Date (other than other Purchasers, the Placement Agent
        or
        Affiliates of the Placement Agent) shall have waived any and all breaches,
        violations, conflicts, defaults and events of default, any and all notice
        requirements and any and all preemptive rights, antidilution rights, adjustment
        rights and rights for issuance of additional securities caused by, arising
        out
        of, or resulting from the Company’s execution, delivery and performance of this
        Agreement and the other Transaction Documents, and satisfactory evidence
        of such
        waiver shall have been delivered to the Placement Agent, for the benefit
        of such
        Purchaser.

       

      2O.  CCF
        Development Plan.
        The
        Placement Agent shall have received, for the benefit of such Purchaser,
        satisfactory evidence of the agreement between the Company and The Cleveland
        Clinic Foundation (“CCF”)
        regarding the extension of time allotted to prepare and submit a “development
        plan” as required by that certain Exclusive License Agreement, dated July 1,
        2004, between the Company and CCF.

       

      2P.  Other
        Documents.
        All
        other documents, instruments and writings reasonably required by the Placement
        Agent or such Purchaser in connection with the transactions contemplated
        hereby
        shall have been delivered to the Placement Agent, for the benefit of such
        Purchaser.

       

      Section
        3.  Conditions
        of the Company’s Obligation.
        With
        respect to each Funding Date, the obligation of the Company to issue and
        sell
        the shares of Series A Preferred Stock to each Purchaser participating thereat
        is subject to the satisfaction or waiver by the Company, at or prior to such
        Funding Date, of the following conditions:

       

      3A.  Release
        of Escrow.
        On such
        Funding Date, the purchase price payable by such Purchaser participating
        in such
        Funding Date shall be released from Escrow and delivered to the
        Company.

       

      3B.  Minimum
        Investment.
        The
        aggregate purchase price paid, or to be paid, collectively by the Purchasers
        signatory to this Agreement shall be at least $5,000,000.

       

      3C.  Delivery
        of Documents.
        Each
        Purchaser shall have executed and delivered to the Company, a Purchaser
        Questionnaire, attached hereto in the form of Exhibit
        E,
        this
        Agreement, the Rights Agreement and the other documents required to be delivered
        by the Purchasers as set forth in the PPM.

       

      Section
        4.  Covenants. 

       

      4A.  Affirmative
        Covenants.
        The
        Company shall:

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      (i)  within
        one business day following each Funding Date, deliver or cause to be delivered
        to each Purchaser participating in such Funding Date, one or more stock
        certificates evidencing the shares of Series A Preferred Stock purchased
        by such
        Purchaser at such Funding Date;

       

      (ii)  at
        all
        times cause to be done all things necessary to maintain, preserve and renew
        its
        corporate existence and all material licenses, authorizations and permits
        necessary to the conduct of its businesses;

       

      (iii)  pay
        and
        discharge when payable all Taxes and all other material assessments and
        governmental charges imposed upon its properties or upon the income or profits
        therefrom (in each case before the same becomes delinquent and before penalties
        accrue thereon) and all material claims for labor, materials or supplies
        which
        if unpaid would by law become an Encumbrance upon any of its property, unless
        and to the extent that the same are being contested in good faith and by
        appropriate proceedings and adequate reserves (as determined in accordance
        with
        GAAP) have been established on its books with respect thereto;

       

      (iv)  promptly
        pay, or cause to be paid, when due, in conformance with customary trade terms,
        all other material indebtedness incident to the operations of the
        Company;

       

      (v)  comply
        in
        all material respects with all applicable laws, rules and regulations of
        all
        governmental authorities;

       

      (vi)  apply
        for
        and continue in force with good and responsible insurance companies adequate
        insurance covering risks of such types and in such amounts as are customary
        for
        corporations of similar size engaged in similar lines of business;

       

      (vii)  maintain
        proper books of record and account which present fairly in all material respects
        its financial condition and results of operations and make provisions on
        its
        financial statements for all such proper reserves as in each case are required
        in accordance with GAAP;

       

      (viii)  enter
        into and maintain nondisclosure and nonsolicitation agreements with all of
        its
        key employees;

       

      (ix)  duly
        observe and comply with the Amended Certificate and Bylaws of the Company;
        and

       

      (x)  use
        reasonable best efforts to facilitate the transfer or surrender of stock
        in the
        Company, and to replace certificates of stock if lost or damaged.

       

      4B.  Current
        Public Information.
        At all
        times after the Company has filed a registration statement with the Securities
        and Exchange Commission pursuant to the requirements of either the Securities
        Act or the Securities Exchange Act, or following a Triggering Event, the
        Company
        shall use reasonable best efforts to file all reports required to be filed
        by it
        under the Securities Act and the Securities Exchange Act and the rules and
        regulations adopted by the Securities and Exchange Commission thereunder
        and
        shall take such further action as any holder or holders of Underlying Common
        Stock may reasonably request, all to the extent required to enable such holders
        to sell Underlying Common Stock pursuant to an effective registration statement
        and/or Rule 144 adopted by the Securities and Exchange Commission under the
        Securities Act (as such rule may be amended from time to time) or any similar
        rule or regulation hereafter adopted by the Securities and Exchange Commission.
        Upon request, the Company shall deliver to any holder of Series A Preferred
        Stock or Underlying Common Stock a written statement as to whether it has
        complied with such requirements.

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      4C.  Public
        Disclosures.
        Except
        in connection with a registration statement filed pursuant to, and to the
        limited extent permitted by, the Rights Agreement, the Company shall not
        disclose any Purchaser’s (or any of its Affiliate’s) name or identity as an
        investor in the Company in any press release or other public announcement
        or in
        any document or material filed with any governmental entity, without the
        prior
        written consent of such Purchaser, unless such disclosure is required by
        applicable law or governmental regulations or by order of a court of competent
        jurisdiction, in which case prior to making such disclosure the Company shall
        give written notice to such Purchaser, describing in reasonable detail the
        proposed content of such disclosure and shall permit such Purchaser to review
        and comment upon the form and substance of such disclosure.

       

      4D.  Information
        and Inspection Rights.
        

       

      (i)  Following
        the initial Funding Date, the Company will (a) maintain a standard system
        of
        accounting, established and administered in accordance with GAAP, (b) prepare
        all of its financial statements in accordance with GAAP, except that interim
        financial statements may lack footnotes normally contained therein and will
        be
        subject to normal year-end audit adjustments, and (c) furnish to each Purchaser
        and each such Purchaser’s successors, assigns and transferees if and for so long
        as such person or entity holds shares of Series A Preferred Stock and/or
        Underlying Common Stock:

       

      
        	(a)  	
                within
                  90 days alter the end of each fiscal year of the Company, an audited
                  balance sheet of the Company as of the end of such fiscal year
                  and the
                  related audited statements of income, stockholders’ equity and cash flows
                  for the fiscal year then ended, prepared in accordance with GAAP
                  and
                  certified by a firm of independent public accountants selected
                  by the
                  Board;

              

      

       

      
        	(b)  	
                within
                  45 days alter the end of each fiscal quarter of the Company, an
                  unaudited
                  balance sheet of the Company as of the end of such fiscal quarter
                  and the
                  related unaudited statements of income, and cash flows for the
                  fiscal
                  quarter then ended, prepared in accordance with GAAP and certified
                  by the
                  Chief Financial Officer of the
                  Company;

              

      

       

      
        	(c)  	
                promptly,
                  following its receipt, delivery or other notice thereof, as the
                  case may
                  be (A) copies of pleadings or other written notice of any claim
                  or
                  litigation, pending or threatened, by or against the Company, (B)
                  notice
                  of any breach of or default under any material contract or commitment
                  of
                  the Company’s, or (C) the occurrence of an event which may reasonably be
                  expected to cause a Material Adverse
                  Effect;

              

      

       

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      
        	(d)  	
                with
                  reasonable promptness, such other notices, information and data
                  (A) as the
                  Company delivers to the holders of its Common Stock, or (B) as
                  the
                  Company’s Board in its reasonable good faith judgment, deems material to
                  its business or operations; and

              

      

       

      
        	(e)  	
                any
                  other information reasonably requested by any such
                  holder.

              

      

       

      (ii)  The
        Company will permit any holder of Series A Preferred Stock and/or Underlying
        Common Stock, its employees, counsel and other authorized representatives,
        to
        visit and inspect any of the properties of the Company, including their
        respective books of account and other records (and make copies thereof and
        take
        extracts therefrom), and to discuss the Company’s affairs, finances and accounts
        with the Company’s officers, key employees and independent public accountants,
        all at such reasonable times during normal business hours and as often as
        such
        Person may reasonably request, upon reasonable prior notice to the
        Company.

       

      (iii)  The
        rights of holders of Series A Preferred Stock and/or Underlying Common Stock
        set
        forth in Sections 4D(a) and (b) above shall be suspended during any period
        that
        the Company is subject to and in compliance with the reporting requirements
        of
        Section 13(a) or 15(d) of the Securities Exchange Act.

       

      4E.  Blue
        Sky Filings.
        The
        Company shall file all applicable federal and state securities laws filings
        required in connection with the sale of the Series A Preferred Stock to the
        Purchasers pursuant to this Agreement.

       

      4F.  Use
        of
        Proceeds.
        The
        Company shall use the net proceeds from the sale of the shares of Series
        A
        Preferred Stock hereunder as set forth in the PPM.

       

      4G.  Integration.
        The
        Company shall not, and shall use reasonable best efforts to ensure that no
        Affiliate of the Company shall sell, offer for sale or solicit offers to
        buy or
        otherwise negotiate in respect of any security of the Company that would
        be
        integrated with the offer or sale of the Series A Preferred Stock in a manner
        that would require the registration under the Securities Act of the sale
        of the
        Series A Preferred Stock to the Purchasers pursuant to this
        Agreement.

       

      4H.  Reservation
        of Shares.
        The
        Company shall maintain a reserve from its duly authorized shares of Common
        Stock
        for issuance pursuant to the Transaction Documents in such amount as may
        be
        required to fulfill its obligations in full under the Transaction Documents.
        In
        the event that at any time the then authorized shares of Common Stock are
        insufficient for the Company to satisfy its obligations in full under the
        Transaction Documents, the Company shall promptly take such actions as may
        be
        required to increase the number of authorized shares.

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      4I.  Trading
        Market.
        As soon
        as practicable following a Triggering Event, the Company shall use reasonable
        best efforts to apply to have the Common Stock (including, without limitation,
        the Common Underlying Common Stock) listed upon the American Stock Exchange
        or
        included for quotation on the Nasdaq National Stock Market.

       

      4J.  Conduct
        of Business by the Company.
        The
        Company covenants and agrees that, between the date hereof and the Termination
        Date, or if later, the Final Funding Date, if any, except as expressly required
        or permitted by this Agreement or the other Transaction Documents or as
        disclosed in the PPM, the Company shall not conduct any business or take
        any
        action other than in the ordinary course of its business (as described in
        the
        PPM) or in connection with the maintenance and preservation of its corporate
        existence or the compliance with applicable laws (including federal and state
        securities laws) unless a Majority of the Purchasers shall otherwise agree
        by
        written consent or by telephonic conference call. By way of amplification
        and
        not limitation, except as expressly required or permitted by this Agreement
        or
        the other Transaction Documents, or as disclosed in the PPM, the Company
        shall
        not, between the date hereof and the Termination Date, or if later, the Final
        Funding Date, if any, directly or indirectly do, or propose to do, any of
        the
        following without the prior written consent of a Majority of the
        Purchasers:

       

      (i)  amend
        or
        otherwise change the Certificate of Incorporation or By-laws or alter through
        merger, liquidation, reorganization, restructuring or in any other fashion
        the
        corporate structure or ownership of the Company;

       

      (ii)  issue,
        sell, transfer, pledge, dispose of or encumber, or authorize the issuance,
        sale,
        transfer, pledge, disposition or encumbrance of, any shares of capital stock
        of
        any class, or any options, warrants, convertible securities or other rights
        of
        any kind to acquire any shares of capital stock, or any other ownership interest
        of the Company; or sell, transfer, pledge, dispose of or encumber, or authorize
        the sale, transfer, pledge, disposition or encumbrance of any assets of the
        Company other than in the ordinary course of business (as described in the
        PPM)
        or redeem, purchase or otherwise acquire, directly or indirectly, any of
        the
        capital stock of the Company;

       

      (iii)  declare,
        set aside or pay any dividend or other distribution (whether in cash, stock
        or
        other securities or property or any combination thereof) in respect of any
        of
        its capital stock or other equity interests, split, combine or reclassify
        any of
        its capital stock or other securities or issue or authorize or propose the
        issuance of any other securities in respect of, in lieu of or in substitution
        for shares of its capital stock or amend the terms of, repurchase, redeem
        or
        otherwise acquire any of its securities, or propose to do any of the
        foregoing;

       

      (iv)  sell,
        transfer, lease, license, sublicense, mortgage, pledge, dispose of, encumber,
        grant or otherwise dispose of any material properties or assets other than
        in
        the ordinary course of business (as described in the PPM), or amend or modify
        in
        any way any existing agreements with respect to any material properties or
        assets other than in the ordinary course of business;

       

      (v)  purchase,
        acquire (by merger, consolidation, acquisition of stock or other securities
        or
        assets or otherwise), lease, license, sublicense or otherwise obtain any
        interest in any properties or assets other than in the ordinary course of
        business and consistent with past practice; incur any indebtedness for borrowed
        money or issue any debt securities or assume, guarantee or endorse or otherwise
        as an accommodation become responsible for, the obligations of any Person,
        or
        make any loans, advances or enter into any financial commitments, in each
        case
        other than in the ordinary course of business and consistent with past
        practice;

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      (vi)  change
        any accounting policies or procedures (including procedures with respect
        to
        reserves, revenue recognition, payments of accounts payable and collection
        of
        accounts receivable) unless required by statutory accounting principles or
        GAAP;

       

      (vii)  create,
        incur, suffer to exist or assume any liability or obligation (absolute, accrued,
        contingent or otherwise) or any lien on any of its material assets other
        than in
        the ordinary course of business and consistent with past practice;

       

      (viii)  engage
        in
        any transaction, or enter into any agreement, arrangement, or understanding
        with, directly or indirectly, any related party, other than those existing
        as of
        the date hereof;

       

      (ix)  fail
        to
        maintain in full force and effect all self-insurance and insurance, as the
        case
        may be, currently in effect;

       

      (x)  hire
        or
        terminate any senior level or key employee or consultant; increase the
        compensation (including, without limitation, bonus) payable or to become
        payable
        to its officers or employees, or grant any severance or termination pay or
        stock
        options to, or enter into any employment or severance agreement with any
        director, officer or other senior level or key employee of the Company, or
        establish, adopt, enter into or amend any collective bargaining, bonus, profit
        sharing, thrift, compensation, stock or other equity option, restricted stock
        or
        other restricted security, pension, retirement, deferred compensation,
        employment, termination, severance or other plan, agreement, trust, fund,
        policy
        or arrangement for the benefit of any current or former directors, officers
        or
        employees;

       

      (xi)  (A)
        enter
        into any material agreement, contract or commitment of any kind or nature
        whatsoever other than in the ordinary course of business (as described in
        the
        PPM), or (B) modify, amend or transfer or terminate any material agreement
        to
        which the Company is a party or waive, release or assign any material rights
        or
        claims thereunder other than in the ordinary course of business (as described
        in
        the PPM);

       

      (xii)  pay,
        discharge, satisfy or settle any litigation or waive, assign or release any
        rights or claims, or pay, discharge or satisfy any liabilities or obligations
        (absolute, accrued, asserted or unasserted, contingent or otherwise) other
        than
        in the ordinary course of business (as described in the PPM);

       

      (xiii)  issue
        any
        press release or make any public announcement which has not been approved
        by the
        Placement Agent; or

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      (xiv)  authorize,
        recommend, propose or announce an intention to do any of the foregoing, or
        agree
        or enter into anjy agreement, contract commitment or arrangement to do any
        of
        the foregoing.

       

      4K.  Notification.
        Between
        the date of this Agreement and the Termination Date, or if later, the Final
        Funding Date, if any, the Company will promptly notify the Purchasers in
        writing
        of the following:

       

      (i)  any
        fact
        or any condition that causes any of the Company’s representations and warranties
        in this Agreement to be materially inaccurate as of the date of this Agreement,
        or if the Company becomes aware of the occurrence after the date of this
        Agreement of any fact or condition that would cause any such representation
        or
        warranty to be materially inaccurate had such representation and warranty
        been
        made as of the time of the occurrence or discovery of such fact or condition;
        or

       

      (ii)  any
        fact
        or circumstance which might reasonably be expected to delay or prevent the
        closing of the transactions contemplated by this Agreement.

       

      4L.  Reasonable
        Efforts.
        Between
        the date of this Agreement and the Termination Date, or if later, the Final
        Funding Date, if any, the Company will use reasonable best efforts to comply
        with the provisions hereof and to consummate the transactions contemplated
        hereby and to cause the conditions in Section 2 to be satisfied.

       

      4M.  Additional
        Covenants.
        After
        the initial Funding Date and until the date which is 90 days following the
        date
        of a Triggering Event:

       

      (i)  the
        Company shall not directly or indirectly do, or propose to take any action
        which
        could have or reasonably be expected to result in a Material Adverse
        Effect;

       

      (ii)  unless
        otherwise approved by a Majority of Purchasers, the Company shall not cause
        or
        permit (i) the sale, transfer, lease, license, sublicense, mortgage, pledge,
        disposition or encumbrance of any of the Company’s assets, other than in the
        ordinary course of the business consistent with past practice or as otherwise
        disclosed in the PPM, or (ii) a merger, consolidation or similar transaction
        involving the Company unless it shall constitute a Public Merger;

       

      (iii)  the
        Company shall comply in all material respects with all applicable laws,
        including, without limitation, federal and state securities laws;
        and

       

      (iv)  the
        Company shall not acquire any capital stock or other equity interests of
        any
        corporation, partnership, limited liability company or other business
        association or entity unless the Company shall hold 100% of the outstanding
        capital stock or other equity interests of such corporation, partnership,
        limited liability company or other business association or entity.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      4N.  Transfer
        Agent.
        Prior
        to a Triggering Event, the Company shall engage Continental Stock Transfer
&
Trust (or such other agent as the Company and the Placement Agent may agree)
        as
        the Company’s transfer agent.

       

      4O.  Insurance.
        Within
        60 days following the initial Funding Date, the Company shall obtain from,
        and
        shall thereafter maintain with, insurers of recognized financial responsibility
        such general liability and other insurance policies of the kinds and in the
        amounts as are prudent and customary in the businesses in which the Company
        is
        engaged.

       

      Section
        5.  Representations
        and Warranties of the Company.
        As a
        material inducement to each Purchaser to enter into this Agreement and purchase
        the Series A Preferred Stock hereunder, the Company hereby represents and
        warrants as of the date hereof that:

       

      5A.  Organization,
        Corporate Power and Licenses.
        The
        Company is a corporation duly organized, validly existing and in good standing
        under the laws of the State of Delaware and is qualified to do business in
        every
        jurisdiction in which its ownership of property or conduct of business requires
        it to qualify. The Company possesses all requisite corporate power and authority
        and all material licenses, permits and authorizations (collectively,
“Permits”)
        used
        or necessary to own and operate its properties, to carry on its businesses
        as
        now conducted and presently proposed to be conducted and to carry out the
        transactions contemplated by this Agreement and the other Transaction Documents.
        No proceeding is pending or, to the Company’s knowledge, threatened, seeking the
        revocation or limitation of any such Permit. The Company does not have any
        subsidiaries

       

      5B.  Capital
        Stock and Related Matters.
        Immediately prior to the initial Funding Date, but following the consummation
        of
        the Stock Split, the authorized capital of the Company consists of 12,000,000
        shares of Common Stock, of which 5,960,000 shares shall be issued and
        outstanding, and 4,000,000 shares of preferred stock, of which 3,750,000
        have
        been designated as Series A Preferred Stock, none of which shall be issued
        and
        outstanding. The rights, privileges and preferences of the Series A Preferred
        Stock will be as stated in the Certificate of Designation. Except for (i)
        such
        warrants as will be issued to the Placement Agent (as referenced in the PPM)
        (the “Fee
        Warrants”)
        (ii)
        the Convertible Debt, (iii) warrants to acquire 29,800 shares of Common Stock
        issued to the Placement Agent in connection with the engagement of the Placement
        Agent, (iv) warrants to acquire 264,624 shares of Common Stock issued to
        ChemBridge Corporation, (v) $333,500 principal amount of debt convertible
        into
        shares of Common Stock at a conversion rate of $2.517 per share at any time
        until maturity and payment of the debt or until mandatory conversion of such
        debt upon consummation of an initial public offering or, at the option of
        the
        holder thereof, into Series A Preferred Stock at a conversion rate of $2.00
        per
        share upon the initial funding hereunder, (vi) any shares of Series A Preferred
        Stock issued to any Purchaser, and (vii) rights under the Restricted Stock
        and
        Investor Rights Agreement between the Company and ChemBridge Corporation
        (the
“ChemBridge
        Agreement”),
        there
        are, and following the final Funding Date hereunder, will be, no outstanding
        options, warrants, scrip rights to subscribe to, calls or commitments of
        any
        character whatsoever relating to, or securities, rights or obligations
        convertible into or exchangeable for, or giving any Person any right to
        subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
        understandings or arrangements by which the Company is or may become bound
        to
        issue additional shares of Common Stock, or securities or rights convertible
        or
        exchangeable into shares of Common Stock (collectively, “Equity
        Rights”).
        The
        Company has reserved a sufficient number of shares of its equity securities
        for
        conversion or exercise in full of all such Equity Rights, including, without
        limitation, the Series A Preferred Stock. Except as set forth in the ChemBridge
        Agreement (which rights will be waived prior to the initial Funding Date),
        there
        are no securities of the Company which are entitled to preemptive or similar
        rights, and no Person has any right of first refusal, preemptive right, right
        of
        participation, or any similar right to participate in the transactions
        contemplated by this Agreement or the other Transaction Documents. Except
        for
        anti-dilution provisions provided for in the outstanding Equity Rights, the
        Certificate of Designation and the ChemBridge Agreement (which rights will
        be
        waived prior to the initial Funding Date), there are no anti-dilution or
        price
        adjustment provisions contained in any security issued by the Company or
        other
        agreement and the issue and sale of the Series A Preferred Stock and the
        Underlying Common Stock will not, immediately or with the passage of time,
        obligate the Company to issue shares of Common Stock or other securities
        to any
        Person (other than the Placement Agent, the Purchasers and the holder of
        the
        Convertible Debt) and will not result in a right of any holder of Company
        securities to adjust the exercise, conversion, exchange or reset price under
        such securities. Except as disclosed in the PPM under the heading “Principal and
        Management Stockholders,” to the knowledge of the Company, no Person or group of
        related Persons beneficially owns (as determined pursuant to Rule 13d-3 under
        the Securities Exchange Act) or has the right to acquire, by agreement with
        or
        by obligation binding upon the Company, beneficial ownership of in excess
        of 5%
        of the outstanding Common Stock, ignoring for such purposes any limitation
        on
        the number of shares that may be owned at any one time. Immediately following
        the final Funding Date (assuming that a minimum of 2,500,000 shares of Series
        A
        Preferred Stock is issued and sold and that a maximum of 3,000,000 shares
        of
        Series A Preferred Stock is issued and sold), the Company’s issued and
        outstanding shares of capital stock, on a fully diluted basis, shall be
        allocated as set forth on the attached “Capitalization
        Schedule.”

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

      5C.  Validity
        of Shares; Exemption from Registration.
        Upon
        issuance in accordance with the terms hereof, the Series A Preferred Stock
        will
        be duly and validly issued (including, without limitation, issued in compliance
        with applicable federal and state securities laws), fully paid and
        non-assessable, free of all mortgages, pledges, liens, security interests,
        encumbrances, leases, and charges (“Encumbrances”)
        other
        than those granted or created by a Purchaser, and will not be subject to
        any
        preemptive rights, rights of first refusal, redemption rights or other
        restrictions on transfer, other than as imposed by applicable federal and
        state
        securities laws and other than those granted or created by a Purchaser. The
        Underlying Common Stock issuable upon conversion of the Series A Preferred
        Stock
        have been duly and validly reserved and, when issued in accordance with the
        terms thereof, will be validly issued (including, without limitation, issued
        in
        compliance with applicable federal and state securities laws), fully paid
        and
        nonassessable, free of all Encumbrances other than those granted or created
        by a
        Purchaser, and will not be subject to any preemptive rights, rights of first
        refusal, redemption rights or other restrictions on transfer, other than
        as
        imposed by applicable federal and state securities laws and other than those
        granted or created by a Purchaser.

       

      5D.  Authorization;
        No Breach or Violation.
        

       

      (i)  The
        execution, delivery and performance of this Agreement, the Rights Agreement
        and
        the other documents and instruments executed and delivered pursuant hereto
        and
        thereto (collectively, the “Transaction
        Documents”)
        and
        the filing of the Certificate of Designation, have been duly authorized by
        the
        Company. This Agreement, each of the other Transaction Documents and the
        Amended
        Certificate each constitutes a valid and binding obligation of the Company,
        enforceable in accordance with its terms.

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

      (ii)  The
        execution and delivery by the Company of this Agreement and each of the other
        Transaction Documents, the offering, sale and issuance of the Series A Preferred
        Stock hereunder, the issuance of the Underlying Common Stock upon conversion
        of
        the Series A Preferred Stock, the adoption of the Certificate of Designation
        and
        the fulfillment of and compliance with the respective terms hereof and thereof
        by the Company, do not and shall not (i) conflict with or result in a breach
        of
        the terms, conditions or provisions of, (ii) constitute a default under,
        (iii)
        result in the creation of any Encumbrance upon the Company’s capital stock or
        assets pursuant to, (iv) give any third party the right to modify, terminate
        or
        accelerate any obligation under, (v) result in a violation of, or (vi) require
        any authorization, consent, approval, exemption or other action by or notice
        or
        declaration to, or filing with, any court or administrative or governmental
        body
        or agency pursuant to, the Amended Certificate or the Bylaws, any Permit,
        or any
        law, statute, rule or regulation to which the Company is subject, or any
        agreement, instrument, order, judgment or decree to which the Company is
        party
        or to which its properties or assets are subject.

       

      5E.  Financial
        Statements.
        Attached hereto as the “Financial
        Statements Schedule”
is
        the
        audited balance sheet of the Company as of December 31, 2004 (the “Latest
        Balance Sheet”
and
        the
        audited income statement of the Company for the year ended December 31, 2004
        (the “Latest
        Income Statement”)
        which
        Latest Balance Sheet and Latest Income Statement are accurate and complete
        in
        all material respects, are consistent with the books and records of the Company
        (which, in turn, are accurate and complete in all material respects) and
        have
        been prepared in accordance with GAAP and present fairly the financial condition
        of the Company as of the date set forth therein and the results of operations
        of
        the Company for the period set forth therein, respectively.

       

      5F.  Absence
        of Undisclosed Liabilities.
        Except
        as set forth on the attached “Liabilities
        Schedule,”
the
        Company does not have any material obligation or liability (whether accrued,
        absolute, contingent, unliquidated or otherwise, whether or not known to
        the
        Company, whether due or to become due and regardless of when asserted) arising
        out of transactions entered into at or prior to the date hereof, or any action
        or inaction at or prior to the date hereof, or any state of facts existing
        at or
        prior to the date hereof other than: (i) liabilities set forth on the Latest
        Balance Sheet (including any notes thereto), and (ii) liabilities and
        obligations which have arisen after the date of the Latest Balance Sheet
        in the
        ordinary course of business, consistent in nature and amount with past practice
        and which shall not exceed $350,000 in the aggregate (none of which is a
        liability resulting from breach of contract, breach of warranty, tort,
        infringement, claim or lawsuit). Except as set forth in the Liabilities
        Schedule, since December 31, 2004, the Company has paid all liabilities,
        debts
        and lease obligations in accordance with the applicable contractual agreement
        with such third party creditors. Except as disclosed in the Liabilities
        Schedule, the Company is not a guarantor or indemnitor of any indebtedness
        of
        any other person, firm or corporation. 

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

      5G.  No
        Material Adverse Change.
        Since
        December 31, 2004, the Company has conducted its business in the ordinary
        course
        and there has been no material adverse change in the financial condition,
        operating results, assets, operations, employee relations or customer or
        supplier relations of the Company. Since December 31, 2004, (a) the Company
        has
        not altered its method of accounting or the identity of its auditors, (b)
        the
        Company has not declared or made any dividend or distribution of cash or
        other
        property to its stockholders, other than the Stock Split, or purchased, redeemed
        or made any agreements to purchase or redeem any shares of its capital stock,
        and (c) other than in connection with the Stock Split, the Company has not
        issued any equity securities to any officer, director or Affiliate.

       

      5H.  Contracts
        and Commitments.
        

       

      (i)  Except
        as
        expressly contemplated by this Agreement or as set forth on the attached
        “Contracts
        Schedule,”
the
        Company is not a party to or bound by any written or oral contract or agreement,
        except for those contracts or agreements which can be terminated by the Company
        on no more than 30 days’ notice without penalty or further expense and which do
        not exceed $50,000 in the aggregate.

       

      (ii)  All
        of
        the contracts, agreements and instruments set forth on the Contracts
        Schedule
        are
        valid, binding and enforceable in accordance with their respective terms.
        The
        Company has performed all material obligations required to be performed by
        it
        and is not in default under or in breach of nor in receipt of any claim of
        default or breach under any contract, agreement or instrument identified
        on the
Contracts
        Schedule.
        No
        event has occurred which with the passage of time or the giving of notice
        or
        both would result in a default, breach or event of noncompliance by the Company
        under any material contract; the Company does not have any present expectation
        or intention of not fully performing all such obligations; the Company does
        not
        have knowledge of any breach or anticipated breach by the other parties to
        any
        contract; and the Company is not a party to any materially adverse contract
        or
        commitment.

       

      (iii)  The
        Placement Agent’s special counsel has been supplied with a true and correct copy
        of each of the written instruments, plans, contracts and agreements and an
        accurate description of each of the oral arrangements, contracts and agreements
        which are referred to on the Contracts
        Schedule
        together
        with all amendments, waivers or other changes thereto.

       

      (iv)  The
        Company does not have any agreement or understanding with any Purchaser or
        any
        Affiliate of any Purchaser other than as contemplated by this Agreement and
        the
        other Transaction Documents.

       

      5I.  Litigation,
        etc.
        There
        are no actions, suits, proceedings or orders pending or, to the best of the
        Company’s knowledge, threatened against or affecting the Company or any of its
        properties or assets, or pending or threatened by the Company against any
        third
        party, at law or in equity, or before or by any governmental department,
        commission, board, bureau, agency or instrumentality (including, without
        limitation, any actions, suit, proceedings or investigations with respect
        to the
        transactions contemplated by this Agreement); and there is no basis for any
        of
        the foregoing. There is no action, suit or proceeding which the Company intends
        to initiate. The Company is not subject to any judgment, order or decree
        of any
        court or other governmental agency. Neither the Company nor to the best of
        the
        Company’s knowledge, any director or officer thereof, is or has been the subject
        of any action, suit, proceeding or order 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 there is no currently pending
        investigation by the Securities and Exchange Commission involving the Company,
        or to the Company’s best knowledge, any current or former director or officer of
        the Company, and to the Company’s best knowledge, there is no such threatened
        investigation.

       

      5J.  Brokerage.
        Except
        for fees and commissions payable to the Placement Agent and/or its designees,
        which fees and commissions are set forth in the PPM, (a) the Company has
        not
        retained a finder or broker in connection with the transactions contemplated
        by
        this Agreement, (b) there are no claims for brokerage commissions, finders’ fees
        or similar compensation in connection with the transactions contemplated
        by this
        Agreement, and (c) the Purchasers shall have no obligation with respect to
        and
        the Company shall indemnify and save them harmless from, any fees or with
        respect to any claims (other than such fees or commissions owed by a Purchaser
        pursuant to written agreements executed by such Purchaser which fees or
        commissions shall be the sole responsibility of such Purchaser) made by or
        on
        behalf of other Persons engaged by the Company for fees of a type contemplated
        in this Section that may be due in connection with the transactions contemplated
        by this Agreement.

       

      
        
          
          

        

        
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      5K.  Governmental
        Consent, etc.
        No
        permit, consent, approval or authorization of, or declaration to or filing
        with,
        any governmental or regulatory authority is required in connection with the
        execution, delivery and performance by the Company of this Agreement or the
        other Transaction Documents, or the consummation by the Company of any other
        transactions contemplated hereby or thereby, other than (a) the filing with
        the
        Securities and Exchange Commission of (i) one or more registration statements
        in
        accordance with the requirements of the Rights Agreement and (ii) a Notice
        of
        Sale of Securities on Form D within 15 days following each Funding Date,
        (b)
        filings required by state securities laws, which the Company will promptly,
        and
        in any event prior to the due date prescribed by applicable law make (at
        the
        sole expense of the Company) in order to permit the holders of the shares
        of
        Series A Preferred Stock and/or Underlying Common Stock to resell such shares
        to
        Persons in any State in the U.S., and (c) those that have been made or obtained
        prior to the date of this Agreement.

       

      5L.  Employees
        Employee Matters.
        The
        Company has complied in all material respects with all laws relating to the
        employment of labor (including, without limitation, provisions thereof relating
        to wages, hours, equal opportunity, collective bargaining and the payment
        of
        social security and other taxes), and the Company is not aware that it has
        any
        material labor relations problems (including, without limitation, any union
        organization activities, threatened or actual strikes or work stoppages or
        material grievances). The Company nor, to the best of the Company’s knowledge,
        any of its employees is subject to any noncompete, nondisclosure,
        confidentiality, employment, consulting or similar agreements relating to,
        affecting or in conflict with the present or proposed business activities
        of the
        Company, except for agreements between the Company and its present and former
        employees all of which are described on the Contracts
        Schedule.
        Except
        as set forth on the Contracts
        Schedule,
        the
        Company has no employment contracts with any of its employees not expressly
        terminable at will and no collective bargaining agreements covering any of
        its
        employees. Further, the Company has no policies, procedures or handbooks
        providing for other than at-will employment. The Company is not aware that
        any
        employee of the Company has plans to terminate his or her employment
        relationship with the Company, nor does the Company have a present intention
        to
        terminate the employment of any employee. To the Company’s knowledge, none of
        the current or former officers or other key employees of the Company have
        been
        arrested or convicted of any felony and no such person has declared bankruptcy
        nor has any such person been an officer or director of any company or other
        organization that has declared bankruptcy. Except as set forth in the
        Liabilities Schedule, the Company has no liabilities to employees arising
        from
        deferred compensation. The Company does not contribute to or participate
        in any
        employee benefit plan subject to the Employee Retirement Income Security
        Act of
        1974, as amended other than a medical benefit plan with respect to which
        the
        Company has made all required contributions and has complied with all applicable
        laws]. To the Company’s best knowledge, none of its current or former officers,
        directors, consultants or employees is currently, has in the past, or has
        plans
        in the future, to engage in a line of business which is competitive with
        the
        Company.

       

      
        
          
          

        

        
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      5M.  Compliance
        with Laws and Constituent Documents.
        The
        Company is in compliance in all material respects with all applicable laws,
        regulations, orders, judgments and decrees. The Company is not in violation
        of
        any of the provisions of its Certificate of Incorporation or
        Bylaws.

       

      5N.  Affiliated
        Transactions.
        Except
        as set forth on the attached “Affiliated
        Transactions Schedule,”
no
        executive officer, or, to the Company’s knowledge, no director, employee,
        shareholder or Affiliate of the Company or any individual related by blood,
        marriage or adoption to any such individual or any entity in which any such
        Person or individual owns any beneficial interest, is a party to any agreement,
        contract, commitment or transaction with the Company (other than for services
        as
        employees, officers and directors) or has any material interest in any material
        property used by the Company.

       

      5O.  Disclosure.
        Neither
        this Agreement nor any of the exhibits, schedules, attachments, written
        statements, documents, certificates or other items supplied to the Purchasers
        by
        or on behalf of the Company (including, without limitation, the Confidential
        Offering Memorandum dated February 18, 2005 relating to the offering and
        sale of
        the Series A Preferred Stock (the “PPM”)
        with
        respect to the transactions contemplated hereby contain any untrue statement
        of
        a material fact or omit a material fact necessary to make each statement
        contained herein or therein not misleading.

       

      5P.  Patents,
        Copyrights, Trademarks.
        

       

      (i)  The
        PPM
        accurately describes (a) all issued Patents and registrations and applications
        for all Patents, Trademarks and Copyrights owned by or licensed to the Company
        relating to Intellectual Property, and (b) all material contracts, agreements
        and arrangements relating to Intellectual Property (whether in writing or
        oral)
        to which the Company is a party, by which any of its respective assets or
        properties are bound or which are used or necessary in the business of the
        Company as currently conducted or as proposed to be conducted. As used herein,
        the term “Intellectual
        Property”
means
        (1) all Compounds and/or uses thereof and inventions (whether patentable
        or
        unpatentable and whether or not reduced to practice) and all improvements
        thereon, (ii) all patents, patent applications and patent disclosures, together
        with all reissuances, continuations, continuations-in-part, revisions,
        extensions and reexaminations thereof (collectively, “Patents”),
        (iii)
        all trademarks, service marks, trade dress, logos, trade names and corporate
        names (collectively, “Trademarks”)
        including all goodwill associated therewith, and all applications, registrations
        and renewals in connection therewith, (iv) all copyrightable works, all
        copyrights and all applications, registrations and renewals in connection
        therewith (collectively, “Copyrights”),
        (v)
        all mask works and all applications, registrations and renewals in connection
        therewith, (vi) all trade secrets and confidential business information
        (including, without limitation, ideas, research and development, data, results,
        know-how, formulas, compositions, manufacturing and production processes
        and
        techniques, technical data, designs, drawings, specifications, customer and
        supplier lists, pricing and cost information and business and marketing plans
        and proposals), (vii) all computer software (including data and related
        documentation) and (viii) all other proprietary tights.

       

      
        
          
          

        

        
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      (ii)  The
        Company owns, is licensed to use, or otherwise has the right to use all Company
        Intellectual Property and all such Company Intellectual Property will be
        owned
        or available for use by the Company following each Funding Date and for the
        foreseeable future. The Company has taken all necessary and reasonable best
        actions to maintain and protect its material owned or licensed Company
        Intellectual Property. To the best of the Company’s knowledge, there is
        patentable subject matter relating to the Company’s currently contemplated
        aminoacridine and flagellin products disclosed in the patent applications
        prosecuted by the Company. As used herein, “Company
        Intellectual Property”
means
        all Intellectual Property used or held for use by the Company in the conduct
        of
        its business as currently conducted or as proposed to be conducted.

       

      (iii)  To
        the
        best knowledge of the Company, the Company has not infringed upon or
        misappropriated any Intellectual Property rights of third parties related
        to the
        products set forth on the Products
        Schedule
        and/or
        the uses thereof, and the continued operation of the Company as currently
        conducted and as proposed to be conducted related to the products set forth
        on
        the Products
        Schedule
        does not
        infringe upon or misappropriate or otherwise violate any Intellectual Property
        rights of third parties. To the Company’s best knowledge, no Person has
        infringed upon or misappropriated or otherwise violated any Company Intellectual
        Property.

       

      (iv)  Except
        as
        disclosed in the PPM, with respect to each item of Company Intellectual
        Property: (i) the Company possesses all right, title (if owned) and interest
        in
        and to the item, free and clear of any Encumbrance (other than, in the case
        of
        licensed Intellectual Property, restrictions created by the licenses
        themselves); (ii) the item of Company Intellectual Property is not subject
        to
        any outstanding order, injunction, judgment, decree or ruling of any Regulatory
        Authority (other than the applicable patent and trademark prosecution protection
        proceedings themselves); and (iii) none of the Patents disclosed in the PPM
        have
        been abandoned. As used herein, the term “Regulatory
        Authority”
means
        any applicable government regulatory authority, domestic or foreign, involved
        in
        granting approvals for the manufacturing, marketing, reimbursement and/or
        pricing of any Product of the Company; the term “Product”
means
        preparations in final form for sale by prescription, over-the-counter or
        any
        other method that contains Compound or one or more active ingredients; the
        term
“Compound”
means
        compound or compounds or uses thereof described in the PPM as belonging or
        licensed to the Company or claimed by the Company in one or more of Patents
        or
        applications therefor.

       

      
        
          
          

        

        
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      (v)  The
        rights to all inventions of any of the Company’s employees or consultants,
        former employees or consultants made while employed or retained by the Company,
        or prior to their employment with or retention by the Company, which are
        utilized by the Company in the conduct of the Company’s business as presently
        conducted or as proposed to be conducted have been fully assigned or licensed
        to
        the Company.

       

      (vi)  Except
        as
        set forth on the Contracts
        Schedule
        and
        described in the PPM, there are no outstanding options, licenses or agreements
        of any kind relating to the Company Intellectual Property, nor is the Company
        bound by or a party to any options, licenses or agreements of any kind with
        respect thereto (other than such licenses or agreements arising from the
        purchase of “off the shelf” or standard products).

       

      5Q.  No
        Other Registration Rights.
        Except
        as provided under the Rights Agreement or as described in the PPM, the Company
        is not under any obligation to register any of its presently outstanding
        securities or any of its securities that may hereafter be issued pursuant
        to
        this or any other existing agreement.

       

      5R.  Title
        to Property and Assets.
        Except
        as provided in Section 5P with respect to Intellectual Property, the Company
        has
        good and valid title or valid leasehold interest in and to all of the properties
        and assets used by the Company, in each case subject to no Encumbrance other
        than Permitted Encumbrances. All material assets and properties used or
        necessary by the Company in its business are in good operating condition
        and
        repair (except for normal wear and tear), are suitable for the purposes used
        and
        are adequate and sufficient for the operations of the Company as currently
        conducted and as proposed to be conducted. Any personal or real property
        held
        under lease or license by the Company are held by it under valid, subsisting
        and
        enforceable leases or licenses of which the Company is in compliance.
“Permitted
        Encumbrances”
shall
        mean (i) any lien for taxes not yet due or delinquent or (ii) any statutory
        lien
        arising in the ordinary course of business by operation of law with respect
        to a
        liability that is not yet due or delinquent.

       

      5S.  Taxes.
        The
        Company has accurately prepared and timely filed all income and other tax
        returns, if any, that are required to be filed by or on behalf of the Company,
        its business or assets, and has paid, or made provision for the payment of,
        all
        taxes that have become due and owing, including any assessment that has been
        or
        may be received from any taxing authority for the period through the date
        of
        this Agreement. There are no outstanding agreements by the Company for the
        extension of time for the assessment of any tax. None of the Company’s tax
        returns has been or, to the Company’s knowledge, is now under audit or
        investigation by any tax authority. No deficiency assessment or proposed
        adjustment of the Company’s taxes (if any) is pending, and the Company has no
        knowledge of any proposed liability for any tax to be imposed upon the Company’s
        properties or assets for which there is not an adequate reserve reflected
        on
        Latest Balance Sheet.

       

      
        
          
          

        

        
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      5T.  Solvency;
        Going Concern.
        

       

      (i)  Following
        the consummation of the transactions contemplated hereby, (i) the Company’s fair
        saleable value of its assets in an orderly liquidation
        exceeds the amount that will be required to be paid on or in respect of the
        Company’s existing debts and other liabilities (including known contingent
        liabilities) as they mature; (ii) the Company’s assets do not constitute
        unreasonably small capital to carry on its business for the current fiscal
        year
        as now conducted and as proposed to be conducted including its capital needs
        taking into account the particular capital requirements of the business
        conducted by the Company, and projected capital requirements and capital
        availability thereof; (iii) the current cash flow of the Company, together
        with
        the proceeds the Company would receive, were it to liquidate all of its assets,
        after taking into account all anticipated uses of the cash, would be sufficient
        to pay all amounts on or in respect of its debt when such amounts are required
        to be paid; and (iv) the Company’s total indebtedness shall not exceed $800,000
        in the aggregate (exclusive of the Convertible Debt). The Company does not
        intend to incur debts beyond its ability to pay such debts as they mature
        (taking into account the timing and amounts of cash to be payable on or in
        respect of its debt).

       

      (ii)  Following
        consummation of the transactions contemplated hereby (after taking into account
        the proceeds received by the Company from the sale of the Series A Preferred
        Stock) the Company has no knowledge or reason to believe that the Company’s
        independent public accountants will issue an audit letter containing a “going
        concern” opinion with respect to the Company.

       

      5U.  Investment
        Company.
        The
        Company is not, and is not an Affiliate of, an “investment company” within the
        meaning of the Investment Company Act of 1940, as amended.

       

      5V.  Application
        of Takeover Protections.
        There
        is no control share acquisition, business combination, poison pill (including
        any distribution under a rights agreement) or other similar anti-takeover
        provision under the Company’s Certificate of Incorporation or the laws of its
        state of incorporation that is or could become applicable to the Purchasers
        as a
        result of the Purchasers and the Company fulfilling their obligations or
        exercising their rights under the Transaction Documents, including without
        limitation the Company’s issuance of the Series A Preferred Stock and/or
        Underlying Common Stock and the Purchasers’ ownership thereof.

       

      5W.  Private
        Placement.
        Based
        in part on the representations made by each of the Purchasers in Section
        6 of
        this Agreement, the offer and sale of the Series A Preferred Stock to each
        of
        the Purchasers will be exempt from the registration requirements of Section
        5 of
        the Securities Act. The acquisition by the Purchasers of the Series A Preferred
        Stock will not be “integrated” with any other offering or sale of securities of
        the Company required to be registered under the Securities Act, or the rules
        and
        regulations promulgated thereunder. Neither the Company nor any Person acting
        on
        the Company’s behalf has sold or offered to sell or solicited any offer to buy
        the Securities by means of any form of general solicitation or
        advertising.

       

      
        
          
          

        

        
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      5X.  Foreign
        Corrupt Practice.
        Neither
        the Company nor any director, officer, agent, employee or other person acting
        on
        behalf of the Company has, in the course of his actions for, or on behalf
        of,
        the Company used any corporate funds for any unlawful contribution, gift,
        entertainment or other unlawful expenses relating to political activity;
        made
        any direct or indirect unlawful payment to any foreign or domestic government
        official or employee from corporate find; violated or is in violation of
        any
        provision of the U.S. Foreign Corrupt Practices Act of 1977; or made any
        bribe,
        rebate, payoff; influence payment, kickback or other unlawful payment to
        any
        foreign or domestic government official or employee.

       

      Section
        6.  Representations
        and Warranties of the Purchasers.
        Each
        Purchaser hereby represents and warrants (as to itself only) to the Company
        that:

       

      6A.  Authorization.
        If such
        Purchaser is an entity, it is duly organized, validly existing and in good
        standing under the laws of its jurisdiction of formation, such Purchaser
        has
        full power and authority to enter into this Agreement and the other Transaction
        Documents
        and has
        duly authorized, executed and delivered the same. If such Purchaser is an
        individual, he or she has reached the age of majority in the jurisdiction
        in
        which he or she resides and has executed and delivered this agreement and
        the
        other Transaction Documents. This Agreement and the Transaction Documents,
        when
        executed and delivered by such Purchaser, will constitute valid and legally
        binding obligations of the Purchaser, enforceable in accordance with their
        terms, except (a) as limited by applicable bankruptcy, insolvency,
        reorganization, moratorium, fraudulent conveyance, and any other laws of
        general
        application affecting enforcement of creditors’ rights generally, or (b) as
        limited by laws relating to the availability of a specific performance,
        injunctive relief, or other equitable remedies, or (c) to the extent the
        indemnification provisions contained in this Agreement and the other Transaction
        Documents may be limited by applicable Federal or state securities laws,
        public
        policy and other equitable considerations.

       

      6B.  Investment
        Purpose.
        Such
        Purchaser (i) is acquiring the Series A Preferred Stock and (ii) upon conversion
        of the Series A Preferred Stock, will acquire the Underlying Common Stock
        then
        issuable (the Series A Preferred Stock and the Underlying Common Stock
        collectively are referred to herein as the “Securities”),
        for
        its own account for investment only and not with a view towards, or for resale
        in connection with, the public sale or distribution thereof, except pursuant
        to
        sales registered or exempted under the Securities Act.

       

      6C.  Accredited
        Investor Status.
        Such
        Purchaser is an “accredited investor” as that term is defined in Rule 501(a)(3)
        of Regulation D promulgated under the Securities Act and as described in
        the
        PPM.

       

      6D.  Foreign
        Investors.
        If the
        Purchaser is not a United States person (as defined by Section 7701(a)(30)
        of
        the Internal Revenue Code of 1986, as amended), such Purchaser hereby represents
        that it has satisfied itself as to the full observance of the laws of its
        jurisdiction in connection with any invitation to subscribe for the Securities
        or any use of this Agreement, including (i) the legal requirements within
        its
        jurisdiction for the purchase of the Securities, (ii) any foreign exchange
        restrictions applicable to such purchase, (iii) any governmental or other
        consents that may need to be obtained, and (iv) the income tax and other
        tax
        consequences, if any, that may be relevant to the purchase, holding, redemption,
        sale, or transfer of the Securities. Such Purchaser’s subscription and payment
        for and continued beneficial ownership of the Securities, will not violate
        any
        applicable securities or other laws of the Purchaser’s
        jurisdiction.

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

      6E.  Reliance
        on Exemptions.
        Such
        Purchaser understands that the Securities are being offered and sold to it
        in
        reliance on specific exemptions from the registration requirements of United
        States federal and state securities laws and that the Company is relying
        in part
        upon the truth and accuracy of, and such Purchaser’s compliance with, the
        representations, warranties and agreements of such Purchaser set forth herein
        in
        order to determine the availability of such exemptions and the eligibility
        of
        such Purchaser to acquire such securities.

       

      6F.  Information.
        Such
        Purchaser has been furnished with all materials relating to the business,
        finances and operations of the Company and materials relating to the offer
        and
        sale of the Securities which have been requested by such Purchaser. Such
        Purchaser has been afforded the opportunity to ask questions of the Company.
        Such Purchaser understands that its investment in the Securities involves
        a high
        degree of risk. Such Purchaser has sought such accounting, legal and tax
        advice
        as it has considered necessary to make an informed investment decision with
        respect to its acquisition of the Securities. Notwithstanding the foregoing,
        in
        entering into this Agreement, such Purchaser represents that it is relying
        solely on the representations, warranties, covenants and agreements set forth
        in
        this Agreement, the other Transaction Documents and the PPM, which documents
        supersede and replace any other written or oral information communicated
        to such
        Purchaser, whether by email, power-point presentation or otherwise.

       

      6G.  No
        Governmental Review.
        Such
        Purchaser understands that no United States federal or state agency or any
        other
        government or governmental agency has passed on or made any recommendation
        or
        endorsement of the Securities or the fairness or suitability of the investment
        in the Securities nor have such authorities passed upon or endorsed the merits
        of the offering of the Securities.

       

      6H.  Transfer
        or Resale.
        Such
        Purchaser understands that except as provided in the Rights Agreement: (i)
        the
        Securities have not been and are not being registered under the Securities
        Act
        or any state securities laws, and may not be offered for sale, sold, assigned
        or
        transferred unless (A) subsequently registered thereunder or (B) sold in
        reliance on an exemption therefrom; and (ii) neither the Company nor any
        other
        person is under any obligation to register such securities under the Securities
        Act or any state securities laws or to comply with the terms and conditions
        of
        any exemption thereunder. Such Purchaser is able to bear the economic risk
        of
        its investment in the Securities for an indefinite period of time.

       

      6I.  No
        Public Market.
        Such
        Purchaser understands that no public market now exists for any of the Securities
        issued by the Company, and that, subject to the provisions of the Rights
        Agreement, the Company has made no assurances that a public market will ever
        exist for the Securities.

       

      
        
          
          

        

        
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      6J.  Legends.
        Such
        Purchaser understands that the certificates representing the Securities and
        any
        securities issued in respect of or exchange or conversion for the Securities,
        may bear one or all of the following legends:

       

      (i)  “THE
        SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
        SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH
        A
        VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. ANY SUCH
        SALE
        OR DISTRIBUTION MAY BE EFFECTED ONLY PURSUANT TO AN EFFECTIVE REGISTRATION
        STATEMENT RELATED THERETO OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR
        IN A
        TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
        ACT
        AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. NOTWITHSTANDING
        THE
        FOREGOING, THE SHARES REPRESENTED HEREBY MAY BE PLEDGED IN CONNECTION WITH
        A
        BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY
        SUCH
        SHARES.”

       

      (ii)  Any
        legend required by the Transaction Documents.

       

      (iii)  Any
        legend required by the Blue Sky laws of any state to the extent such laws
        are
        applicable to the shares represented by the certificate so
        legended.

       

      6K.  Investment
        Experience.
        Such
        Purchaser understands that the purchase of Securities involves substantial
        risk
        including the possibility of complete loss of investment. Such Purchaser:
        (i)
        has experience as an investor in securities of companies in the development
        stage and acknowledges that such Purchaser is able to fend for itself, can
        bear
        the economic risk of such Purchaser’s investment in the Securities and has such
        knowledge and experience in financial or business matters that such Purchaser
        is
        capable of evaluating the merits and risks of this investment in the Securities
        and protecting its own interests in connection with this investment and/or
        (ii)
        has a preexisting personal or business relationship with the Company and
        certain
        of its officers, directors or controlling persons of a nature and duration
        that
        enables such Purchaser to be aware of the character, business acumen and
        financial circumstances of such person. Further, such Purchaser is aware
        of no
        publication of any advertisement in connection with the transactions
        contemplated by this Agreement.

       

      Section
        7.  Definitions.
        For the
        purposes of this Agreement, the following terms have the meanings set forth
        below:

       

      “Affiliate”
of
        any
        particular Person means any other Person controlling, controlled by or under
        common control with such particular Person, where “control” means the
        possession, directly or indirectly, of the power to direct the management
        and
        policies of a Person whether through the ownership of voting securities,
        contract or otherwise. In addition, “Affiliates”
of
        a
        Person include any Affiliate of a Person or its Affiliates’ partners, members or
        shareholders who received shares of the Series A Preferred Stock or Underlying
        Common Stock pursuant to a distribution from or a liquidation of such Person
        or
        such Affiliate.

       

      “Affiliated
        Transactions Schedule”
shall
        have the meaning specified in Section
        5N
        hereof.

       

      “Agreement”
shall
        have the meaning specified in the Preamble hereto.

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

      “Amended
        Certificate”
shall
        have the meaning specified in Section
        2A.

       

      “Board”
shall
        have the meaning specified in Section
        2F
        hereof.

       

      “Bylaws”
shall
        mean the Company’s bylaws, as amended, restated or supplemented.

       

      “CCF”
shall
        have the meaning specified in Section
        20
        hereof.

       

      “Certificate
        of Designation”
shall
        have the meaning specified in Section
        1A
        hereof.

       

      “ChemBridge
        Agreement”
shall
        have the meaning specified in Section
        5B
        hereof.

       

      “Closing”
shall
        have the meaning specified in Section
        1C
        hereof.

       

      “Common
        Stock”
shall
        have the meaning specified in Section
        1A
        hereof.

       

      “Company”
shall
        have the meaning specified in the Preamble hereto and, subject to Section
        8E
        hereof, shall include any successor entity.

       

      “Company
        Intellectual Property”
shall
        have the meaning specified in Section
        5P
        hereof.

       

      “Compound”
shall
        have the meaning specified in Section
        5P
        hereof.

       

      “Convertible
        Debt”
shall
        mean an aggregate of $50,000 in principal amount of 5% convertible notes,
        dated
        as of May 11, 2004, made by the Company to George R. Stark, which principal
        amount is convertible into 25,000 shares of the Series A Preferred
        Stock.

       

      “Contracts
        Schedule”
shall
        have the meaning specified in Section
        5H
        hereof.

       

      “Copyrights”
shall
        have the meaning specified in Section
        5P
        hereof.

       

      “Encumbrances”
has
        the
        meaning set forth in Section
        5C
        hereof.

       

      “Equity
        Rights”
has
        the
        meaning set forth in Section
        5B
        hereof.

       

      “Escrow”
means
        the escrow account established and maintained pursuant to the Escrow
        Agreement.

       

      “Escrow
        Agreement”
means
        the escrow agreement, dated as of February 16, 2005, by and among the Company,
        the Placement Agent and Continental Stock Transfer and Trust
        Company.

       

      “Financial
        Statements Schedule”
shall
        have the meaning specified in Section
        5E
        hereof.

       

      “Fee
        Warrants”
shall
        have the meaning specified in Section
        5B
        hereof.

       

      “Funding
        Date”
shall
        have the meaning specified in Section
        1C
        hereof.

       

      “GAAP”
means
        generally accepted United States accounting principles, consistently
        applied.

       

      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

      “Indemnified
        Liabilities”
shall
        have the meaning specified in Section
        8M
        hereof.

       

      “Indemnitees”
shall
        have the meaning specified in Section
        8M
        hereof.

       

      “Intellectual
        Property”
shall
        have the meaning specified in Section
        5P
        hereof.

       

      “Investment
        Data”
shall
        have the meaning specified in Section
        8N
        hereof.

       

      “Investment
        Banking Agreement”
shall
        mean that certain Investment Banking Agreement, dated as of September 30,
        2004,
        by and between the Company and the Placement Agent, as the same may be
        amended.

       

      “Latest
        Balance Sheet”
shall
        have the meaning specified in Section
        5E
        hereof.

       

      “Latest
        Income Statement”
shall
        have the meaning specified in Section
        5E
        hereof.

       

      “Liabilities
        Schedule”
shall
        have the meaning specified in Section
        5F
        hereof.

       

      “Majority
        of Purchasers”
means,
        at the time of determination, Purchasers who have subscribed for or purchased
        at
        least 50.1% of the shares of Series A Preferred Stock which have, at such
        time,
        been subscribed for and/or purchased, pursuant to this Agreement.

       

      “Material
        Adverse Effect”
shall
        have the meaning specified in Section
        2K
        hereof.

       

      “New
        York Courts”
shall
        have the meaning specified in Section
        8J
        hereof.

       

      “Patents”
shall
        have the meaning specified in Section
        5P
        hereof.

       

      “Person”
means
        an individual, a partnership, a corporation, a limited liability company,
        an
        association, a joint stock company, a trust, a joint venture, an unincorporated
        organization and a governmental entity or any department, agency or political
        subdivision thereof.

       

      “Permits”
shall
        have the meaning set forth in Section
        5A
        hereof.

       

      “Permitted
        Encumbrance”
shall
        have the meaning set forth in Section
        5S
        hereof.

       

      “Placement
        Agent”
means
        Sunrise Securities Corp.

       

      “PPM”
shall
        have the meaning set forth in Section
        5O
        hereof.

       

      “Product”
shall
        have the meaning specified in Section
        5P
        hereof.

       

      “Products
        Schedule”
shall
        have the meaning specified in Section
        5P
        hereof.

       

      “Public
        Merger”
shall
        have the meaning specified in the Certificate of Designation.

       

      “Purchaser”
shall
        have the meaning specified in the Preamble hereto.

       

      “Proceeding”
shall
        have the meaning specified in Section
        8J
        hereof.

       

      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      

      “Qualified
        IPO”
shall
        have the meaning specified in the Certificate of Designation.

       

      “Regulatory
        Authority”
shall
        have the meaning specified in Section
        5P
        hereof.

       

      “Resale
        Registration”
shall
        have the meaning specified in the Certificate of Designation.

       

      “Rights
        Agreement”
shall
        have the meaning specified in Section
        2D
        hereof.

       

      “Securities
        Act”
means
        the Securities Act of 1933, as amended, or any similar federal law then in
        force.

       

      “Securities
        and Exchange Commission”
        includes any governmental body or agency succeeding to the functions
        thereof.

       

      “Securities
        Exchange Act”
means
        the Securities Exchange Act of 1934, as amended, or any similar federal law
        then
        in force.

       

      “Series
        A Preferred Stock”
shall
        have the meaning specified in Section
        lA
        hereof.

       

      “Stock
        Split”
shall
        have the meaning set forth in Section
        2J
        hereof.

       

      “Tax”
or
        “Taxes”
means
        federal, state, county, local, foreign or other income, gross receipts, ad
        valorem, franchise, profits, sales or use, transfer, registration, excise,
        utility, environmental, communications, real or personal property, capital
        stock, license, payroll, wage or other withholding, employment, social security,
        severance, stamp, occupation, alternative or add-on minimum, estimated and
        other
        taxes of any kind whatsoever (including, without limitation, deficiencies,
        penalties, additions to tax, and interest attributable thereto) whether disputed
        or not.

       

      “Termination
        Date”
means
        March 31, 2005, or such later date as may be mutually agreed to in writing
        by
        the Company and the Placement Agent.

       

      “Trademarks”
shall
        have the meaning specified in Section
        5P
        hereof.

       

      “Transaction
        Documents”
has
        the
        meaning set forth in Section
        5D
        hereof.

       

      “Triggering
        Event”
shall
        mean the first to occur of a Qualified IPO, Public Merger and Resale
        Registration.

       

      “Underlying
        Common Stock”
means
        (i) the Common Stock issued or issuable upon conversion of the Series A
        Preferred Stock and (ii) any Common Stock issued or issuable with respect
        to the
        securities referred to in clause (i) above by way of stock dividend or stock
        split or in connection with a combination of shares, recapitalization, merger,
        consolidation or other reorganization. For purposes of this Agreement, any
        Person who holds any shares of Series A Preferred Stock shall be deemed to
        be
        the holder of the Underlying Common Stock obtainable upon conversion of the
        Series A Preferred Stock in connection with the transfer thereof or otherwise
        regardless of any restriction or limitation on the conversion of the Series
        A
        Preferred Stock, such Underlying Common Stock shall be deemed to be in
        existence, and such Person shall be entitled to exercise the rights of a
        holder
        of Underlying Common Stock hereunder.

       

      
        
          
          

        

        
          25

          
            

          

        

        
          
          

        

      

      Section
        8.  Section
        8. Miscellaneous.

       

      8A.  Expenses.
        The
        Company shall pay the fees and expenses of its own advisors, counsel,
        accountants and other experts, and, to the extent provided in the Investment
        Banking Agreement, the fees and expenses of the Placement Agent’s advisors,
        counsel, accountants and other experts, and all other expenses incurred by
        the
        Company incident to the negotiation, preparation, execution, delivery and
        performance of this Agreement and the other Transaction Documents. The Company
        shall pay all stamp and other taxes and duties levied in connection with
        the
        issuance of the Securities under this Agreement. The Company shall pay, and
        hold
        each Purchaser and all holders of Series A Preferred Stock and Underlying
        Common
        Stock harmless against liability for the payment of the fees and expenses
        incurred with respect to the enforcement of the rights (in connection with
        a
        breach or threatened breach by the Company) granted under this Agreement,
        the
        other Transaction Documents, the Amended Certificate or the Certificate of
        Designation.

       

      8B.  Remedies.
        Each
        holder of the Series A Preferred Stock and Underlying Common Stock shall
        have
        all rights and remedies set forth in this Agreement, the other Transaction
        Documents, the Amended Certificate and the Certificate of Designation (or
        as may
        be amended) and all rights and remedies which such holders have been granted
        at
        any time under any other agreement or contract and all of the rights which
        such
        holders have under any law. Any Person having any tights under any provision
        of
        this Agreement shall be entitled to enforce such rights specifically (without
        posting a bond or other security), to recover damages by reason of any breach
        of
        any provision of this Agreement, the other Transaction Documents, the Amended
        Certificate and the Certificate of Designation and to exercise all other
        tights
        granted by law. The parties agree that monetary damages may not be adequate
        compensation for any loss incurred by reason of any breach of obligations
        described in the foregoing sentence and hereby agrees to waive in any action
        for
        specific performance of any such obligation the defense that a remedy at
        law
        would be adequate.

       

      8C.  Consent
        to Amendments.
        Except
        as otherwise expressly provided herein, the provisions of this Agreement
        may be
        amended and the Company may take any action herein prohibited, or omit to
        perform any act herein required to be performed by it, only if the Company
        has
        obtained the written consent of a Majority of the Purchasers. No other course
        of
        dealing between the Company and any Purchaser or other holder of Securities
        or
        any delay in exercising any rights hereunder or under the Amended Certificate
        or
        the Certificate of Designation (as may be amended) shall operate as a waiver
        of
        any rights of any such Purchasers or holders.

       

      8D.  Survival
        of Representations and Warranties.
        All
        representations and warranties contained herein or made in writing by any
        party
        in connection herewith shall survive the execution and delivery of this
        Agreement and the consummation of the transactions contemplated hereby,
        regardless of any investigation made by any Purchaser or on its behalf; provided
        that all of the representations and warranties contained herein, other than
        those contained in Sections 5A, 5B, 5C, 5D, 5J and 5P (each of which shall
        survive indefinitely), shall survive until the date which is the later of
        (a) 90
        days following a Triggering Event, and (b) the first year anniversary of
        the
        date of this Agreement.

       

      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      

      8E.  Successors
        and Assigns.
        Except
        as otherwise expressly provided herein, all covenants and agreements contained
        in this Agreement by or on behalf of any of the parties hereto shall bind
        and
        inure to the benefit of the respective successors and assigns of the parties
        hereto whether so expressed or not; provided, that the Company may not assign
        its rights or obligations hereunder without the consent of a Majority of
        the
        Purchasers. In addition, and whether or not any express assignment has been
        made, the provisions of this Agreement which are for any Purchaser’s benefit as
        a purchaser or holder of shares of the Series A Preferred Stock or Underlying
        Common Stock are also for the benefit of, and enforceable by, any subsequent
        holder of such Series A Preferred Stock or such Underlying Common Stock.
        The
        rights and obligations of each Purchaser under this Agreement and the agreements
        contemplated hereby may be assigned by such Purchaser at any time, in whole
        or
        in part, to any investment fund managed by such Purchaser, or any successor
        thereto.

       

      8F.  Severability.
        Whenever possible, each provision of this Agreement shall be interpreted
        in such
        manner as to be effective and valid under applicable law, but if any provision
        of this Agreement is held to be prohibited by or invalid under applicable
        law,
        such provision shall be ineffective only to the extent of such prohibition
        or
        invalidity, without invalidating the remainder of this Agreement.

       

      8G.  Counterparts.
        This
        Agreement may be executed simultaneously in two or more counterparts, any
        one of
        which need not contain the signatures of more than one party, but all such
        counterparts taken together shall constitute one and the same Agreement.
        Facsimile signatures shall be deemed originals for all purposes
        hereunder.

       

      8H.  Descriptive
        Headings; Interpretation.
        The
        descriptive headings of this Agreement are inserted for convenience only
        and do
        not constitute a substantive part of this Agreement. The use of the word
        “including” in this Agreement shall be by way of example rather than by
        limitation. Any reference to any federal, state, local or foreign statute
        or law
        shall be deemed also to refer to all rules and regulations promulgated
        thereunder and any applicable common law, unless the context requires otherwise.
        Terms used with initial capital letters will have the meanings specified,
        applicable to singular and plural forms, for all purposes of this Agreement.
        Whenever the context may require, any pronouns used in this Agreement shall
        include the corresponding masculine, feminine or neuter forms, and the singular
        form of nouns and pronouns shall include the plural, and vice
        versa.

       

      8I.  Generally
        Accepted Accounting Principles.
        Where
        any accounting determination or calculation is required to be made under
        this
        Agreement or the exhibits hereto, such determination or calculation (unless
        otherwise provided) shall be made in accordance with GAAP, consistently applied,
        except that if because of a change in GAAP the Company would have to alter
        a
        previously utilized accounting method or policy in order to remain in compliance
        with GAAP, such determination or calculation shall continue to be made in
        accordance with the Company’s previous accounting methods and
        policies.

       

      
        
          
          

        

        
          27

          
            

          

        

        
          
          

        

      

      8J.  Governing
        Law; Jurisdiction.
        The
        corporate law of the State of Delaware shall govern all issues and questions
        concerning the relative rights and obligations of the Company and its
        stockholders. All other issues and questions concerning the construction,
        validity, enforcement and interpretation of this Agreement and the exhibits
        and
        schedules hereto shall be governed by, and construed in accordance with,
        the
        laws of the State of New York, without giving effect to any choice of law
        or
        conflict of law rules or provisions (whether of the State of New York or
        any
        other jurisdiction) that would cause the application of the laws of any
        jurisdiction other than the State of New York. In furtherance of the foregoing,
        the internal law of the State of New York shall control the interpretation
        and
        construction of this Agreement (and all schedules and exhibits hereto), even
        if,
        under that jurisdiction’s choice of law or conflict of law analysis, the
        substantive law of some other jurisdiction would ordinarily apply. Each party
        agrees that any and all actions, claims, suits investigations or proceedings
        (including, without limitation, an investigation or partial proceeding, such
        as
        a deposition), whether commenced or threatened (each a “Proceeding”),
        concerning the interpretations, enforcement and defense of the transactions
        contemplated by this Agreement and any other Transaction Documents (whether
        brought against a party hereto or its respective Affiliates, employees or
        agents) may be commenced non-exclusively in the state and federal courts
        sitting
        in the City of New York, Borough of Manhattan (the “New
        York Courts”).
        Each
        party hereto hereby irrevocably submits to the non-exclusive jurisdiction
        of the
        New York Courts for the adjudication of any dispute hereunder or in connection
        herewith or with any transaction contemplated hereby or discussed herein
        (including with respect to the enforcement of the any of the Transaction
        Documents), and hereby irrevocably waives, and agrees not to assert in any
        Proceeding, any claim that it is not personally subject to the jurisdiction
        of
        any such New York Court, or that such Proceeding has been commenced in an
        improper or inconvenient forum. Each party hereto hereby irrevocably waives
        personal service of process and consents to process being served in any such
        Proceeding by mailing a copy thereof via registered or certified mail or
        overnight delivery (with evidence of delivery) to such party at the address
        in
        effect for notices to it under this Agreement and agrees that such service
        shall
        constitute good and sufficient service of process and notice thereof. Nothing
        contained herein shall be deemed to limit in any way any right to serve process
        in any manner permitted by law. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES,
        TO
        THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL
        BY
        JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
        OR THE
        TRANSACTIONS CONTEMPLATED HEREBY. IF ANY PARTY SHALL COMMENCE A PROCEEDING
        TO
        ENFORCE ANY PROVISIONS OF A TRANSACTION DOCUMENT, THEN THE PREVAILING PARTY
        IN
        SUCH PROCEEDING SHALL BE REIMBURSED BY THE OTHER PARTY FOR ITS ATTORNEY’S FEES
        AND OTHER COSTS AND EXPENSES INCURRED WITH THE INVESTIGATION, PREPARATION
        AND
        PROSECUTION OF SUCH PROCEEDING.

       

      8K.  Notices.
        All
        notices, demands or other communications to be given or delivered under or
        by
        reason of the provisions of this Agreement shall be in writing and shall
        be
        deemed to have been given (a) upon delivery, when delivered personally to
        the
        recipient, (b) on the next business day, if sent to the recipient by reputable
        overnight courier service (charges prepaid), (c) on the third business day
        after
        the date of mailing, if mailed to the recipient by certified or registered
        mail,
        return receipt requested and postage prepaid, or (d) on the date sent, if
        sent
        by confirmed facsimile transmission if during the normal business hours of
        the
        recipient, and, if not, on the next business day, provided, that such facsimile
        transmission is followed by delivery via another method permitted hereby.
        Such
        notices, demands and other communications shall be sent to each Purchaser
        at the
        address indicated for such Purchaser on such Purchaser’s counterpart signature
        page hereto and to the Company at the address indicated below:

       

      
        
          
          

        

        
          28

          
            

          

        

        
          
          

        

      

      Cleveland
        BioLabs, Inc.

      10265
        Carnegie Ave.

      Cleveland,
        OH 44106

      Attention:
        Michael Fonstein

       

      With
        a
        copy to:

       

      Katten
        Muchin Rosenman LLP

      525
        W.
        Monroe Street

      Chicago,
        Illinois 60661-3693

      Attention:
        Kurt W. Florian, Esq.

      

      or
        to
        such other address or to the attention of such other person as the recipient
        party has specified by prior written notice to the sending party.

       

      8L.  No
        Strict Construction.
        The
        parties hereto have participated jointly in the negotiation and drafting
        of this
        Agreement. In the event an ambiguity or question of intent or interpretation
        arises, this Agreement shall be construed as if drafted jointly by the parties
        hereto, and no presumption or burden of proof shall arise favoring or
        disfavoring any party by virtue of the authorship of any of the provisions
        of
        this Agreement.

       

      8M.  Indemnification.
        In
        consideration of each Purchaser’s execution and delivery of this Agreement and
        acquiring the Series A Preferred Stock hereunder and in addition to all of
        the
        Company’s other obligations under this Agreement and the other Transaction
        Documents, the Company shall defend, protect, indemnify and hold harmless
        each
        such Purchaser and each such Purchaser’s officers, directors, managers,
        partners, stockholders, members, employees and agents (including, without
        limitation, those retained in connection with the transactions contemplated
        by
        this Agreement) (collectively, the “Indemnities”)
        from
        and against any and all actions, causes of action, suits, claims, losses,
        costs,
        penalties, fees, liabilities and damages, and expenses in connection therewith
        (irrespective of whether any such Indemnitee is a party to the action for
        which
        indemnification hereunder is sought), and including reasonable attorneys’ fees
        and disbursements and costs of investigation (the “Indemnified
        Liabilities”)
        incurred by the Indemnitees or any of them as a result of, or arising out
        of, or
        relating to any misrepresentation in or breach of any of the representations
        and
        warranties or any nonfulfillment or breach of any covenant or agreement on
        the
        part of the Company under this Agreement or any other Transaction Document,
        provided that the Company shall not be liable to an Indemnitee under this
        Section 8M for any liability if such liability is caused solely by such
        Indemnitee’s fraud, willful misconduct or gross negligence or default or breach
        under this Agreement. To the extent that the foregoing undertaking by the
        Company may be unenforceable for any reason, the Company shall make the maximum
        contribution to the payment and satisfaction of each of the Indemnified
        Liabilities which is permissible under applicable law.

       

      
        
          
          

        

        
          29

          
            

          

        

        
          
          

        

      

      8N.  Understanding
        Among the Purchasers.
        The
        obligations of each Purchaser under this Agreement and any other Transaction
        Document are several and not joint with the obligations of any other Purchaser,
        and no Purchaser shall be responsible in any way for the performance of the
        obligations of any other Purchaser under this Agreement or any other Transaction
        Document. Each Purchaser shall be entitled to independently protect and enforce
        its rights, including without limitation the rights arising out of this
        Agreement or out of the other Transaction Documents, and it shall not be
        necessary for any other Purchaser to be joined as an additional party in
        any
        proceeding for such purpose. Notwithstanding anything herein to the contrary,
        the Company acknowledges and agrees that the liability of a Purchaser arising
        directly or indirectly, under this Agreement or any other Transaction Document
        of any and every nature whatsoever shall be satisfied solely out of the assets
        of such Purchaser, and that no trustee, officer, other investment vehicle
        or any
        other Affiliate of such Purchaser or any investor, shareholder or holder
        of
        shares of beneficial interest of such a Purchaser shall be personally liable
        for
        any liabilities of such Purchaser. The determination of each Purchaser to
        purchase shares of the Series A Preferred Stock pursuant to this Agreement
        has
        been made by such Purchaser independent of any other Purchaser and independent
        of any statements or opinions as to the advisability of such purchase or
        as to
        the properties, business, prospects or condition (financial or otherwise)
        of the
        Company which may have been made or given to such Purchaser by any other
        Purchaser or by any agent or employee of any other Purchaser. Each Purchaser
        acknowledges and agrees that no other Purchaser shall be responsible in any
        way
        or held liable or accountable to any extent for any information, documents,
        materials, analysis, projections, plans or other data (or compilations thereof)
        relating to the Company or the transactions contemplated hereby (collectively,
        “Investment
        Data”)
        provided to such Purchaser by any other Purchaser, and each Purchaser agrees
        to
        hold harmless and not make any claims against any other Purchaser with respect
        to any Investment Data provided to such Purchaser by such other
        Purchaser.

       

      8O.  Entire
        Agreement.
        This
        Agreement, together with the other Transaction Documents, the PPM and the
        Exhibits and Schedules hereto and thereto, contain the entire understanding
        of
        the parties with respect to the subject matter hereof and supersede all prior
        agreements and understandings, oral or written, with respect to such matters,
        which the parties acknowledge have been merged into such documents, exhibits
        and
        schedules.

       

      8P.  Notice
        Rescission and Withdrawal Right.
        Notwithstanding anything to the contrary contained in (and without limiting
        any
        similar provisions of) this Agreement or any other Transaction Documents,
        whenever any Purchaser exercises a right, election, demand or option hereunder
        or thereunder and the Company does not timely perform its related obligations
        within the periods therein provided, then such Purchaser may rescind or
        withdraw, in its sole discretion from time to time upon written notice to
        the
        Company, any relevant notice, demand or election in whole or in part without
        prejudice to its future actions and rights.

       

      8Q.  Replacement
        of Securities.
        If any
        certificate or instrument evidencing any Securities is mutilated, lost, stolen
        or destroyed, the Company shall issue or cause to be issued in exchange and
        substitution for and upon cancellation thereof, or in lieu of and substitution
        therefor, a new certificate or instrument, but only upon receipt of evidence
        reasonably satisfactory to the Company of such loss, theft or
        destruction.

       

      
        
          
          

        

        
          30

          
            

          

        

        
          
          

        

      

      8R.  Payment
        Set Aside.
        To the
        extent that the Company makes a payment or payments to any Purchaser pursuant
        to
        this Agreement or any other Transaction Document or a Purchaser enforces
        or
        exercises its rights hereunder or thereunder, and such payment or payments
        or
        the proceeds of such enforcement or exercise or any part thereof are
        subsequently invalidated, declared to be fraudulent or preferential, set
        aside,
        recovered from, disgorged by or are required to be refunded, repaid or otherwise
        restored to the Company, a trustee, receiver or any other person under any
        law
        (including, without limitation, any bankruptcy law, state or federal law,
        common
        law or equitable cause of action), then to the extent of any such restoration,
        the obligation or part thereof originally intended to be satisfied shall
        be
        revived and continued in full force and effect as if such payment had not
        been
        made or such enforcement or setoff had not occurred.

       

      8S.  Adjustments
        in Share Numbers and Prices.
        In the
        event of any stock split (other than the Stock Split), subdivision, dividend
        or
        distribution payable in shares of Common Stock (or other securities or rights
        convertible into, or entitling the holder thereof to receive directly or
        indirectly shares of Common Stock), combination or other similar
        recapitalization or event occurring after the date hereof but prior to the
        initial Funding Date, each reference in this Agreement and each other
        Transaction Document to a number of shares or a price per share shall be
        amended
        to appropriately account for such event.

       

      8T.  Further
        Assurances.
        Each
        party agrees to execute such other documents, instruments, agreements and
        consents, and take such other actions as may be reasonably requested by the
        other parties hereto to effectuate the purposes of this Agreement.

       

      8U.  Reliance.
        The
        Company acknowledges and agrees that, in accepting shares of the Company’s
        Common Stock and/or Fee Warrants as partial consideration for services rendered
        to the Company in connection with the transactions contemplated hereby, the
        Placement Agent and/or its designees are entitled to rely on and enforce
        the
        Company’s representations and warranties, covenants and agreements and as if a
        party hereto.

       

       

      (The
        remainder of this page is left intentionally blank.)

       

      (Counterpart
        signature pages to follow.)

      

      
        
          
          

        

        
          31

          
            

          

        

        
          
          

        

      

      COMPANY
        COUNTERPART TO

      STOCK
        PURCHASE AGREEMENT

       

      IN
        WITNESS WHEREOF, the undersigned has executed this Agreement as of the date
        first set forth above.

       

      
        	 	 	 
	 	CLEVELAND
                BIOLABS,
                INC.
	 
 	 
 	 
 
	 	By:  	/s/ Michael
                Fonstein
	 	
                

                Michael
                  Fonstein,

                President
                  and Chief Executive Officer

              
	 	 

      

       

      
 

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      PURCHASER
        COUNTERPART TO

      STOCK
        PURCHASE AGREEMENT

       

      IN
        WITNESS WHEREOF, the undersigned has executed this Agreement as of the date
        first set forth above.

       

      

      
        	 	 	
                INDIVIDUAL:

              
	 	 	 
	
                Number
                  of Shares of Series A

                Preferred
                  Stock Subscribed for 

                 

              	 	
                Print
                  Name

                 

                 

              
	
                Aggregate
                  Purchase Price

                (i.e.,
                  Number of Shares x $2.00)

                 

              	 	
                Signature

                 

                 

                 

              
	
                ADDRESS
                  FOR NOTICES:*

              	 	
                Social
                  Security Number

                 

              
	 	 	 
	 	 	
                ENTITY:

                 

              
	
                 

                Attention:
                  

              	 	 
	
                 

                Telephone:
                  

              	 	
                Print
                  Entity Name

              
	
                 

                Facsimile:
                  

              	 	 
	
                 

                *Individuals
                  should list their primary residence; Entities should list their
                  principal
                  place of business

                 

              	 	
                Signature

                 

              
	 	 	
                Name
                  and Title of Signatory

                 

              
	 	 	
                Tax
                  ID Number

                 

              

      

      

      
 

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      LIST
        OF EXHIBITS

       

      
        	 	 	 
	
                Exhibit
                  A

              	
                -

              	
                Certificate
                  of Designation

              
	
                Exhibit
                  B

              	
                -

              	
                Rights
                  Agreement

              
	
                Exhibit
                  C

              	
                -

              	
                Opinion
                  of Company Counsel

              
	
                Exhibit
                  D

              	
                -

              	
                IP
                  Comfort Letter of Company Counsel

              
	
                Exhibit
                  E

                 

              	
                -

                 

              	
                Purchaser
                  Questionnaire

                 

              

      

       

      LIST
        OF DISCLOSURE SCHEDULES

       

      
        	
                Capitalization
                  Schedule

              
	
                Financial
                  Statements Schedule

              
	
                Liabilities
                  Schedule

              
	
                Contracts
                  Schedule

              
	
                Affiliated
                  Transactions Schedule

              
	
                Products
                  Schedule

              

      

      

       

      

      
        
          
          

        

        
          3SERIES
      A RIGHTS AGREEMENT

     

    This
      Series A Rights Agreement (this “Agreement”)
      is
      made as of March 15, 2005, by and among Cleveland BioLabs, Inc., a Delaware
      corporation (the “Corporation”),
      each
      Person who holds Common Stock (as defined below) as of the date hereof (each
      such person to be listed on the Common
      Stockholders Schedule
      attached
      hereto and to execute a counterpart of this Agreement) (collectively, the
“Common
      Stockholders”
and
      each individually a “Common Stockholder”),
      and
      the purchasers identified on the Schedule
      of Purchasers
      (as may
      be amended from time to time up until the Final Closing (as defined below))
      (each such person to execute a counterpart to this Agreement) (collectively
      the
“Purchasers”
and
      each individually a “Purchaser”).

     

    Pursuant
      to that Stock Purchase Agreement, dated as of the date hereof, by and between
      the Purchasers and the Corporation (as amended and modified from time to time,
      the “Purchase
      Agreement”),
      the
      other documents and instruments referred to therein and consummation of the
      transactions contemplated thereby, the Purchasers are acquiring shares of the
      Corporation’s Series A Participating Convertible Preferred Stock, $0.005 par
      value per share (collectively, the “Series
      A Preferred Shares”).
      Except as otherwise indicated herein, capitalized terms used herein shall have
      the meanings set forth in Section
      1
      hereof,
      or if not defined herein, the meanings for such capitalized terms set forth
      in
      the Purchase Agreement.

     

    As
      partial consideration for services rendered to the Corporation in connection
      with the sale of Series A Preferred Shares under the Purchase Agreement and
      pursuant to that Investment Banking Agreement, dated September 30, 2004, between
      the Corporation and Sunrise Securities Corp. (“Sunrise”),
      the
      Corporation has and/or will issue to Sunrise and/or its designees shares of
      Common Stock (“Fee
      Shares”)
      and
      warrants to acquire shares of Common Stock (the “Fee
      Warrants”
and
      together with the Fee Shares and the shares of Common Stock issued or issuable
      upon exercise of the Fee Warrants, the “Fee
      Securities”).

     

    In
      order
      to induce the Purchasers to enter into the Purchase Agreement and the other
      agreements contemplated thereby and to purchase the Series A Preferred Shares
      in
      the manner contemplated thereby, and in order to induce Sunrise and/or its
      designees to accept as consideration for services rendered, the Fee Shares
      and
      the Fee Warrants, the Corporation and the Common Stockholders have agreed to
      the
      terms and conditions herein.

     

     

    AGREEMENTS

     

    In
      consideration of the recitals and the mutual promises, covenants and agreements
      contained herein and other good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged, the parties hereto hereby agree
      as
      follows:

     

    1. Definitions.
      In
      addition to the capitalized terms defined elsewhere in this Agreement, the
      following capitalized terms shall have the following meanings when used in
      this
      Agreement:

     

    “Agreement”
means
      this Series A Rights Agreement, as may be amended.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Board”
means
      the Board of Directors of the Corporation.

     

    “Commission”
means
      the United States Securities and Exchange Commission or any successor
      thereto.

     

    “Common
      Stock”
means
      the common stock, par value $0.005 per share, of the Corporation.

     

    “Common
      Stockholder”
has
      the
      meaning specified in the Preamble hereto.

     

    “Corporation”
shall
      mean Cleveland BioLabs, Inc., a Delaware corporation, and its successors and
      permitted assigns.

     

    “Effectiveness
      Deadline”
has
      the
      meaning specified in Section 4 hereof.

     

    “Effective
      Period”
shall
      mean the period commencing on the date as of which the subject registration
      statement is declared effective and ending on the eighteen-month anniversary
      thereof, or such earlier date as of which all of the Registrable Securities
      registered for resale thereunder have been sold; provided, that, (a) the
      Effective Period shall be extended, as necessary to comply with the Securities
      Act, and (b) with respect to an underwritten offering, the Effective Period
      shall be extended as requested by the underwriter(s) or as otherwise necessary
      to allow the underwriter(s) to complete the distribution of all securities
      registered thereunder.

     

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

     

    “Fee
      Securities”
has
      the
      meaning specified in the Recitals hereto.

     

    “Fee
      Shares”
has
      the
      meaning specified in the Recitals hereto.

     

    “Fee
      Warrants”
has
      the
      meaning specified in the Recitals hereto.

     

    “Final
      Closing”
means
      the final closing of the purchase and sale of Series A Preferred Shares pursuant
      to the Purchase Agreement.

     

    “Filing
      Deadline”
has
      the
      meaning specified in Section 4 hereof.

     

    “Indemnified
      Party”
has
      the
      meaning specified in Section 9(c) hereof.

     

    “Indemnifying
      Party”
has
      the
      meaning specified in Section 9(c) hereof.

     

    “IPO”
means
      the Corporation’s first underwritten offering of its Common Stock to the public
      pursuant to an effective registration statement on Form S-1 (or other
      appropriate form) under the Securities Act.

     

    “Common
      Stockholder Shares”
means
      the Securities originally issued to Common Stockholders or any Securities
      acquired by any Common Stockholder after the date hereof (after which time
      such
      shares shall be deemed to be “Common
      Stockholder Shares”
      hereunder). For all purposes of this Agreement, Common Stockholder Shares will
      continue to be Common Stockholder Shares in the hands of any holder (except
      for
      the Corporation or any Purchaser hereunder, and purchasers pursuant to an
      offering registered under the Securities Act or purchasers pursuant to a Rule
      144 transaction), and each such other holder of Common Stockholder Shares will
      succeed to all rights and obligations attributable to any Common Stockholder,
      as
      a holder of Common Stockholder Shares hereunder. Common Stockholder Shares
      will
      also include shares of the Corporation’s capital stock issued with respect to
      any Common Stockholder Shares by way of a stock split, stock dividend or other
      recapitalization.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    “Liabilities”
has
      the
      meaning specified in Section 9(a) hereof.

     

    “Merger”
means
      a
      merger of the Corporation with a United States fully reporting and trading
      public company whether or not such company has any ongoing active business
      operations.

     

    “New
      York Courts”
has
      the
      meaning specified in Section 22 hereof.

     

    “Person”
means
      an individual, corporation, partnership, limited liability company, limited
      partnership, syndicate, person (including, without limitation, a “Person” as
      defined in Section 13(d)(3) of the Exchange), trust, association or entity
      or
      government, political subdivision, agency or instrumentality of a
      government.

     

    “Penalty
      Shares”
means
      Series A Preferred Shares and shares of Common Stock which are issued pursuant
      to Section 5 hereof.

     

    “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.

     

    “Public
      Trigger Date”
has
      the
      meaning specified in Section 3 hereof.

     

    “Purchase
      Agreement”
has
      the
      meaning specified in the Recitals hereto.

     

    “Purchaser”
has
      the
      meaning specified in the Preamble hereto.

     

    “Registrable
      Securities”
means
      at any time (i) any shares of Common Stock then outstanding which were issued
      upon conversion of Series A Preferred Shares (including Series A Preferred
      Shares issued as Penalty Shares); (ii) any shares of Common Stock then issuable
      upon conversion of then outstanding Series A Preferred Shares originally issued
      to the Purchasers (including Series A Preferred Shares issued as Penalty
      Shares); (iii) Fee Securities; (iv) any shares of Common Stock then outstanding
      which were issued as Penalty Shares or upon conversion of Series A Preferred
      Shares which were issued as Penalty Shares and any shares of Common Stock then
      issuable upon conversion of Series A Preferred Shares which were issued as
      Penalty Shares; (v) any shares of Common Stock then outstanding which were
      issued as, or were issued directly or indirectly upon the conversion or exercise
      of other securities issued as, a dividend or other distribution with respect
      to
      or in replacement of any shares referred to in (i), (ii), (iii) or (iv); and
      (vi) any shares of Common Stock then issuable directly or indirectly upon the
      conversion or exercise of other securities which were issued as a dividend
      or
      other distribution with respect to or in replacement of any shares referred
      to
      in (i), (ii), (iii), (iv) or (v); provided, however, that Registrable Securities
      shall cease to be Registrable Securities when such Registrable Securities have
      been (a) disposed of pursuant to an effective registration statement under
      the
      Securities Act, (b) sold or otherwise transferred in a transaction in which
      the
      rights under the provisions of this Agreement have not been properly assigned,
      or (c) sold pursuant to Rule 144. For purposes of this Agreement, a Person
      will
      be deemed to be a holder of Registrable Securities whenever such Person has
      the
      then-existing right to acquire such Registrable Securities (by conversion or
      otherwise), whether or not such acquisition actually has been effected. Subject
      to the foregoing, Registrable Securities shall continue to constitute
      Registrable Securities in the hands of any permitted transferee of a
      Purchaser.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    “Registration
      Expenses”
has
      the
      meaning specified in Section 8(a) hereof.

     

    “Required
      Transaction”
has
      the
      meaning specified in Section 3 hereof.

     

    “Resale
      Registration”
means
      the registration by the Corporation pursuant to an effective resale registration
      statement on Form S-1, SB-2, S-3 or other applicable form under the Securities
      Act, of the Registrable Securities.

     

    “Resale
      Registration Statement”
has
      the
      meaning specified in Section 4 hereof.

     

    “Rule
      144”
means
      Rule 144 (including Rule 144(k)) of the Commission under the Securities Act
      or
      any similar provision then in force under the Securities Act.

     

    “Securities”
means
      shares of Common Stock or shares of capital stock or other securities directly
      or indirectly exercisable for, or convertible into, shares of Common Stock;
      provided, however, that Securities shall not include any securities which have
      been sold to the public pursuant to a registration statement declared effective
      by the Commission or, after a “public offering” pursuant to Rule
      144.

     

    “Securities
      Act”
means
      the Securities Act of 1933, as amended, or any similar federal statute, as
      the
      same shall be in effect from time to time.

     

    “Sellers’
      Counsel”
has
      the
      meaning specified in Section 6(a) hereof.

     

    “Series
      A Majority”
means
      holders of at least a majority of the then outstanding Series A Preferred
      Shares.

     

    “Series
      A Preferred Shares”
has
      the
      meaning specified in the Recitals hereto.

     

    “Sunrise”
has
      the
      meaning specified in the Recitals hereto.

     

    “Trading
      Market”
means
      whichever of the New York Stock Exchange, the American Stock Exchange, the
      NASDAQ National Market, the NASDAQ SmallCap Market, the Over-The-Counter
      Bulletin Board or the “Pink Sheets” published by the National Quotation Bureau
      Incorporated Sheets on which the Common Stock is listed or quoted for trading
      on
      the date in question.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    2. Board
      of Directors.

     

    (a) In
      General.
      So long
      as any Series A Preferred Shares remain outstanding, the Corporation, the Common
      Stockholders and the Purchasers shall take all actions to cause the Board to
      consist of up to seven directors, comprised as follows:

     

    (i) Up
      to two
      individuals, designated by a Series A Majority (each, a “Series
      A Designee”
and,
      together, the “Series
      A Designees”);
      and

     

    (ii) Up
      to
      five individuals, to be designated by holders of a plurality of the Common
      Stock.

     

    Notwithstanding
      the foregoing, or any other provision of this Section 2, the holders of Series
      A
      Preferred Shares shall be under no obligation to designate and elect any Series
      A Designee. Any matter presented to the Board shall be approved and be deemed
      to
      be the act of the Board only upon the affirmative vote of a majority of all
      of
      the members of the Board then serving. Quorum of the Board and of any Committee
      (as defined below) shall be a majority in number of the members thereof,
      provided, that, at any time that there is a Series A Designee then serving
      as a
      member of the Board or a Committee, quorum shall require the presence (by phone
      or in person) of at least one Series A Designee. No action by the Board or
      a
      Committee by written consent in lieu of a meeting shall be effective unless
      executed by each Series A Designee then serving on the Board or such
      Committee.

     

    (b) Committees.
      Upon
      request by a Series A Majority or otherwise with the approval of the Board,
      the
      Board shall establish one or more committees of the Board, which may include,
      among others, an audit committee and/or compensation committee (each such
      committee, a “Committee”).
      Each
      Committee shall be comprised of (i) so long as there is a Series A Designee
      then
      serving, at the option of a Series A Majority, one Series A Designee, and (ii)
      such other members of the Board as a majority in number of the Board shall
      agree.

     

    (c) Board
      Observer.
      At the
      option of a Series A Majority, in lieu of designating a Series A Designee,
      a
      Series A Majority shall have the right to designate an individual to serve
      as
      observer to attend any meeting of the Board or any Committee. Any such observer
      shall be designated by a Series A Majority at or in advance of such meeting
      by
      written notice to the Corporation. Such observer(s) shall be entitled to receive
      all notices, minutes, consents and other materials as the Corporation provides
      to its Board or any Committee members, at the time such materials are
      distributed to the directors or members, as applicable. If no observer has
      been
      designated at the time notice of a meeting or any other documentation is
      distributed, such notice and documentation shall be sent to the Series A
      Representatives, if any have been designated. Notwithstanding the foregoing,
      the
      Corporation reserves the right to exclude any observer from access to any
      material or meeting or portion thereof if (i) the Corporation believes, upon
      written advice of counsel, that such exclusion is reasonably necessary to
      preserve the attorney-client privilege, (ii) the Board is addressing any rights
      of the Corporation vis-à-vis the Purchasers or the Corporation’s financial
      relationship with the Purchasers or (iii) the Board determines in its good
      faith
      reasonable judgment that such observer otherwise has a conflict of interest,
      contrary to the best interest of the Corporation, with respect to the matters
      being addressed by the Board.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    (d) Voting
      Agreement.
      So long
      as any Series A Preferred Shares remain outstanding, each holder of Common
      Stockholder Shares shall vote all of the Common Stockholder Shares, and each
      Purchaser shall vote all Series A Preferred Shares, in each case which are
      voting securities of the Corporation, and in each case, any other voting
      securities of the Corporation over which such holder has voting control, and
      shall take all other necessary or desirable actions within such holder’s control
      (whether in such Person’s capacity as a stockholder, director, member of a Board
      committee or officer of the Corporation or otherwise, and including, without
      limitation, attendance at meetings in person or by proxy for purposes of
      obtaining a quorum and execution of written consents in lieu of meetings),
      and
      the Corporation shall take all necessary or desirable actions within its control
      (including, without limitation, calling special Board and stockholder meetings),
      so that:

     

    (i) Board
      Composition.
      The
      Board shall consist of up to seven members and a Series A Majority shall have
      the right to elect the Series A Designee(s).

     

    (ii) Removal.
      A
      Series A Majority may, by written consent or at a special meeting of the holders
      of Series A Preferred Shares, remove any Series A Designee or observer appointed
      in lieu thereof, with or without cause. No Series A Designee or observer
      appointed in lieu thereof shall be subject to removal except in accordance
      with
      the immediately preceding sentence.

     

    (iii) Vacancies.
      If a
      Series A Designee or observer appointed in lieu thereof shall cease to serve
      as
      a director or observer for any reason before his or her term expires, a Series
      A
      Majority may, by written consent or at a special meeting of the holders of
      Series A Preferred Shares, elect a successor director or observer, as the case
      may and, in the case of a Series A Designee, to hold office for the unexpired
      term of the director whose place shall be vacant.

     

    (e) Director
      Fees and Expenses; Indemnification.
      The
      Corporation shall pay the reasonable out-of-pocket expenses incurred by the
      Series A Designee(s) in connection with attending the meetings of the Board
      and
      any Committee. If, at any time, any Board representative receives any
      compensation (whether in cash, securities or otherwise) for serving on the
      Board
      or any Committee, then all directors having similar responsibilities in their
      capacity as Series A Designee shall be entitled to receive the same
      compensation.

     

    (f) D&O
      Insurance; Indemnification.
      If
      requested by a Series A Majority, the Corporation shall obtain and maintain
      directors’ and officers’ indemnity insurance covering all members of the Board
      and each Committee, which insurance shall be satisfactory in all respects to
      a
      Series A Majority as they shall determined from time to time. Further,
      commensurate with the election of any Series A Designee, the Corporation shall
      enter into an indemnification agreement, in form and substance satisfactory
      to
      such Series A Designee, which indemnification agreement shall provide for
      indemnification and exculpation of such Series A Designee to the fullest extent
      permitted under applicable law.

     

    (g) Termination.
      Notwithstanding anything contained herein to the contrary, the provisions of
      Section 2(d) shall terminate and become null and void effective upon the
      registration of any equity security of the Corporation pursuant to Section
      12 of
      the Exchange Act, whether by reason of an IPO, a Merger, a Resale Registration
      or otherwise, whether or not all Registrable Securities are included in the
      registration statements relating thereto.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    (h) Series
      A Representatives.
      The
      holders of Series A Preferred Shares shall have the right, but shall not be
      required to, designate up to two individuals as representatives of such holders,
      which individuals shall serve as the “Series A Representatives” as such term is
      used in the Certificate of Designation of the Series A Preferred Shares. To
      be
      effective, the designation of any individual as a Series A Representative,
      or
      the removal of any individual as a Series A Representative, must be in writing,
      signed by holders of Series A Preferred Shares constituting a Series A Majority
      and delivered to the Corporation. The Purchasers agree, on behalf of themselves
      and their respective successors and permitted assigns, that no Series A
      Representative shall be responsible for any loss, liability, claim, damage
      or
      expense of any kind suffered by any holder of Series A Preferred Shares in
      connection with or by reason of such Series A Representative’s acceptance of
      such designation or performance of his or her duties under the Certificate
      of
      Designation, unless and to the extent such loss, liability, claim, damage or
      expense arises from such Series A Representative’s gross negligence or willful
      misconduct.

     

    3. Obligation
      to Become Public.
      The
      Corporation and Common Stockholders acknowledge and agree that to induce the
      Purchasers to enter into the Purchase Agreement and to consummate the
      transactions contemplated thereby, and to induce Sunrise and/or its designees
      to
      accept the Fee Shares and Fee Warrants as partial consideration for services
      rendered to the Corporation, not later than six months following the earlier
      of
      (a) the date as of which at least $6,000,000 or more of Series A Preferred
      Shares are purchased by the Purchasers, and (b) the Termination Date (as such
      term is defined in the Purchase Agreement) and, if later, the Final Closing
      (as
      defined below) of the purchase and sale of Series A Preferred Shares under
      the
      Purchase Agreement (the “Public
      Trigger Date”),
      the
      Corporation shall have either (x) received a declaration of effectiveness from
      the Commission with respect to a registration statement on Form S-1 (or other
      appropriate form) filed with the Commission for an IPO of the Corporation’s
      Common Stock (at a $2.00 price per share or greater) which, to the extent
      acceptable to the Corporation’s underwriters, shall include all Registrable
      Securities, (y) completed a Merger and received a declaration of effectiveness
      from the Commission with respect to a resale registration statement on Form
      S-1,
      SB-2, S-3 or other applicable form with the Commission to register for resale
      all Registrable Securities, or (z) received a declaration of effectiveness
      from
      the Commission with respect to a Resale Registration covering the resale of
      Registrable Securities (collectively, a “Required
      Transaction”).
      If an
      underwritten registration is consummated pursuant to this Section
      3
      and the
      managing underwriters advise the Corporation in writing that in their opinion
      the number of shares of Common Stock requested to be included in such
      registration exceeds the number which can be marketed (i) within a price range
      acceptable to the Corporation, and (ii) without materially and adversely
      affecting the entire offering, the Corporation will include in such registration
      only up to the amount of Common Stock determined advisable by the underwriters;
      provided, however, that Registrable Securities shall be included in such
      registration prior to the inclusion of Common Stock owned by any Common
      Stockholders.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    4. Registration
      of Shares.
      In the
      event that the Corporation has not registered all of the Registrable Securities
      as part of a Required Transaction, the Corporation shall, within 30 days
      following the consummation of a Required Transaction (the “Filing
      Deadline”),
      file
      a registration statement (a “Resale
      Registration Statement”)
      including all (or the remaining) Registable Securities, and will use its best
      efforts to have the registration declared effective as soon as possible, but
      in
      any event prior to the 60th day after the Filing Deadline (or 90th day after
      Filing Deadline in the event that the Registration Statement is reviewed and
      commented upon by the Commission, collectively, the “Effectiveness
      Deadline”).

     

    5. Penalty
      Shares.

     

    (a) In
      the
      event that that Corporation has not consummated one of the Required Transactions
      on or before the Public Trigger Date, the Corporation shall issue to each holder
      of Registrable Securities, such number of additional Series A Preferred Shares
      as shall equal 2% of the Series A Preferred Shares held by such holder (not
      including any previously issued Penalty Shares), plus such number of additional
      shares of Common Stock as shall equal 2% of the shares of Common Stock held
      by
      such holder (not including any previously issued Penalty Shares or shares of
      Common Stock issuable upon conversion of Series A Preferred Stock, but including
      Fee Securities and shares of Common Stock previously issued upon conversion
      of
      Series A Shares) for each thirty (30) day period beyond the Public Trigger
      Date
      that a Required Transaction has not been consummated; provided, however, that,
      in the event that effectiveness of any registration statement is delayed due
      to
      Commission comments on the filed registration statement, the Public Trigger
      Date
      shall be extended (only once) for an additional forty-five (45) days, so long
      as
      the Corporation is in good faith responding to such comments in a timely manner
      and such comments do not preclude the Corporation from going effective on such
      registration statement entirely.

     

    (b) In
      the
      event that the Corporation is required pursuant to Section 4 above to effect
      a
      Resale Registration Statement, and a Resale Registration Statement is not
      declared effective by the Commission by the Effectiveness Deadline, the
      Corporation shall issue to each holder of Registrable Securities, such number
      of
      additional Series A Preferred Shares as shall equal 2% of the Series A Preferred
      Shares held by such holder (not including any previously issued Penalty Shares),
      plus such number of additional shares of Common Stock as shall equal 2% of
      the
      shares of Common Stock held by such holder (not including any previously issued
      Penalty Shares or shares of Common Stock issuable upon conversion of Series
      A
      Preferred Stock, but including Fee Securities and shares of Common Stock
      previously issued upon conversion of Series A Shares) for each thirty (30)
      day
      period beyond the Effectiveness Deadline that the Resale Registration Statement
      has not been declared effective.

     

    (c) As
      of the
      date of this Agreement, the Corporation has authorized the issuance of 3,750,000
      Series A Preferred Shares and the Purchase Agreement contemplates the sale
      of up
      to 3,000,000 Series A Preferred Shares. While it is expected that the excess
      720,000 authorized Series A Preferred Shares will be more than sufficient to
      issue any Penalty Shares which the Corporation may become obligated to issue,
      the Corporation represents and warrants that it has obtained such Board
      authorization and approval as is necessary to, in the future, increase the
      number of authorized Series A Preferred Shares and to file an amendment to
      the
      Certificate of Designation of the Series A Preferred Shares so as to permit
      the
      valid issuance of Penalty Shares even if the Company becomes obligated to issue
      in excess of 720,000 of Series A Preferred Shares as Penalty Shares. The
      Corporation and each holder of Common Stockholder Shares further agree to take
      such actions as may be necessary to permit the Corporation to validly issue
      Series A Preferred Shares as Penalty Shares if required to do so by this Section
      5.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    6. Registration
      Procedures.
      Upon
      the Corporation being required to register the Registrable Securities pursuant
      to this Agreement, the Corporation will use its reasonable best efforts to
      effect the registration of such Registrable Securities in accordance with the
      intended method of disposition thereof, and, pursuant thereto, the Corporation
      will as expeditiously as reasonably possible:

     

    (a) prepare
      and file with the Commission a
      registration statement with respect to such Registrable Securities and
      thereafter use its reasonable best efforts to cause such registration statement
      to become and remain effective for the Effective Period; provided, that, before
      filing a registration statement or prospectus or any amendments or supplements
      thereto, the Corporation will furnish to the counsel selected by the holders
      of
      a majority of the Registrable Securities or, if no such counsel is selected,
      counsel to Sunrise (in either such case, “Sellers’
      Counsel”),
      copies of all such documents proposed to be filed, which documents will be
      subject to review of such counsel);

     

    (b) notify
      each holder of Registrable Securities of the effectiveness of each registration
      statement filed hereunder and prepare and file with the Commission such
      amendments and supplements to such registration statement and the prospectus
      used in connection therewith as may be necessary to comply with the Securities
      Act; and as may be necessary to keep such registration statement effective
      for
      the Effective Period, and to comply with the provisions of the Securities Act
      with respect to the disposition of all securities covered by such registration
      statement until such time as all of such securities have been disposed of in
      accordance with the intended methods of disposition by the seller or sellers
      thereof set forth in such registration statement;

     

    (c) furnish
      to each seller of Registrable Securities such number of copies of such
      registration statement, each amendment and supplement thereto, the
      prospectus(es) included in such registration statement (including each
      preliminary prospectus) and such other documents as such seller may reasonably
      request in order to facilitate the disposition of the Registrable Securities
      owned by such seller;

     

    (d) notify
      in
      writing each seller of such Registrable Securities, at any time when a
      prospectus relating thereto is required to be delivered under the Securities
      Act, of the happening of any event (including the passage of time) as a result
      of which the prospectus included in such registration statement, as then in
      effect, contains an untrue statement of a material fact or omits any fact
      necessary to make the statements therein not misleading in light of the
      circumstances under which they were made, and the Corporation will as soon
      as
      possible and, in any event, within four (4) business days of the happening
      of
      such event, prepare and file with the Commission a supplement or amendment
      to
      such prospectus so that, as thereafter delivered to the purchasers of such
      Registrable Securities, such prospectus will not contain any untrue statement
      of
      a material fact or omit to state any fact necessary to make the statements
      therein not misleading in light of the circumstances under which they were
      made;

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (e) use
      its
      reasonable best efforts to cause all such Registrable Securities to be
      registered or qualified with or approved by such other governmental agencies
      or
      authorities in such jurisdictions as may be necessary to consummate the
      disposition of such Registrable Securities;

     

    (f) provide
      a
      transfer agent and registrar (which shall be Continental Stock Transfer and
      Trust Company or such other transfer agent as may be acceptable to holders
      of a
      majority of the Registrable Securities) for all such Registrable Securities
      not
      later than the effective date of such registration statement;

     

    (g) enter
      into such customary agreements (including underwriting agreements in customary
      form) and take such other actions as are reasonably required in order to
      expedite or facilitate the disposition of such Registrable
      Securities;

     

    (h) make
      available for inspection by any seller of Registrable Securities, any
      underwriter participating in any disposition pursuant to such registration
      statement, and any attorney, accountant or other agent retained by any such
      seller or underwriter, all financial and other records, pertinent corporate
      documents and properties of the Corporation, and cause the Corporation’s
      officers, directors, employees and independent accountants to supply all
      information reasonably requested by any such seller or underwriter, attorney,
      accountant or agent in connection with such registration statement;

     

    (i) otherwise
      use its commercially reasonable efforts to comply with all applicable rules
      and
      regulations of the Commission, and make available to its security holders,
      as
      soon as reasonably practicable, an earnings statement covering the period of
      at
      least twelve months beginning with the first day of the Corporation’s first full
      calendar quarter after the effective date of the registration statement, which
      earnings statement shall satisfy the provisions of Section 11(a) of the
      Securities Act and Rule 158 thereunder;

     

    (j) advise
      in
      writing each seller of such Registrable Securities, promptly after it shall
      receive notice or obtain knowledge thereof, of the issuance of any stop order
      by
      the Commission suspending the effectiveness of such registration statement
      or
      the initiation or threatening of any proceeding for such purpose and promptly
      use its reasonable best efforts to prevent the issuance of any stop order or
      to
      obtain its withdrawal if any such stop order shall be issued;

     

    (k) at
      the
      request of the managing underwriters in connection with an underwritten
      offering, furnish on the date or dates provided for in the underwriting
      agreement (i) an opinion of counsel, addressed to the underwriters and, if
      permitted by applicable professional standards, to the sellers of Registrable
      Securities, covering such matters as such underwriters and sellers may
      reasonably request, including such matters as are customarily furnished in
      connection with an underwritten offering; and (ii) a letter or letters from
      the
      independent certified public accountants of the Corporation addressed to the
      underwriters and, if permitted by applicable professional standards, to the
      sellers of Registrable Securities, covering such matters as such underwriters
      or
      sellers may reasonably request, in which letter(s) such accountants shall state,
      without limiting the generality of the foregoing, that they are independent
      certified public accountants within the meaning of the Securities Act and that
      in their opinion the financial statements and other financial data of the
      Corporation included in the registration statement, the prospectus(es), or
      any
      amendment or supplement thereto, comply in all material respects with the
      applicable accounting requirements of the Securities Act;

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    (l) include
      in any registration statement covering the resale of Registrable Securities
      the
“Plan of Distribution” attached hereto as Annex
      A
      (subject
      only to modification to expressly comply with comments made by the Commission
      or
      as otherwise requested by holders of at least a majority of the Registrable
      Securities included in such registration statement or by Sellers’
Counsel);

     

    (m) respond
      as promptly as reasonably possible to any comments received from the Commission
      with respect to each registration statement or any amendment thereto and, as
      promptly as reasonably possible provide Sellers’ Counsel true and complete
      copies of all correspondence from and to the Commission relating to such
      Registration Statement that would not result in the disclosure to the holders
      of
      material and non-public information concerning the Corporation;

     

    (n) comply
      in
      all material respects with the provisions of the Securities Act and the Exchange
      Act with respect to the registration statements and the disposition of all
      Registrable Securities covered by each registration statement;

     

    (o) as
      soon
      as practicable, and in any event within two business days, after obtaining
      knowledge that the Commission and the Commission staff have no comments (or
      no
      further comments) concerning a registration statement, request acceleration
      of
      effectiveness of such registration statement;

     

    (p) notify
      the holders of Registrable Securities as promptly as reasonably possible (and,
      in the case of (i)(A) below, not less than three business days prior to such
      filing) and (if requested by any such holder) confirm such notice in writing
      no
      later than one business day following the day: (i)(A) when a prospectus or
      any
      prospectus supplement or post-effective amendment to a registration statement
      is
      proposed to be filed; (B) when the Commission notifies the Corporation whether
      there will be a “review” of such registration statement and whenever the
      Commission comments in writing on such registration statement (the Corporation
      shall provide true and complete copies thereof and all written responses thereto
      to each of the holders that pertain to the holders as a selling stockholder
      or
      to the Plan of Distribution, but not information which the Corporation believes
      would constitute material and non-public information); and (C) with respect
      to
      each registration statement or any post-effective amendment, when the same
      has
      become effective; (ii) of any request by the Commission or any other Federal
      or
      state governmental authority for amendments or supplements to a registration
      statement or prospectus or for additional information; and (iii) of the receipt
      by the Corporation 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;

     

    (q) cooperate
      with the holders of Registrable Securities to facilitate the timely preparation
      and delivery of certificates representing Registrable Securities to be delivered
      to a transferee pursuant to the registration statement, which certificates
      shall
      be free of all restrictive legends, and to enable such Registrable Securities
      to
      be in such denominations and registered in such names as any such holders may
      request;

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    (r) in
      the
      time and manner required by each Trading Market, use reasonable best efforts
      to
      (i) prepare and file with such Trading Market an additional shares listing
      application covering all the Registrable Securities, (ii) take all steps
      necessary to cause such Registrable Securities to be approved for listing on
      each Trading Market as soon as possible thereafter, (iii) if requested by any
      holder of Registrable Securities, provide to such holder evidence of such
      listing and (iv) maintain the listing of all such Registrable Securities on
      each
      such Trading Market; and

     

    (s) hold
      in
      confidence and not make any disclosure of non-public information concerning
      any
      holder of Registrable Securities, except as approved by the subject holder
      for
      inclusion in a registration statement.

     

    Notwithstanding
      any provision of this Section
      6
      to the
      contrary, the Corporation shall not be required to amend or supplement a
      prospectus if (a) such amendment of supplement would require the Corporation
      to
      disclose a material financing, acquisition or other transaction then being
      pursued by the Corporation, (b) the Board shall determine in good faith that
      such disclosure is not in the best interests of the Corporation or would
      materially interfere with such transaction and (c) such required amendment
      or
      supplement is filed with the Commission as soon as possible after such time
      as
      the disclosure would not contravene the best interests of the Corporation and
      materially interfere with such transaction; provided, that the Corporation
      shall
      give immediate notice thereof to all holders of Registrable Securities included
      in such Registration Statement.

     

    7. Other
      Provisions Regarding Registration.

     

    (a) The
      Corporation shall not, prior to the declaration by the Commission of
      effectiveness of a registration statement covering all of the Registrable
      Securities, prepare and file with the Commission a registration statement
      relating to an offering for its own account or the account of others (other
      than
      as contemplated by Section 3 of this Agreement) of any of its equity
      securities.

     

    (b) Unless
      otherwise agreed to by holders of no less than a majority of the Registrable
      Securities, neither the Corporation nor any of its securities holders (other
      than the holders) may include securities of the Corporation in any Resale
      Registration Statement filed pursuant to Section 4 other than the Registrable
      Securities, and that Corporation shall not after the date hereof enter into
      any
      agreement in contravention of the foregoing.

     

    (c) If
      at any
      time during which there are outstanding Registrable Securities, there is not
      one
      or more registration statements covering the resale of all Registrable
      Securities and the Corporation shall determine to prepare and file with the
      Commission a registration statement relating to an offering for its own account
      or the account of others under the Securities Act of any of its equity
      securities, other than of Form S-4 or Form S-8 (each as promulgated under the
      Securities Act) or their then equivalents relating to equity securities to
      be
      issued solely in connection with any acquisition of any entity or business
      or
      equity securities issuable in connection with stock option or other employee
      benefit plans, then the Corporation shall send to each holder of Registrable
      Securities written notice of such determination and if, within 15 business
      days
      after receipt of such notice any such holder shall so request in writing, the
      Corporation shall include in such registration statement the Registrable
      Securities requested by the holders to be so included.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    8. Registration
      Expenses.

     

    (a) Corporation’s
      Expenses.
      All
      expenses incident to the Corporation’s performance of or compliance with this
      Agreement, including without limitation all registration and filing fees, fees
      and expenses of compliance with securities or blue sky laws, listing fees,
      printing expenses, messenger, telephone and delivery expenses, fees of Security
      Act liability insurance if the Corporation desires to obtain such insurance,
      and
      fees and disbursements of counsel for the Corporation and all independent
      certified public accountants, underwriters (excluding discounts and commissions)
      and other Persons retained by the Corporation (all such expenses being herein
      called “Registration
      Expenses”)
      shall
      be borne by the Corporation. In addition, the Corporation shall be responsible
      for all of its internal expenses incurred in connection with the consummation
      of
      the transactions contemplated by this Agreement (including, without limitation,
      all salaries and expenses of its officers and employees performing legal or
      accounting duties), the expense of any annual audit and the fees and expenses
      incurred in connection with the listing of the Registrable Securities on any
      securities exchange as required hereunder.

     

    (b) Reimbursement.
      The
      Corporation will reimburse the holders of Registrable Securities covered by
      registration for the reasonable fees and disbursements of one counsel chosen
      by
      the holders of a majority of the Registrable Securities. The Corporation shall
      reimburse the holders of Registrable Securities included in such registration
      for the reasonable fees and disbursements of each additional counsel retained
      by
      any holder of Registrable Securities for the purpose of rendering any legal
      opinion required by the Corporation or the managing underwriter(s) to be
      rendered on behalf of such holder in connection with any underwritten
      registration.

     

    (c) Holder’s
      Expenses.
      Notwithstanding anything to the contrary contained herein, each holder of
      Registrable Securities shall bear and pay all underwriting discounts and
      commissions and transfer taxes applicable to the Registrable Securities sold
      for
      such holder’s account.

     

    9. Indemnification.

     

    (a) By
      the
      Corporation.
      Notwithstanding any termination of this Agreement, the Corporation agrees to
      indemnify and hold harmless, to the extent permitted by law, each holder of
      Registrable Securities, the officers, directors, agents, partners, members,
      managers, stockholders, trustees and employees and each Person who controls
      such
      holder (within the meaning of the Securities Act or the Exchange Act) and the
      officers, directors, agents, partners, members, managers, stockholders, trustees
      and employees of each such controlling Person, against all losses, claims,
      damages, liabilities and expenses (including without limitation, attorneys’
fees) (“Liabilities”)
      as
      incurred, arising out of or relating to (i) any untrue or alleged untrue
      statement of material fact contained in any registration statement, prospectus
      or preliminary prospectus, or any amendment thereof or supplement thereto,
      or
      any omission or alleged omission of a material fact required to be stated
      therein or necessary to make the statements therein not misleading, or (ii)
      any
      violation or alleged violation by the Corporation of the Securities Act, the
      Exchange Act, state (“blue sky”) securities laws or any rule or regulation
      promulgated thereunder and relating to action or inaction required of the
      Corporation in connection with any such registration statement, except insofar
      as the same are caused by or contained in any information furnished in writing
      to the Corporation by such holder expressly for use therein or by such holder’s
      failure to deliver a copy of the registration statement or prospectus or any
      amendments or supplements thereto after the Corporation has furnished such
      holder with a sufficient number of copies of the same. In connection with an
      underwritten offering, the Corporation shall indemnify such underwriters, their
      officers and directors and each Person who controls such underwriters (within
      the meaning of the Securities Act) to the same extent as provided above with
      respect to the indemnification of the holders of Registrable Securities. The
      payments required by this Section
      9(a)
      will be
      made periodically during the course of the investigation or defense, as and
      when
      bills are received or expenses incurred. The Corporation shall notify the
      holders of Registrable Securities promptly of the institution, threat or
      assertion of any Proceeding of which the Corporation is aware in connection
      with
      the transactions contemplated by this Agreement.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    (b) By
      Each Holder.
      In
      connection with any registration statement in which a holder of Registable
      Securities is participating, each such holder shall furnish to the Corporation
      in writing such information and affidavits as the Corporation reasonably
      requests for use in connection with any such registration statement or
      prospectus and, to the extent permitted by law, shall indemnify the Corporation,
      its directors and officers and each Person who controls the Corporation (within
      the meaning of the Securities Act) against any Liabilities resulting from any
      untrue or alleged untrue statement of material fact contained in the
      registration statement, prospectus or preliminary prospectus, or any amendment
      thereof or supplement thereto, or any omission or alleged omission of a material
      fact required to be stated therein or necessary to make the statements therein
      not misleading, but only to the extent that such untrue statement or omission
      is
      contained in any information or affidavit so furnished in writing by such holder
      expressly for use in such registration statement or prospectus; provided that
      the obligation to indemnify under this Section
      9(b)
      or to
      contribute under Section
      9(d)
      below
      will be several, not joint and several, among such holders of Registrable
      Securities, and the liability of each such holder of Registrable Securities
      under this Section
      9(b)
      and
      under Section
      9(c)
      shall be
      limited to the net amount received by such holder from the sale of Registrable
      Securities pursuant to such registration statement.

     

    (c) Procedures.

     

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

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    (ii) An
      Indemnified Party shall have the right to employ separate counsel in any such
      Proceeding and to participate in the defense thereof, but the fees and expenses
      of such counsel shall be at the expense of such Indemnified Party or Parties
      unless: (A) the Indemnifying Party has agreed in writing to pay such fees and
      expenses; (B) the Indemnifying Party shall have failed to promptly assume the
      defense of such Proceeding and to employ counsel reasonably satisfactory to
      such
      Indemnified Party in any such Proceeding; or (C) the named parties to any such
      Proceeding (including any impleaded parties) include both such Indemnified
      Party
      and the Indemnifying Party, and such Indemnified Party shall have been advised
      by counsel that a conflict of interest is likely to exist if the same counsel
      were to represent such Indemnified Party and the Indemnifying Party (in which
      case, if such Indemnified Party notifies the Indemnifying Party in writing
      that
      it elects to employ separate counsel at the expense of the Indemnifying Party,
      the Indemnifying Party shall not have the right to assume the defense thereof
      and such counsel shall be at the expense of the Indemnifying Party). The
      Indemnifying Party shall not be liable for any settlement of any such Proceeding
      effected without its written consent, which consent shall not be unreasonably
      withheld. No Indemnifying Party shall, without the prior written consent of
      the
      Indemnified Party, effect any settlement of any pending Proceeding in respect
      of
      which any Indemnified Party is a party, unless such settlement requires only
      the
      payment of cash or other consideration by the Indemnifying Party on behalf
      of
      the Indemnified Party and includes an unconditional release of such Indemnified
      Party from all liability on claims that are the subject matter of such
      Proceeding.

     

    (iii) All
      fees
      and expenses of the Indemnified Party (including reasonable fees and expenses
      to
      the extent incurred in connection with investigating or preparing to defend
      such
      Proceeding in a manner not inconsistent with this Section) shall be paid to
      the
      Indemnified Party, as incurred, within ten business days of written notice
      thereof to the Indemnifying Party (regardless of whether it is ultimately
      determined that an Indemnified Party is not entitled to indemnification
      hereunder; provided, that the Indemnifying Party may require such Indemnified
      Party to undertake to reimburse all such fees and expenses to the extent it
      is
      finally judicially determined that such Indemnified Party is not entitled to
      indemnification hereunder).

     

    (d) Contribution.
      To the
      extent any indemnification by an Indemnifying Party provided for in this
Section
      9
      is
      prohibited or limited by law, the Indemnifying Party, in lieu of indemnifying
      such Indemnified Party, shall contribute to the amount paid or payable by such
      Indemnified Party as a result of such Liabilities in such proportion as is
      appropriate to reflect the relative fault of the Indemnifying Party and the
      Indemnified Party in connection with the statements or omissions which resulted
      in such Liabilities, as well as any other relevant equitable considerations.
      The
      relative fault of such Indemnifying Party and Indemnified Party shall be
      determined by reference to, among other things, whether any action in question,
      including an untrue or alleged untrue statement of material fact or omission
      or
      alleged omission to state a material fact, has been made by, or relates to
      information supplied by, such Indemnifying Party or Indemnified Party, and
      the
      parties’ relative intent, knowledge, access to information and opportunity to
      correct or prevent such statement or omission. The amount paid or payable by
      a
      party as a result of any Liabilities shall be deemed to include, subject to
      the
      limitations set forth in Section
      9(c),
      any
      reasonable attorneys’ or other reasonable 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
      9(d)
      were
      determined by pro rata allocation or by any other method of allocation which
      does not take account of the equitable considerations referred to in this
      paragraph; provided that the limits in the final proviso of Section
      9(b)
      shall
      apply to this Section
      9(d).

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    (e) Other
      Indemnification Provisions.
      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. No Person guilty of fraudulent misrepresentation (within the meaning
      of
      Section 11(f) of the Securities Act) shall be entitled to contribution from
      any
      Person who was not guilty of such fraudulent misrepresentation. The
      indemnification and contribution provided for under this Agreement will remain
      in full force and effect regardless of any investigation made by or on behalf
      of
      the indemnified party or any officer, director or controlling Person of such
      indemnified party and will survive the transfer of securities.

     

    10. Compliance
      with Rule 144.
      In the
      event that the Corporation (a) closes on the sale of the Corporation’s equity
      securities pursuant to a registration statement or registers a class of
      securities under Section 12 of the Exchange Act, (b) issues an offering circular
      meeting the requirements of Regulation A under the Securities Act, or (c)
      commences to file reports under Section 13 or 15(d) of the Exchange Act, then
      the Corporation shall immediately following such event and
      thereafter:

     

    (i) use
      its
      reasonable best efforts to comply with the requirements of Rule 144(c) under
      the
      Securities Act with respect to making and keeping available current public
      information about the Corporation;

     

    (ii) use
      its
      reasonable best efforts to file with the Commission in a timely manner all
      reports and other documents required of the Corporation under the Securities
      Act
      and the Exchange Act (at any time after it has become subject to such reporting
      requirements and for so long as it remains subject to such reporting
      requirements); and

     

    (iii) at
      the
      request of any holder of Registrable Securities, forthwith furnish to such
      holder, a written statement of compliance with the requirements of said Rule
      144(c) (as such rule may be amended from time to time), and the reporting
      requirements of the Securities Act and the Exchange Act (at any time after
      it
      has become subject to such reporting requirements and for so long as it remains
      subject to such reporting requirements), (B) a copy of the most recent annual
      or
      quarterly report of the Corporation, and (C) such other reports and documents
      of
      the Corporation as such holder may reasonably request to avail itself of any
      similar rule or regulation of the SEC allowing it to sell any such securities
      without registration, including, without limitation, Rule 144A.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    11. Participation
      in Underwritten Registrations.
      No
      Person may participate in any registration hereunder which is underwritten
      unless such Person (a) agrees to sell its shares of Common Stock on the basis
      provided in any underwriting arrangements approved by the Corporation or any
      other Person or Persons entitled to approve such arrangements, and (b) completes
      and executes all questionnaires, powers of attorney, custody agreements,
      indemnities, underwriting agreements and other documents reasonably required
      under the terms of such underwriting arrangements. In addition, any underwriter
      of Registrable Securities shall be selected by holders of at least a majority
      of
      the Registrable Securities and shall be reasonably acceptable to the
      Corporation.

     

    12. Discontinued
      Disposition.
      Each
      Person that is participating in any registration hereunder agrees that, upon
      receipt of written notice from the Corporation of the happening of any event
      of
      the kind described in Section
      6(d)
      above or
      the issuance of a stop order by the Commission, such Person will forthwith
      discontinue the disposition of its Registrable Securities pursuant to the
      registration statement until such Person’s receipt of the copies of a
      supplemented or amended prospectus as contemplated by such Section
      6(d)
      or the
      withdrawal of the stop order as contemplated by Section
      6(j).
      In the
      event the Corporation shall give any such written notice, the Effective Period
      shall be extended by the number of days during the period from and including
      the
      date of the giving of such written notice pursuant to this Section
      12
      to and
      including the date when each seller of Registrable Securities covered by such
      registration statement shall have received from the Corporation the copies
      of
      the supplemented or amended prospectus contemplated by Section
      6(d)
      or
      written notice of the withdrawal of the stop order, as applicable.

     

    13. Standstill.
      Each
      Common Stockholder agrees not to effect any sale, transfer or distribution
      of
      his, her or its equity securities in the Corporation, or any securities
      convertible into or exchangeable or exercisable for such securities, during
      the
      period from the date of this Agreement until the date that is 90 days following
      the date as of which a registration statement covering the resale of all
      Registrable Securities has been filed with and declared effective by the
      Commission unless (a) such sale, transfer or distribution is approved in writing
      by holders of at least a majority of the Registrable Securities, and (b) the
      transferee of such sold, transferred or distributed securities agrees in writing
      to be bound by the terms of this Agreement to the same extent as if they had
      originally been a party hereto.

     

    14. Restrictions
      on Transfer.

     

    (a) Legends.
      The
      certificates representing the Series A Preferred Shares and the Registrable
      Securities will bear the following legend:

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    “THE
      SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH
      A
      VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. ANY SUCH
      SALE
      OR DISTRIBUTION MAY BE EFFECTED ONLY PURSUANT TO AN EFFECTIVE REGISTRATION
      STATEMENT RELATED THERETO OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
      A
      TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
      ACT
      AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. NOTWITHSTANDING THE
      FOREGOING, THE SHARES REPRESENTED HEREBY MAY BE PLEDGED IN CONNECTION WITH
      A
      BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY
      SUCH
      SHARES.”

     

    “THESE
      SECURITIES ARE SUBJECT TO CERTAIN AGREEMENTS SET FORTH IN A SERIES A RIGHTS
      AGREEMENT, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL EXECUTIVE OFFICE
      OF
      THE CORPORATION. ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE OR DISPOSITION IN
      CONFLICT WITH, OR IN DEROGATION OF, THE SERIES A STOCKHOLDERS AGREEMENT IS
      VOID
      AND OF NO LEGAL FORCE, EFFECT OR VALIDITY WHATSOEVER.”

     

    (b) Securities
      Act.
      No
      holder of Series A Preferred Shares or Registrable Securities may sell,
      transfer, or dispose of any of such Series A Preferred Shares or Registrable
      Securities except pursuant to an effective registration statement under the
      Securities Act or an exemption therefrom.

     

    15. Assignment
      of Rights.
      The
      rights of any Purchaser under this Agreement with respect to any Series A
      Preferred Shares and the rights of any holder of Registrable Securities under
      this Agreement with respect to any Registrable Securities may be assigned to
      any
      Person who acquires such Series A Preferred Shares or Registrable Securities;
      provided
      that (a)
      the assigning Purchaser or other holders, as applicable, shall give the
      Corporation written notice at or prior to the time of such assignment stating
      the name and address of the assignee and identifying the shares with respect
      to
      which the rights under this Agreement are being assigned; (b) such assignee
      shall agree in writing, in form and substance reasonably satisfactory to the
      Corporation, to be bound by the provisions of this Agreement; and (c)
      immediately following such assignment the further disposition of such securities
      by such assignee is restricted under the Securities Act.

     

    16. Execution;
      Counterparts.
      This
      Agreement may be executed in any number of counterparts, each of which when
      so
      executed and delivered will be deemed an original, and such counterparts
      together will constitute one instrument. In the event that any signature is
      delivered by facsimile transmission, such signature shall create a valid binding
      obligation of the party executing (or on whose behalf such signature is
      executed) the same with the same force and effect as if such facsimile signature
      were the original thereof.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    17. Remedies.
      Each of
      the parties to this Agreement will be entitled to enforce its rights granted
      by
      law or under this Agreement specifically (without the necessity of a bond),
      to
      recover damages by reason of any breach of any provision of this Agreement
      and
      to exercise all other rights existing in its favor. The parties hereto agree
      and
      acknowledge that money damages may not be an adequate remedy for any breach
      of
      the provisions of this Agreement and that any party may in its sole discretion
      apply to any court of law or equity of competent jurisdiction for specific
      performance or injunctive relief (without the necessity of a bond) in order
      to
      enforce or prevent any violations of the provisions of this Agreement. The
      remedies provided herein are cumulative and not exclusive of any remedies
      provided by law.

     

    18. Notices.
      Any
      notices desired, required or permitted to be given hereunder shall be delivered
      personally or mailed, certified or registered mail, return receipt requested,
      or
      delivered by overnight courier service, or confirmed facsimile transmission
      to
      the following addresses, or such other addresses as shall be given by notice
      delivered hereunder, and shall be deemed to have been given (a) upon delivery,
      if delivered personally, (b) three days after mailing, if mailed, (c) one
      business day after delivery to the overnight courier service, if delivered
      by
      overnight courier service, or (d) on the date sent, if sent by confirmed
      facsimile transmission during the normal business hours of the recipient, and
      if
      not during normal business hours, then on the following business day (provided,
      that any notice sent by facsimile transmission be followed by delivery via
      another method permitted hereby):

     

    If
      to the
      Corporation, to:

     

    Cleveland
      BioLabs, Inc.

    10265
      Carnegie Ave.

    Cleveland,
      Ohio 44106

    Attention:
      Michael Fonstein

     

    With
      a
      copy to:

     

    Katten
      Muchin Rosenman LLP

    525
      West
      Monroe Street

    Chicago,
      Illinois 60661-3693

    Attention:
      Kurt W. Florian, Esq.

     

    If
      to any
      Purchaser or other holder of Registrable Securities, to the addresses set forth
      on the stock record books of the Corporation.

     

    19. Amendments
      and Waivers.
      The
      provisions of this Agreement may be amended upon the written agreement of the
      Corporation and the holder or holders of (a) at least a majority of the
      outstanding Registrable Securities, and (b) the holder or holders of a majority
      of the outstanding Common Stockholder Shares. Any waiver, permit, consent or
      approval of any kind or character on the part of any holders of any provision
      or
      condition of this Agreement must be made in writing and shall be effective
      only
      to the extent specifically set forth in writing. The failure of any party to
      enforce any of the provisions of this Agreement shall in no way be construed
      as
      a waiver of such provisions and shall not affect the right of such party
      thereafter to enforce each and every provision of this Agreement in accordance
      with its terms.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    20. Severability.
      Whenever possible, each provision of this Agreement will be interpreted in
      such
      manner as to be effective and valid under applicable law, but if any provision
      of this Agreement is held to be invalid, illegal or unenforceable in any respect
      under any applicable law or rule in any jurisdiction, such invalidity,
      illegality or unenforceability shall not affect any other provision or any
      other
      jurisdiction, but this Agreement shall be reformed, construed, and enforced
      in
      such jurisdiction as if such invalid, illegal or unenforceable provision had
      never been contained herein.

     

    21. Complete
      Agreement.
      This
      Agreement and the Purchase Agreement, together with the Exhibits, Annexes and
      Schedules hereto and thereto, supersede and preempt any prior understandings,
      agreements or representations by or among the parties, written or oral, which
      may have related to the subject matter hereof in any way.

     

    22. Successors
      and Assigns.
      All
      covenants and agreements in this Agreement by or on behalf of any of the parties
      hereto will bind and inure to the benefit of the respective successors and
      assigns of the parties hereto, and each transferee of all or any portion of
      the
      Securities held by the parties hereto, whether so expressed or not; provided,
      that, the Corporation may not assign its rights or obligations hereunder without
      the prior written consent of holders of at least a majority of the Registrable
      Securities.

     

    23. Headings.
      The
      captions set forth in this Agreement are for convenience only and shall not
      be
      considered as part of this Agreement or as in any way limiting the terms and
      provisions hereof.

     

    24. Entire
      Agreement.
      This
      Agreement represents the full and complete understanding and agreement of the
      parties hereto with respect to the subject matter contained herein and
      supersedes all prior oral or written agreements between the parties which may
      conflict with the agreements contained herein, including, but not limited to,
      those certain Common Stockholders Agreements and the Restricted Stock Agreements
      (including, without limitation, the ChemBridge Agreement (as such term is
      defined in the Purchase Agreement)) entered into between the Common Stockholders
      and the Company. If any provision contained herein conflicts with a provision
      contained in the Common Stockholder Agreements, the provisions of this Agreement
      shall govern. Other than as set forth in this Section 24, the Common Stockholder
      Agreements shall remain in full force and effect.

     

    25. Governing
      Law.
      This
      Agreement shall be construed and enforced in accordance with, and all questions
      concerning the construction, validity, interpretation and performance of this
      Agreement shall be governed by, the laws of the State of Delaware, without
      giving effect to provisions thereof regarding conflict of laws. Each party
      agrees that all Proceedings concerning the interpretations, enforcement and
      defense of the transactions contemplated by this Agreement (whether brought
      against a party hereto or its respective affiliates, employees or agents) may
      be
      commenced non-exclusively in the state and federal courts sitting in the City
      of
      New York, Borough of Manhattan, (the “New
      York Courts”).
      Each
      party hereto hereby irrevocably submits to the non-exclusive jurisdiction of
      the
      New York Courts for the adjudication of any dispute hereunder or in connection
      herewith or with any transaction contemplated hereby or discussed herein, and
      hereby irrevocably waives, and agrees not to assert in any Proceeding, any
      claim
      that it is not personally subject to the jurisdiction of any New York Court,
      or
      that such Proceeding has been commenced in an improper or inconvenient forum.
      Each party hereto hereby irrevocably waives personal service of process and
      consents to process being served in any such Proceeding by mailing a copy
      thereof via registered or certified mail or overnight delivery (with evidence
      of
      delivery) to such party at the address in effect for notices to it under this
      Agreement and agrees that such service shall constitute good and sufficient
      service of process and notice thereof. Nothing contained herein shall be deemed
      to limit in any way any right to serve process in any manner permitted by law.
      EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
      BY
      APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING ARISING
      OUT
      OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. IF
      EITHER PARTY SHALL COMMENCE A PROCEEDING TO ENFORCE ANY PROVISIONS OF THIS
      AGREEMENT, THEN THE PREVAILING PARTY IN SUCH PROCEEDING SHALL BE REIMBURSED
      BY
      THE OTHER PARTY FOR ITS ATTORNEY’S FEES AND OTHER COSTS AND EXPENSES INCURRED
      WITH THE INVESTIGATION, PREPARATION AND PROSECUTION OF SUCH
      PROCEEDING.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    26. Further
      Assurances.
      Each
      party agrees to execute such other documents, instruments, agreements and
      consents, and take such other actions as may be reasonably requested by the
      other parties hereto to effectuate the purposes of this Agreement.

     

    27. Reliance.
      The
      Corporation acknowledges and agrees that, in accepting the Fee Shares and/or
      Fee
      Warrants as partial consideration for services rendered to the Corporation
      in
      connection with the transactions contemplated hereby, Sunrise and/or its
      designees (and their respective successors and permitted assigns) are entitled
      to rely on and enforce the Corporation’s representations and warranties,
      covenants and agreements and as if a party hereto.

     

    28. Additional
      Common Stockholders.
      The
      Corporation agrees that, so long as there are outstanding Series A Preferred
      Shares and/or Registrable Securities, (a) it will cause each Person who acquires
      shares of Common Stock or shares of capital stock or other securities directly
      or indirectly exercisable for, or convertible into, shares of Common Stock
      that
      represent at least 2% of then issued and outstanding shares of Common Stock
      (on
      a fully-diluted, as converted basis) to enter into this Agreement and thereby
      to
      be bound by the terms hereof as a Common Stockholder, all by execution of a
      Stockholder Counterpart signature page to this Agreement, and (b) it will amend
      the Common
      Stockholder Schedule
      to
      include such additional Person.

     

    {The
      remainder of this page is left intentionally blank.}

    {Counterpart
      signature pages to follow.}

    

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    CORPORATION
      COUNTERPART TO

    SERIES
      A
      RIGHTS AGREEMENT

     

    IN
      WITNESS WHEREOF, the undersigned has executed this Agreement as of the date
      first set forth above.

     

    
      	 	 	 
	 	CLEVELAND
              BIOLABS,
              INC.
	 
 	 
 	 
 
	 	By:  	/s/ Michael
              Fonstein
	 	
              

              Michael
                Fonstein\

              President
                and Chief Executive Officer

            
	 	 

    

     

     

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    COMMON
      STOCKHOLDER COUNTERPART TO

    SERIES
      A
      RIGHTS AGREEMENT

     

    IN
      WITNESS WHEREOF, the undersigned has executed this Agreement as of the date
      first set forth above.

     

    
      	 	
              INDIVIDUAL:

               

               

              Print
                Name

               

               

            
	 	
              Signature

            
	 	 
	 	ENTITY:
	 	 
	 	Print
              Entity Name
	 	 
	 	Signature
	 	 
	 	
              Name
                and Title of Signatory

            

    

    

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    PURCHASER
      COUNTERPART FO

    SERIES
      A
      RIGHTS AGREEMENT

     

    IN
      WITNESS WHEREOF, the undersigned has executed this Agreement as of the date
      first set forth above.

     

    
      	 	
              INDIVIDUAL:

                  

               

            
	 	
              Print
                Name

            
	 	
               

               

            
	 	
              Signature

            
	 	
            
	 	 
	 	ENTITY:
	 	 
	 	 

	 	
              Print
                Entity Name

               

               

            
	 	
              Signature

               

            
	 	 

	 	
              Name
                and Title of Signatory

            

    

    

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ANNEX A

     

    PLAN
      OF
      DISTRIBUTION

     

    The
      selling stockholders and any of their pledgees, donees, assignees and
      successors-in interest may, from time to time, sell any or all of their shares
      of Common Stock on any 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. The selling stockholders may use any one or more of the
      following methods when selling shares:

     

    • ordinary
      brokerage transactions and transactions in which the broker-dealer solicits
      Investors;

     

    • 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;

     

    • short
      sales (other than short sales established prior to the effectiveness of the
      Registration Statement to 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;

     

    • a
      combination of any such methods of sale; and

     

    • any
      other
      method permitted pursuant to applicable law.

     

    The
      selling stockholders may also sell shares under Rule 144 under 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. The
      selling stockholders do not expect these commissions and discounts to exceed
      what is customary in the types of transactions involved.

     

    The
      selling stockholders may from time to time pledge or grant a security interest
      in some or all of the Registrable Securities owned by them and, if they default
      in the performance of their secured obligations, the pledgees or secured parties
      may offer and sell shares of Common Stock from time to time under this
      prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
      other applicable provision of the Securities Act of 1933 amending the list
      of
      selling stockholders to include the pledgee, transferee or other successors
      in
      interest as selling stockholders under this prospectus.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Upon
      the
      Corporation being notified in writing by a selling stockholder that any material
      arrangement has been entered into with a broker-dealer for the sale of Common
      Stock through a block trade, special offering, exchange distribution or
      secondary distribution or a purchase by a broker or dealer, a supplement to
      this
      prospectus will be filed, if required, pursuant to Rule 424(b) under the
      Securities Act, disclosing (i) the name of each such selling stockholder and
      of
      the participating broker-dealer(s), (ii) the number of shares involved, (iii)
      the price at which such the shares of Common Stock were sold, (iv) the
      commissions paid or discounts or concessions allowed to such broker-dealer(s),
      where applicable, (v) that such broker-dealer(s) did not conduct any
      investigation to verify the information set out or incorporated by reference
      in
      this prospectus, and (vi) other facts material to the transaction. In addition,
      upon the Corporation being notified in writing by a selling stockholder that
      a
      donee or pledge intends to sell more than 500 shares of Common Stock, a
      supplement to this prospectus will be filed if then required in accordance
      with
      applicable securities law.

     

    The
      selling stockholders also may transfer the shares of common stock in other
      circumstances, in which case the transferees, pledgees or other successors
      in
      interest will be the selling beneficial owners for purposes of this
      prospectus.

     

    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 represented
      and
      warranted to the Corporation that it does not have any agreement or
      understanding, directly or indirectly, with any person to distribute the Common
      Stock.

     

    The
      Corporation is required to pay all fees and expenses incident to the
      registration of the shares. The Corporation has agreed to indemnify the selling
      stockholders against certain losses, claims, damages and liabilities, including
      liabilities under the Securities Act.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Common
      Stockholders Schedule

     

    
      	
              Michael
                Fonstein

            
	
              Yakov
                Kogan

            
	
              Lena
                Feinstein

            
	
              George
                Stark

            
	
              Mike
                Chernov

            
	
              Katia
                Gurova

            
	
              Vadim
                Krivosenko

            
	
              Andrei
                Gudkov

            
	
              ChemBridge
                Corporation

            
	
              The
                Cleveland Clinic Foundation

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Schedule
      of Purchasers

     

    Smithfield
      Fiduciary LLC

    Helen
      Goodfriend

    JGB
      Capital L.P.

    Yehuda
      Harats

    Richard
      B. Stone

    FCC
      Ltd

    New
      Bank
      Ltd.

    DCOFI
      Master LDC

    Marcia
      Kucher

    Yael
      Lustmann

    Robert
      H.
      Cohen

    Stuart
      Schapiro IRA

    Sunrise
      Equity Partners, LP

    Marilyn
      Adler

    F
      Berdon
      Co LP

    John
      L.
      Gallagher

    Derek
      L.
      Caldwell

    Danny
      Gabay

    Jay
      Lefkowitz

    Philip
      and Maxine Patt

    Bear
      Stearns as Custodian for Nathan A. Low Roth IRA

    Crestview
      Capital Master, LLC

    Yossi
      Shasha

    Amnon
      Mandelbaum

    David
      Goodfriend

    Sem-Tov
      Yosef

    Judith
      Green Berger

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