Document:

EXHIBIT
        10.43

       

      PURCHASE
        & SUPPLY AGREEMENT

       

      This
        Purchase & Supply Agreement (this “Agreement”) is effective as of the 14th
        day of January, 2008 (the “Effective Date”) by and between Scientific Protein
        Laboratories LLC, a Delaware limited liability company having its principal
        place of business at 700 East Main Street, Waunakee, Wisconsin 53597, USA
        ("SPL") and Alfacell Corporation, a Delaware corporation with its principal
        place of business at 300 Atrium Drive, Somerset, New Jersey 08873
        ("Alfacell").

       

      RECITAL

       

      SPL
        and
        Alfacell wish to enter into a Purchase and Supply Agreement for
        Ranpirnase.

       

      AGREEMENTS

       

      ARTICLE
        1 DEFINITIONS

       

      1.1 “cGMP”
        means relevant current good manufacturing practices, rules and guidelines
        set
        out by the U.S. Food and Drug Administration ("FDA") and the International
        Conference on Humanization of Technical Requirements for Registration of
        Pharmaceuticals for Human Use ("ICH") in force and/or becoming applicable
        during
        this Agreement and such other standards as
        agreed
        in writing by the parties.

       

      1.2 “Product”
        means Ranpirnase Bulk Drug Substance Solution produced in conformity with
        the
        Specifications, cGMP, and this Agreement.

       

      1.3 “Raw
        Material” means conforming Rana pipiens oocytes to be supplied to SPL by
        Alfacell.

       

      1.4 “Specifications”
        means the Product specifications attached hereto as Exhibit
        1.

       

      1.5 “Quality
        Agreement” means the product quality agreement to be negotiated in good faith
        and entered into by and between SPL and Alfacell in accordance with the terms
        of
        this Agreement.

       

      1.6 “Term”
        has the meaning set forth in Article 9 below.

       

      1.7 "IP"
        shall mean the Intellectual Property.

       

      ARTICLE
        2 DEVELOPMENT
        AND SUPPLY

       

      2.1 Alfacell
        is responsible for storing the Raw Material at a third party storage facility,
        paying directly for storage costs and insuring such Raw Material. Alfacell
        shall
        provide (without charge) and deliver Raw Materials sufficient to produce
        ordered
        quantities of Product to SPL, FOB SPL's Facility in Waunakee, Wisconsin.
        All Raw
        Material supplied to SPL shall comply in all respects with regulatory
        requirements and with the procurement storage and 

       

      
        
          
          

        

          
          

          
  

          

        

        
          
          

        

      

      delivery
        requirements set forth in the Quality Agreement (defined in Section 2.2).
        SPL
        agrees that after it has taken possession of the Raw Material, it will store
        or
        have stored the Raw Material under the conditions set forth in the Quality
        Agreement. SPL's receiving, storage, and handling costs are included within
        the
        price of Product. If the Raw Material is destroyed or becomes unusable due
        to
        SPL's negligence while in SPL's possession, SPL will reimburse to Alfacell
        the
        Fully Burdened Price for the Raw Material. The "Fully Burdened Price" shall
        mean
        Alfacell’s out-of-pocket costs for the Raw Material. This is Alfacell's
        exclusive remedy for SPL’s negligent destruction of Raw Material or otherwise
        causing the Raw Material to be unuseable or unsuitable for use in or with
        Product. On termination of this Agreement, SPL shall return any unused Raw
        Material to Alfacell, FOB SPL's Facility.

       

      2.2 During
        the term of this Agreement and subject to the terms of this Agreement, Alfacell
        shall purchase exclusively from SPL, and SPL shall sell exclusively to Alfacell,
        the Product. The Product will be manufactured in accordance with the Quality
        Agreement and set forth in Exhibit
        3
        hereto
        and made a part hereof under the terms and conditions set forth in this
        Agreement. The Quality Agreement shall set forth provisions concerning, among
        other things typical for a quality agreement, testing, acceptance, and rejection
        of Products; avoidance of cross contamination; packaging, labeling, segregation;
        stability, amendment to specifications, validation batches; recalls; and
        complaints, all to the extent not set forth herein.

       

      2.3 SPL
        agrees that with respect to the Raw Material, no express or implied licenses
        or
        other rights relating to the Raw Material are provided to SPL under any patents,
        patent applications, trade secrets or other proprietary rights of Alfacell,
        other than the rights specifically set forth herein. Title in all Raw Material
        shall remain at all times in Alfacell. SPL agrees that the Raw Material shall:
        (i) only be used as specified in writing by Alfacell and not for any other
        purpose; (ii) only be made accessible to those employees of SPL who need
        access
        in order to complete the relevant services to be provided by SPL under this
        Agreement (the "Services"); (iii) be used in compliance at all times with
        all
        Applicable Law; (iv) not be transferred to any affiliate or third party without
        the explicit prior written consent of Alfacell; (v) not be reverse engineered;
        and (vi) not be subjected to testing procedures not specifically requested
        by
        Alfacell as part of the Services; provided, however, SPL shall be entitled
        to
        test Raw Material if SPL is required to do so under Applicable Law (including
        regulatory requirements), to comply with cGMP, or, in the reasonable opinion
        of
        SPL, to comply with good risk management practices. SPL shall maintain detailed
        records of the location and use of all Raw Material and shall provide Alfacell
        an accounting of the same upon request. 

       

      2.4 The
        current scale of production starts from five (5) kg of Raw Material. The
        process
        has been validated and the equipment is sized for this scale of production.
        Alfacell may request SPL to conduct development work to alter the scale of
        the
        process and perform necessary cGMP validation work. SPL will use commercially
        reasonable efforts to meet Alfacell’s request. SPL will prepare separate
        proposals for such development and validation work, specifying the scope,
        cost
        and time to complete such work. The parties will negotiate in good faith
        the
        terms and provisions of a development agreement with respect to such process
        development.

       

      2.5 Currently
        SPL plans to utilize its multi-use facilities for the production of Product.
        In
        the event that a dedicated facility or changes to SPL’s multi-use facility are
        needed to meet cGMP requirements, or Alfacell requires to increase production
        scale to over the current

      
        
          
          

        

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      batch
        size, SPL shall propose to Alfacell a capital expenditure budget to allow
        SPL to
        accommodate Alfacell’s needs. Alfacell and SPL will work together in good faith
        to determine the reasonable budget for capital expenditures for increased
        production, including any expansion of SPL's plant in Waunakee, Wisconsin.
        Alfacell shall be responsible to prepay and/or reimburse SPL for all such
        capital expenditures determined by the parties to be necessary for the expansion
        of batch size. The parties shall negotiate in good faith a capital expenditure
        agreement with respect to any capital expenditures to be made.

       

      ARTICLE
        3 ORDERING

       

      3.1 SPL
        shall
        produce Product exclusively for Alfacell, and Alfacell shall purchase Product
        exclusively from SPL. The parties acknowledge that SPL plans to produce the
        Product in campaigns, and that each campaign currently requires a six-month
        lead
        time. Therefore, upon execution of this Agreement, Alfacell shall provide
        SPL
        with an initial twelve-month forecast, with a firm purchase order for the
        manufacture of Product to be delivered within six months of the execution
        of
        this Agreement. The initial forecast shall become a twelve-month rolling
        forecast, as described below. 

       

      3.2 After
        the
        initial Forecast, Alfacell shall update the twelve-month Forecast quarterly
        (by
        the 15th day of each calendar quarter). The Forecast shall set forth the
        production of Product by SPL in batches over the twelve month period. Consistent
        with the six month lead time provision set forth in Section 3.1, Alfacell
        will
        enter into binding purchase orders for batch production in the Forecast,
        as well
        as provide forward-looking Forecasts beyond the six month lead time provision,
        which are not binding. SPL shall have the right to review and accept the
        proposed binding portion of the Forecast, which approval shall not be
        unreasonably withheld. Once the proposed Forecast is accepted Alfacell will
        issue purchase orders representing the quantities laid out in the binding
        portion of the Forecast. At current scale, SPL starts each batch of production
        with five (5) kg of Raw Material. The first batch of a production campaign
        typically requires five (5) weeks to be produced, tested and released. Each
        subsequent batch can be started two (2) weeks from the start date of the
        previous batch. Therefore, the maximum capacity per month is two (2) batches,
        starting from end of the fifth week of a production campaign. In no event
        shall
        SPL be required to produce an amount of Product in excess of SPL's monthly
        capacity described above and SPL shall use commercially reasonable efforts
        to
        maintain the monthly capacity described above. The remainder of each Forecast
        shall not be binding.

       

      3.3 Alfacell
        shall order Product set forth in the binding portions of the Forecast by
        submitting to SPL written purchase orders, in such form as the parties shall
        agree from time to time. The amount and timing of delivery of Product shall
        correspond to the Forecast. Any purchase orders for Product submitted by
        Alfacell to SPL shall reference this Agreement and shall be governed exclusively
        by the terms contained herein. The parties hereby agree that the terms and
        conditions of this Agreement shall supersede any term or condition in any
        order,
        confirmation or other document furnished by Alfacell or SPL that is in any
        way
        inconsistent with these terms and conditions.

       

      3.4 Alfacell
        may from time to time request SPL to accelerate or increase production as
        described in this section, and SPL shall use commercially reasonable efforts
        to
        do so.

      
        
          
          

        

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      3.5 Alfacell
        shall timely deliver Raw Material in quantities to allow SPL to manufacture
        Product in accordance with the Forecast.

       

      ARTICLE
        4 DELIVERY

       

      4.1 All
        Product delivery is FOB SPL’s facility located at 700 East Main Street,
        Waunakee, Wisconsin 53597 (the "FOB
        Point").
        Risk
        of loss of Product purchased hereunder shall pass to Alfacell upon delivery
        to
        the carrier at the FOB Point, Alfacell absorbs freight. Title in all Raw
        Material, Product, and Product-in-process shall remain in Alfacell at all
        times.
        Carriers may be arranged by either SPL or as instructed by Alfacell, at
        Alfacell’s discretion and written direction (and in collaboration with SPL) so
        as to collectively ensure transportation of the Product in good
        condition.

       

      4.2 SPL
        shall
        supply and deliver the Product ordered by Alfacell on the dates specified
        in
        Purchase Orders submitted as set forth in Sections 3.2 and 3.3. SPL shall
        immediately notify Alfacell of any unexpected delay in delivery, which notice
        shall state the reason for the delay, provided such notice shall not modify
        any
        of SPL’s obligations hereunder.

       

      ARTICLE
        5 SUPPLY
        PRICE FOR THE PRODUCT

       

      Pricing
        for Product is set forth in Exhibit
        2
        hereto.

       

      ARTICLE
        6 TERMS
        OF PAYMENT

       

      Subject
        to Exhibit 2, payment of invoices shall be made thirty (30) days after the
        shipping date of the Product. Failure to pay all or any part of an invoice,
        not
        subject to a bona fide dispute, when due will give rise to an obligation
        of
        Alfacell to pay late fees running from the initial date and calculated at
        a rate
        of one percent (1%) per month. 

       

      ARTICLE
        7 QUALITY/REGULATORY
        ISSUES

       

      7.1 The
        parties will negotiate in good faith, and execute and deliver the Quality
        Agreement. The Quality Agreement will specify the division of responsibility
        between the parties for complying with all applicable regulatory requirements
        required by U.S. or other countries, as agreed in writing by the parties,
        relating to the manufacture of Product, including cGMP. Alfacell shall be
        responsible for the cost of compliance of changes of the regulatory requirements
        relating to the Product. If there are changes to applicable regulatory or
        governmental requirements which, if made, would require significant capital
        or
        costs with respect to the production of the Product in SPL's facility, SPL
        shall
        promptly notify Alfacell of such change. In such event, Alfacell shall be
        responsible for such expenditures or costs. If Alfacell determines not to
        pay
        such costs or expenditures, SPL may terminate this Agreement in accordance
        with
        Section 10.3. the parties shall work together expeditiously to minimize
        disruption in supply of Product to Alfacell under such
        circumstances.

       

      7.2 SPL
        shall
        provide a copy of the certificate of analysis ( the “Certificate”)
        to
        Alfacell with or at the same time as each delivery of Product supplied
        hereunder. In the event 

      
        
          
          

        

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      Alfacell
        requires additional documentation due to a change in the law or a regulatory
        approval without which the Product under any regulatory approval would be
        impossible or impracticable, (a) Alfacell shall immediately notify SPL of
        the need for such additional documentation, and (b) SPL will supply such
        documentation with each delivery of Product. Subject to any variations agreed
        to
        in the Quality Agreement, Certificate shall certify, with respect to each
        shipment and batch (identified by batch number), (i) the quantity of the
        batch, (ii) that the Product delivered conforms to, and was handled in
        compliance with, the Product Specifications and (iii) that the Product was
        manufactured in accordance with cGMP and any applicable regulatory approval,
        as
        well as any further information required by the relevant regulatory authorities
        that Alfacell may have previously notified SPL is necessary. Alfacell shall
        be
        under no obligation to accept any shipment of Product without the accompanying
        Certificates.

       

      7.3 Alfacell
        may reject any delivery of Product if the Product does not conform to
        Specifications. Rightly rejected Product shall be replaced by SPL at its
        own
        cost plus Alfacell’s Fully Burdened Price for the Raw Material.

       

      7.4 If
        SPL
        believes that Product was wrongly rejected, it shall notify Alfacell in writing,
        within twenty (20) days of receipt by SPL of Alfacell’s written notice of
        rejection, that SPL disagrees with such basis for rejection (an “Objection
        Notice”).
        If
        SPL and Alfacell cannot agree, within twenty (20) days after receipt by Alfacell
        of the Objection Notice, whether Product rejected by Alfacell failed to conform
        to the Specifications at the time of delivery of the Product to Alfacell
        at the
        FOB Point, representative samples of the batch of Product in question shall
        be
        submitted to a mutually-acceptable independent laboratory or consultant for
        analysis or review to determine whether the Product conformed to the
        Specifications at the time of delivery at the FOB Point. The results of such
        evaluation shall be binding upon the parties. The party that is determined
        to
        have been incorrect in its determination of whether the Product should be
        rejected shall pay the costs of any such evaluation and reimburse the other
        for
        any amounts previously paid by the other to the independent laboratory or
        consultant in connection with such evaluation. If it cannot be determined
        which
        party is responsible for such failure to conform to the Specifications, then
        the
        parties shall each be responsible for one-half of the costs related to such
        evaluation and Alfacell may, in its discretion, purchase replacement Product
        when available for delivery. The parties may also mutually agree in their
        discretion to further testing.

       

      7.5 During
        the pendency of any rejection discussions, SPL shall supply on a priority
        basis
        to Alfacell, upon Alfacell’s request, with the same amount of Product as is
        subject to rejection discussions and Alfacell shall purchase such amount
        on the
        same terms as such rejected Product. Shipping costs related to such replacement
        Product shall be borne by SPL if the Product is determined to have failed
        to
        conform to the Specifications at the FOB Point. If the Product is determined
        to
        have so conformed to the Specifications, then Alfacell shall bear such costs.
        If
        Product is rightly rejected, but it cannot be determined which party is
        responsible for such failure to conform, SPL and Alfacell shall each be
        responsible for one-half of such shipping costs.

       

      7.6 SPL
        shall
        obtain the prior written consent of Alfacell with respect to any proposed
        revision to the Product Specifications, site of manufacture and any change
        in
        the Raw Materials, equipment, process or procedures used to manufacture the
        Product (the “Manufacturing Process”).

      
        
          
          

        

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      7.7 Upon
        written request to SPL by Alfacell, Alfacell and its designees as agreed
        to by
        the Parties in the Quality Agreement may audit SPL’s manufacturing facilities
        during normal business hours to review and discuss any issues regarding
        manufacturing and management personnel and to review and inspect (i) the
        manufacturing and storage facilities, (ii) the quality control procedures,
        and/or (iii) any records and reports pertinent to the manufacture, disposition
        or transport of Product, as may be necessary to evidence SPL’s compliance with
        all applicable regulatory approvals for the manufacture of Product, including
        compliance with cGMP. Alfacell and its designees may make such visits to
        SPL’s
        manufacturing facilities once per calendar year unless Alfacell identifies,
        during any such visit or as a result of any Form 483 received by SPL pertinent
        to the Alfacell Product, any defects or deficiencies provided in any of the
        foregoing clauses (i), (ii) or (iii) above, in which case Alfacell may make
        as
        many subsequent visits to such facilities as are reasonably required to
        determine that such defects have been cured.

       

      7.8 In
        the
        event Alfacell believes a recall, field alert, product withdrawal or field
        correction is necessary with respect to Product provided under this Agreement,
        SPL shall fully cooperate in the investigation and performance of the same.
        SPL
        shall be responsible for the costs of any recall, field alert, product
        withdrawal or field correction only to the extent SPL failed to deliver Product
        conforming to the Specifications at the FOB Point.

       

      7.9 
        Within 5
        business days after any regulatory agency inspection, SPL shall furnish Alfacell
        with a notice of such inspection and summary of results such as they are
        pertinent to the Product. In addition, SPL shall notify Alfacell within five
        (5)
        business days of its receipt of any other written regulatory actions or
        communications (other than ministerial, non-substantive communications) relating
        to the Product or any Product-related facility that is involved in the supply
        of
        Product to Alfacell hereunder. The parties shall confer with each other with
        respect to any response regarding such action or communication and the best
        means to comply with such action or communication, but the final response
        shall
        be within SPL’s final decision-making authority.

       

      7.10 SPL
        shall comply
        with all applicable orders, regulations, requirements and laws of any and
        all
        governmental authorities, including all U.S. laws and regulations applicable
        to
        the transportation, storage, use, handling and disposal of hazardous materials.
        SPL represents and warrants to Alfacell that it has and will maintain during
        the
        term of this agreement all government permits, including health, safety and
        environmental permits, necessary for the conduct of the actions and procedures
        that it undertakes pursuant to the Agreement;
        provided, however,
        that if
        SPL ceases to hold such permits, licenses, registrations and other forms
        of
        governmental authorizations, SPL shall have a reasonable time to regain
        compliance with the foregoing requirement so long as during such time SPL
        is
        able to supply Product to Alfacell in accordance with this Agreement.

       

      7.11 For
        three
        (3) years after the termination of this Agreement, SPL shall keep complete,
        accurate and authentic accounts, notes, data and records of the work performed
        under this Agreement (including batch records). SPL shall maintain complete
        and
        adequate records pertaining to the methods and facilities used for the
        manufacture, processing, testing, packing, labeling, holding and distribution
        of
        a Product in accordance with all applicable laws and regulations by the U.S.
        or
        other countries, as agreed in writing by the parties.

      
        
          
          

        

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      7.12
        Alfacell retains all responsibility for regulatory submissions and approvals
        related to the Product

       

      ARTICLE
        8 WARRANTIES
        AND INDEMNIFICATION

       

      8.1 Each
        party represents and warrants to the other party that the execution of this
        Agreement and the full performance and enjoyment of the rights of such party
        under this Agreement will not breach or in any way be inconsistent with the
        terms and conditions of any license, contract, understanding, or agreement,
        whether express, implied, written, or oral between such party and any third
        party.

       

      8.2 As
        of the
        Effective Date, to the knowledge of Alfacell, no third party patents or patent
        applications, except those it has a right to practice or SPL’s manufacturing
        intellectual property, will be infringed by the manufacture of Product or
        its
        transfer to Alfacell hereunder; provided the foregoing representation shall
        not
        apply to any intellectual property of SPL or used by SPL without the express
        approval of Alfacell. 

       

      8.3 As
        of the
        Effective Date, to the knowledge of SPL, no third party patents or patent
        applications, except those it has a right to practice, or Alfacell's
        intellectual property, will be infringed by the manufacture of the Product;
        provided, the foregoing representation shall not apply to any intellectual
        property of Alfacell or supplied to SPL by Alfacell.

       

      8.4 SPL
        represents, warrants and covenants that it will not use any third party
        intellectual property in fulfilling its duties hereunder unless SPL has the
        right (by ownership or license or other similar arrangement) to use such
        intellectual property to fulfill such duties, including making Product and
        transferring Product to Alfacell.

       

      8.5 Alfacell
        represents, warrants and covenants that it will not use any third party
        intellectual property in fulfilling its duties hereunder unless Alfacell
        has the
        right (by ownership or license or similar arrangement) to use such intellectual
        property to fulfill such duties, including supplying Raw Materials and
        transferring Raw Materials to SPL, and including any manufacturing technology
        of
        Alfacell with respect to the Product derived or licensed by Alfacell and
        used by
        SPL under this Agreement.

       

      8.6 SPL
        represents and warrants that it has not been debarred and is not subject
        to a
        pending debarment and that it will not use in any capacity, in connection
        with
        the services to be performed under this Agreement, any person who has been
        debarred pursuant to section 306 of the Federal Food, Drug, and Cosmetic
        Act, 21
        U.S.C. § 335a, or who is the subject of a conviction described in such section.
        SPL agrees to inform Alfacell in writing immediately if it or any person
        who is
        performing services hereunder is debarred or is the subject of a conviction
        described in section 306, or if any action, suit, claim, investigation, or
        legal
        or administrative proceeding is pending or, to the best of SPL‘s knowledge, is
        threatened, relating to the debarment or conviction of SPL.

       

      8.7 SPL
        warrants that all Product supplied by SPL to Alfacell hereunder shall (i)
        conform to the Specifications; (ii) be manufactured in accordance with cGMP,
        the
        Quality Agreement, and all relevant chemistry, manufacturing and controls
        data;
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      adulterated
        and misbranded under applicable laws, rules, regulations, guidelines and
        standards (“Applicable Law”).

       

      8.8 SPL
        shall
        indemnify, defend, and hold harmless Alfacell and its directors, officers,
        employees and agents (“Alfacell Indemnitees”) from all actions, losses, claims,
        demands, damages, costs, and liabilities (including reasonable attorneys’ fees)
        of a third party to which Alfacell is or may become subject insofar as they
        arise out of (i) any material breach by SPL of any of its obligations hereunder;
        (ii) any negligent or willful act or omission by any SPL Indemnitee, or (iii)
        any mishandling of the Product by SPL on or prior to delivery of the Product
        to
        Alfacell.

       

      8.9 Alfacell
        shall indemnify, defend, and hold harmless SPL and its directors, officers,
        employees and agents (“SPL Indemnitees”) from all actions, losses, claims,
        demands, costs and liabilities (including reasonable attorneys’ fees) of a third
        party to which SPL is or may become subject insofar as they arise out of
        (i)
        personal injury, death or property damage sustained by any person(s) resulting
        from the use of Product and not covered under Section 8.8; (ii) personal
        injury,
        death, or property damage sustained by any person(s) resulting by the use
        of
        Onconase for Injection manufactured by Alfacell or by a third party at the
        direction of Alfacell (not SPL) and not covered under Section 8.8; (iii)
        any
        negligent or willful act or omission by an Alfacell Indemnitee; or (iv) any
        marketing and sales of Onconase for Injection by Alfacell.

       

      8.10 A
        party
        entitled to indemnification hereunder agrees to give prompt written notice
        (in
        no event later than ten (10) business days following its receipt) to the
        indemnifying party after the receipt by such party of any notice to the
        commencement of any action, suit, proceeding, or investigation, or threat
        thereof, made in writing for which such party will claim indemnification
        pursuant to this Agreement. The indemnifying party may assume the defense
        of
        such claim with counsel reasonably satisfactory to the indemnifying party.
        If an
        indemnified party settles any claim without the consent of the indemnifying
        party, the indemnified party shall have no rights under Sections 8.8 or 8.9
        (as
        applicable). The indemnifying party will not be subject to any liability
        of any
        settlement made without its consent, which shall not be unreasonably
        withheld.

       

      8.11 Each
        party represents that it has maintained and shall maintain during the Term,
        as
        well as after the termination of this Agreement, sufficient insurance which
        may
        include an appropriate program of self insurance, and in particular products
        liability insurance, with appropriate policy limits to cover all risks
        associated with the performance of its obligations under this Agreement.
        Each
        party agrees to provide copies of the certificate of insurance, when applicable,
        upon request, as written evidence to the other party of such
        coverage.

       

      8.12 The
        provisions and obligations of this Article 8 shall survive any termination
        or
        expiration of this Agreement.

       

      8.13 Except
        with respect to breaches of Article 10 or 14, or claims or losses attributable
        to a party’s fraud, gross negligence, willful misconduct or claims or losses
        subject to indemnification hereunder, in no event shall a party be responsible
        to the other party for consequential or incidental damages in connection
        with
        this Agreement. 

      
        
          
          

        

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      ARTICLE
        9 DURATION

       

      The
        term
        of this Agreement shall begin on the Effective Date and shall continue in
        full
        force and effect for ten (10) years thereafter, unless earlier terminated
        as set
        forth in Article 10 (the "Term"). 

       

      ARTICLE
        10 TERMINATION

       

      10.1 Termination
        by Alfacell.
        Alfacell shall have the right, at its sole discretion, to terminate this
        Agreement: (i) upon two (2) years prior written notice to SPL, without cause,
        or
        (ii) upon sixty (60) days' written notice (with a right to cure within such
        sixty (60)-day period) to SPL upon the occurrence of any of the
        following:

       

      a. the
        failure of SPL to supply by the specified delivery date at least eighty percent
        (80%) of the quantity of the Product specified in a firm order submitted
        by
        Alfacell in accordance with Article 3, more than one time in any twelve (12)
        month period, for any reason including an event of force majeure (a “Supply
        Failure”), but not including Supply Failure to the extent caused by Alfacell
        failing to comply with its obligations under this Agreement, including a
        failure
        to timely supply Raw Material to SPL;

       

      b. the
        failure of SPL to obtain or maintain any governmental licenses, registrations,
        or approvals required in connection with the manufacturing of Product or
        the
        closing or shut-down (temporary or permanent) of one of SPL’s manufacturing
        facilities by a governmental or regulatory authority to the extent such failure
        relates in any way to Product (each of the foregoing, a “Permitting or Facility
        Failure”); or

       

      c. either
        (1) a transfer of control of SPL (i.e.,
        a
        transfer in excess of 50% of the voting securities of SPL) to a direct
        competitor of Alfacell with respect to the Product, or (2) the attempted
        assignment or delegation by SPL of any of its rights or obligations hereunder
        to
        a direct competitor of Alfacell in the context of the sale of SPL with respect
        to the Product, in either case without the prior written consent of Alfacell,
        which shall not be unreasonably withheld.

       

      10.2 Termination
        by Either Party.
        Either
        party hereto shall have the right to terminate this Agreement by written
        notice
        to the other party hereto, upon the occurrence of any of the
        following:

       

      a. the
        other
        party files a petition in bankruptcy, or enters into an agreement with its
        creditors, or applies for or consents to the appointment of a receiver or
        trustee, or makes as assignment for the benefit of creditors, or becomes
        subject
        to involuntary proceedings under any bankruptcy or insolvency law (which
        proceedings remain undismissed for sixty (60) days); or

       

      b. the
        other
        party fails to cure a material breach of this Agreement within sixty (60)
        days
        after receiving written notice from the non-breaching party.

      
        
          
          

        

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      10.3 Termination
        by SPL.
        SPL
        shall have the right, at its sole discretion, to terminate this Agreement
        if
        Alfacell determines not to pay for the expenditures or costs proposed under
        Section 7.1 of this Agreement. The notice of termination of this Agreement
        shall
        be provided by SPL in writing to Alfacell, with sufficient lead time to allow
        the parties to undertake a commercially reasonable transition of manufacturing
        under the applicable circumstances. In no case shall such period exceed
        twenty-four (24) months.

       

      10.4 Effect
        of Expiration or Termination.

       

      a Expiration
        or termination of this Agreement shall not relieve the parties of any obligation
        accruing prior of such expiration or termination. The rights and obligations
        of
        the parties under Sections  6,
        8, 10,
        12.2 (to the extent applicable), 13, 14, 15, 16, 17 and 18 shall survive
        expiration or termination of this Agreement.

       

      b Upon
        the
        expiration or termination of this Agreement and subject to its obligation
        under
        10.3(c), Alfacell, in its sole discretion, may purchase from SPL any inventories
        of the Product held by SPL as of the date of such termination or expiration,
        and
        all Product-in-process, at prices to be mutually agreed, but not more than
        those
        set forth herein. In the event that Alfacell shall not purchase such
        inventories, subject to any requirement to purchase Product in subsection
        (c)
        below, SPL shall promptly destroy such inventories and provide Alfacell with
        proof of their destruction.

       

      c. Upon
        the
        early termination of this Agreement for any reason other than by Alfacell
        pursuant to Section 10.1(ii)(a) or (b) or 10.2, Alfacell shall pay SPL for
        all
        Product held by SPL as of the date of such termination or expiration at prices
        established in this Agreement.

       

      ARTICLE
        11 FORCE
        MAJEURE

       

      The
        performance or observance by either party of any obligations of such party
        under
        this Agreement, other than the payment obligation, may be suspended by it,
        in
        whole or in part, in the event of any of the following which prevents such
        performance or observance: act of God, war, terrorist act, riot, fire,
        explosion, accident, flood, sabotage, strike, lockout, injunctions, national
        defense requirements, compliance with governmental laws, rules, regulations,
        widespread raw material shortages including those caused by animal disease,
        orders or action or any other cause (whether similar or dissimilar) beyond
        the
        reasonable control of such party; provided, however, that such party, not
        later
        than seven (7) days after the force majeure event, shall notify the other
        party
        in writing of such event, and such party shall exercise diligence in and
        endeavor to remove or overcome the cause of such inability to comply; and
        provided further that neither party shall be required to settle a labor dispute
        against its own best judgment.

       

      ARTICLE
        12 ALTERNATIVE
        SUPPLY

       

      12.1 Alfacell
        shall be permitted to, at its sole option, qualify a back-up supplier. If
        Alfacell elects to qualify such a back-up supplier, then SPL shall provide
        to Alfacell, or such 

      
        
          
          

        

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      third
        party manufacturer, relevant production information, including, without
        limitation, documentation, technical assistance, materials, and cooperation
        by
        appropriate employees of SPL (collectively, "Technical Assistance") as Alfacell
        or such third party manufacturer may require in order to manufacture the
        Product, subject to the following. In no event, however, shall SPL be required
        to provide to Alfacell or any back-up supplier any Confidential Information
        or
        proprietary information of SPL, subject to Section 12.4.

       

      12.2 If
        SPL
        proposes to introduce any Confidential Information or proprietary technology
        of
        SPL into the manufacturing process for the Product ("SPL Introduced
        Technology"), it shall provide written notice thereof to Alfacell, along
        with a
        proposed royalty, if any, for SPL Introduced Technology. Alfacell may, in
        its
        discretion, reject the use of SPL Introduced Technology in the manufacturing
        process for the Product. Any back-up supplier shall execute and deliver a
        Confidentiality/Nondisclosure Agreement reasonably acceptable to SPL for
        nondisclosure of the SPL Introduced Technology. SPL represents that no SPL
        Introduced Technology is used in the process to make Product as of the signing
        date of this Agreement. 

       

      12.3 .
        If
        Alfacell determines to utilize a back-up supplier, such back-up supplier
        shall
        be expected to bring its own technical and manufacturing expertise to such
        relationship with Alfacell, and SPL shall have no obligation to provide
        technical assistance or support to a back-up supplier if such back-up supplier
        is not capable of producing the Products and is not reasonably practiced
        in the
        art of product manufacture. The parties shall negotiate in good faith as
        to
        pricing terms for any technical assistance required by SPL in order to assist
        Alfacell in qualifying a back-up supplier. 

       

      12.4 Notwithstanding
        anything to the contrary herein, in the event of a Supply Failure or a
        Permitting or Facility Failure or termination of this Agreement by Alfacell
        pursuant to Section 10.1(a) or (b), or Section 10.2, or by SPL under Section
        10.3, then SPL shall provide Technical Assistance on a commercially reasonable
        basis to a third party manufacturer designated by Alfacell to manufacture
        the
        Product. In such case, Alfacell shall have a nonexclusive, worldwide, royalty
        free license to SPL Introduced Technology to make, have made, use, have used,
        sell and have sold Product (in any form or formulation). This remedy shall
        be in
        addition to any other rights or remedies Alfacell may have. The parties shall
        negotiate in good faith the commercially reasonable charges SPL may receive
        for
        the Technical Assistance reduced by the reasonable damages (if any) that
        Alfacell has incurred by reason of the cause giving rise to the right of
        Alfacell to terminate this Agreement. The parties acknowledge that Force
        Majeure
        is not a breach of this Agreement, nor does it give rise to damages to
        Alfacell.

       

      ARTICLE
        13 CONFIDENTIALITY

       

      13.1 The
        parties acknowledge and agree that they have entered into a Mutual
        Confidentiality Agreement dated as of November 6, 2006 (the "MCA"). The
        terms of the MCA, other than [Sections
        8 – 12]
        thereof,
        are hereby incorporated herein, except that provisions incorporated herein
        hereby reflect the following: (i) each party may use the other party’s
        Confidential Information (as defined in the MCA) in order to carry out its
        obligations hereunder; (ii) all Developed IP shall be the sole and exclusive
        Confidential Information of Alfacell; and (iii) the obligations of
        confidentiality shall continue for ten (10) years after the termination of
        this
        Agreement. If a party has Confidential Information which is in the nature
        of a
        trade secret, 

      
        
          
          

        

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      the
        party
        shall have no right to use or disclose trade secret information for as long
        as
        the other party continues to protect and hold such Confidential Information
        as a
        trade secret. A copy of the MCA is attached hereto as Exhibit
        4.
        

       

      ARTICLE
        14   INTELLECTUAL
        PROPERTY

       

      14.1 For
        the
        purposes of this Agreement, “Alfacell Technology” shall mean all pre-existing or
        independently developed Alfacell inventions (whether patentable or not),
        developments, improvements, know-how, data and information related to Product
        or
        based on Alfacell Confidential Information. For the purposes of this Agreement,
        “SPL's Technology” shall mean all pre-existing or independently developed SPL
        inventions (whether patentable or not), developments, improvements, know-how,
        data and information related to its proprietary manufacturing processes or
        based
        on SPL Confidential Information. For purposes of this Agreement, "Developed
        IP"
        shall mean inventions (whether patentable or not), developments, improvements,
        know-how, data and information developed by a party in connection
        herewith.

       

      14.2 All
        Alfacell Technology shall be the sole and exclusive Confidential Information
        and
        property of Alfacell and SPL shall have no right to any of the Alfacell
        Technology except as set forth in this subsection. Alfacell gives SPL the
        right
        to use Alfacell Technology solely as necessary to allow SPL to comply with
        its
        obligations under this Agreement. Such license shall terminate on the earlier
        termination or expiration of this Agreement. 

       

      14.3 All
        SPL
        Technology developed solely by SPL and not based on Alfacell Confidential
        Information and property shall be the sole and exclusive Confidential
        Information and property of SPL. In the case that SPL violates the provisions
        of
        Section 12.2, Alfacell shall have a nonexclusive, worldwide, royalty free
        license to SPL Introduced Technology to use, have used, sell and have sold
        Product (in any form or formulation) manufactured hereunder.

       

      14.4 Developed
        IP shall be the sole and exclusive Confidential Information of Alfacell;
        provided, however, SPL shall have a non-exclusive license to utilize the
        Developed IP in conjunction with its business to the extent that the Developed
        IP relates solely to SPL’s [manufacturing processes] and is unrelated to
        Product. Such non-exclusive license is royalty-free and shall survive
        termination of this Agreement. SPL shall promptly and fully disclose to Alfacell
        all Developed IP and shall execute and deliver such documentation as needed
        to
        evidence any of the foregoing rights.

       

      14.5 Except
        as
        otherwise provided herein, upon the termination or expiration or early request
        by the party owning the relevant Confidential Information, the non-owning
        party
        shall return to its owner all tangible Confidential Information and copies
        thereof to the owning party, and shall erase all embodiments of the Confidential
        Information from all storage devices owned or controlled by the non-owning
        party, including but not limited to, random access memory (RAM) devices,
        read
        only memory (ROM) devices and disk drives. The non-owning party agrees to
        promptly certify to the owning party, in writing, its fulfillment of its
        obligation hereunder. The non-owning party may be required to retain certain
        copies of pertinent documents for the purposes of complying with any regulatory
        requirements, and will inform the owning party if any documents would be
        involved in the duration of time required to retain them if
        known.

      
        
          
          

        

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      ARTICLE
        15 JURISDICTION

       

      This
        Agreement shall be governed by and construed in accordance with the laws
        of the
        State of Delaware, without regard to any choice of law principle that would
        dictate the application of the law of another jurisdiction.

       

      ARTICLE
        16 SEVERABILITY

       

      If
        any
        provision of this Agreement should be or becomes fully or partly invalid
        or
        unenforceable for any reason whatsoever, or should violate any applicable
        law,
        the same shall be considered divisible as to such provision and such provision
        shall be deemed deleted herefrom, and the remainder hereof shall be valid
        and
        binding as if such provision were not included herein.

       

      ARTICLE
        17 NOTICES

       

      All
        notices or other communications which are required or permitted hereunder
        shall
        be in writing and delivered personally, sent by telecopier (and promptly
        confirmed by personal delivery, registered or certified mail or overnight
        courier), sent by nationally-recognized overnight courier or sent by registered
        or certified mail, postage prepaid, return receipt requested, addressed as
        follows:

       

      If
        to
        SPL, to:

      SCIENTIFIC
        PROTEIN LABORATORIES LLC

      700
        East
        Main Street

      Waunakee,
        Wisconsin 53597

      Attention:
        Mr. David G. Strunce

      Phone:
        608-849-5944

      Fax:
        608-849-5939

      

      With
        a
        copy to:

      REINHART
        BOERNER VAN DEUREN s.c.

      1000
        North Water Street, Suite 2100

      Milwaukee,
        Wisconsin 53202

      Attention:
        Lawrence J. Burnett, Esq.

      Phone:
        414-298-8175

      Fax:
        414-298-8097

      

      If
        to
        Alfacell, to:

      ALFACELL
        CORPORATION

      300
        Atrium Drive

      Somerset,
        New Jersey 08873

      Attention:
        Kuslima Shogen, Chief Executive Officer

      Phone:
        732-652-4525

      Fax:
        732-652-4575

      

      With
        a
        copy to:

      HELLER
        EHRMAN

      
        
          
          

        

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      7
        Times
        Square

      New
        York,
        New York 10036

      Attention:
        Kevin T. Collins

      Phone:
        212.832.2000

      Fax:212.763.7600

      

      or
        to
        such other address as the party to whom notice is to be given may have furnished
        to the other party in writing in accordance herewith. Any such communication
        shall be deemed to have been delivered: (i) when delivered, if personally
        delivered, sent by telecopier on a business day, or if sent by
        nationally-recognized overnight courier or (ii) on the fifth business day
        following the date of mailing, if sent by mail. It is understood and agreed
        that
        this Article 17 is not intended to govern the day-to-day business communications
        necessary between the parties in performing their duties, in due course,
        under
        the terms of this Agreement.

       

      ARTICLE
        18 MISCELLANEOUS

       

      18.1 This
        Agreement shall not be modified except by a duly signed instrument in
        writing.

       

      18.2 Any
        waiver or delay by either party of exercising any remedy for any breach of
        any
        provision hereof shall not be construed to be a waiver of any subsequent
        breach
        of such provisions or a waiver of the provision itself or any waiver of any
        other breach.

       

      18.3 Alfacell
        and SPL are independent contractors and nothing in this Agreement shall be
        construed to create a partnership, joint venture, license or employment
        relationship between the parties.

       

      18.4 The
        rights and obligations under this Agreement may not be assigned or transferred
        by either party without prior written consent of the other party, except
        that
        SPL may assign this Agreement in the event of a transfer of control subject
        to
Section 10.1(c).
        Alfacell
        may
        assign this Agreement to an affiliated company or in connection with the
        merger,
        consolidation, sale or transfer of all or substantially all of the business
        to
        which this Agreement relates, whereafter the primary and sole obligor under
        this
        Agreement shall be the assignee.

       

      18.5 This
        Agreement constitutes the entire agreement of the parties with regard to
        its
        subject matter and supersedes all previous oral or written representations,
        agreements and understandings between Alfacell and SPL with respect to the
        supply of the Product. This Agreement may be changed only by a writing signed
        by
        both parties which specifically indicates the terms or provisions of this
        Agreement are being amended by such writing.

       

      18.6 In
        the
        event that any one or more provisions of this Agreement shall, for any reason,
        be held to be invalid, illegal or unenforceable in any respect, such invalidity,
        illegality or unenforceability shall not affect any other provision of this
        Agreement, and all other provisions shall remain in full force and effect.
        If
        any of the provisions are held to be excessively broad, any such provision
        shall
        be reformed and construed by limiting and reducing it so as to be enforceable
        to
        the maximum extent permitted by law.

      
        
          
          

        

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      18.7 Neither
        party shall make any public announcements with respect to this Agreement
        without
        the consent of the other party, which consent shall not be unreasonably
        withheld. Each party shall submit all proposed press releases to the other
        for
        prior review, which review shall be accomplished as expeditiously as possible.
        

       

      18.8 SPL
        may
        not subcontract with any third party to perform any of its obligations hereunder
        without the prior written consent of Alfacell. In no event shall any such
        subcontract release SPL from any of its obligations under this Agreement
        except
        to the extent they are performed by such subcontractor. SPL shall be primarily
        responsible for the performance, in connection with all the terms and conditions
        of this Agreement, of its permitted subcontractors. All permitted subcontractors
        will be required by SPL in writing to adhere to the terms and conditions
        of this
        Agreement.

       

      *     *     *     *     *

      
        
          
          

        

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      IN
        WITNESS WHEREOF, the parties hereto have caused this Purchase and Supply
        Agreement to be executed in duplicate by their representatives duly authorized
        as of the date first written above.

       

      
        	
                SCIENTIFIC
                  PROTEIN 

                LABORATORIES
                  LLC

              	 	
                ALFACELL
                  CORPORATION

              
	 	 	 	 	 
	
                By:

              	 	 	
                By:

              	 
	
                Print:

              	 	 	
                Print:

              	 
	
                Title:

              	 	 	
                Title:

              	 

      

       

      
        
          
          

        

          
          

          
  

          

        

        
          
          

        

      

      EXHIBIT
        1

       

      SPECIFICATIONS

       

      (please
        see attached)

       

      
        
          
          

        

          
          

          
  

          

        

        
          
          

        

      

      EXHIBIT
        2

       

      ANTICIPATED
        VOLUME AND PRICING

       

      
        
          
          

        

          
          

          
  

          

        

        
          
          

        

      

      EXHIBIT
        3

       

      QUALITY
        AGREEMENT

       

      (to
        be
        agreed and executed by the parties and annexed hereto)

       

      
        
          
          

        

          
          

          
  

          

        

        
          
          

        

      

      EXHIBIT
        4

       

      CONFIDENTIALITY
        AGREEMENT

       

      (please
        see attached)ex4-1_march2008.htm

    EXHIBIT 4.1

    

      SECURITIES
PURCHASE AGREEMENT

       

      

       

      SECURITIES
PURCHASE AGREEMENT (this “Agreement”), dated as of
February 22, 2008, by and among Avitar Inc., a Delaware corporation, with
headquarters located at 65 Dan Road, Canton, MA 02021 (the “Company”), and each of the
purchasers set forth on the signature pages hereto (the “Buyers”).

       

      WHEREAS:

       

      A. The
Company and the Buyers are executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by the rules and
regulations as promulgated by the United States Securities and Exchange
Commission (the “SEC”)
under the Securities Act of 1933, as amended (the “1933 Act”);

       

      B. Buyers
desire to purchase and the Company desires to issue and sell, upon the terms and
conditions set forth in this Agreement (i) 8% secured convertible notes of
the Company, in the form attached hereto as Exhibit “A”, in the aggregate
principal amount of Three Hundred Ten Thousand Dollars ($310,000) (together with
any note(s) issued in replacement thereof or as a dividend thereon or otherwise
with respect thereto in accordance with the terms thereof, the “Notes”), convertible into
shares of common stock, par value $.01 per share, of the Company (the “Common Stock”), upon the terms
and subject to the limitations and conditions set forth in such Notes and
(ii) warrants, in the form attached hereto as Exhibit “B”, to purchase
10,000,000 shares of Common Stock (the “Warrants”).

       

      C. Each
Buyer wishes to purchase, upon the terms and conditions stated in this
Agreement, such principal amount of Notes and number of Warrants as is set forth
immediately below its name on the signature pages hereto; and

       

      D. Contemporaneous
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, in the form attached
hereto as Exhibit “C”
(the “Registration Rights
Agreement”), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.

       

      NOW THEREFORE, the Company and
each of the Buyers severally (and not jointly) hereby agree as
follows:

       

      1. PURCHASE
AND SALE OF NOTES AND WARRANTS.

       

      a. Purchase
of Notes and Warrants.  On the Closing Date (as defined below),
the Company shall issue and sell to each Buyer and each Buyer severally agrees
to purchase from the Company such principal amount of Notes and number of
Warrants as is set forth immediately below such Buyer’s name on the signature
pages hereto.

       

      b. Form of
Payment.  On the Closing Date (as defined below), (i) each
Buyer shall pay the purchase price for the Notes and the Warrants to be issued
and sold to it at the Closing (as defined below) (the “Purchase Price”) by wire
transfer of immediately available funds to the Company, in accordance with the
Company’s written wiring instructions, against delivery of the Notes in the
principal amount equal to the Purchase Price and the number of Warrants as is
set forth immediately below such Buyer’s name on the signature pages hereto, and
(ii) the Company shall deliver such Notes and Warrants duly executed on
behalf of the Company, to such Buyer, against delivery of such Purchase
Price.

       

      c. Closing
Date.  Subject to the satisfaction (or written waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Notes and the Warrants pursuant to this
Agreement (the “Closing
Date”) shall be 12:00 noon, Eastern Standard Time on February 22, 2008,
or such other mutually agreed upon time.  The closing of the
transactions contemplated by this Agreement (the “Closing”) shall occur on the
Closing Date at such location as may be agreed to by the parties.

       

      2. BUYERS’
REPRESENTATIONS AND WARRANTIES.  Each Buyer severally (and not
jointly) represents and warrants to the Company solely as to such Buyer
that:

       

      a. Investment
Purpose.  As of the date hereof, the Buyer is purchasing the
Notes and the shares of Common Stock issuable upon conversion of or otherwise
pursuant to the Notes (including, without limitation, such additional shares of
Common Stock, if any, as are issuable (i) on account of interest on the
Notes, (ii) as a result of the events described in Sections 1.3 and 1.4(g)
of the Notes and Section 2(c) of the Registration Rights Agreement or
(iii) in payment of the Standard Liquidated Damages Amount (as defined in
Section 2(f) below) pursuant to this Agreement, such shares of Common Stock
being collectively referred to herein as the “Conversion Shares”) and the
Warrants and the shares of Common Stock issuable upon exercise thereof (the
“Warrant Shares” and,
collectively with the Notes, Warrants and Conversion Shares, the “Securities”) for its own
account and not with a present view towards the public sale or distribution
thereof, except pursuant to sales registered or exempted from registration under
the 1933 Act; provided, however, that by
making the representations herein, the Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.

       

      b. Accredited
Investor Status.  The Buyer is an “accredited investor” as that
term is defined in Rule 501(a) of Regulation D (an “Accredited
Investor”).

       

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

       

      d. Information.  The
Buyer and its advisors, if any, have been, and for so long as the Notes and
Warrants remain outstanding will continue to be, 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
the Buyer or its advisors.  The Buyer and its advisors, if any, have
been, and for so long as the Notes and Warrants remain outstanding will continue
to be, afforded the opportunity to ask questions of the
Company.  Notwithstanding the foregoing, the Company has not disclosed
to the Buyer any material nonpublic information and will not disclose such
information unless such information is disclosed to the public prior to or
promptly following such disclosure to the Buyer.  Neither such
inquiries nor any other due diligence investigation conducted by Buyer or any of
its advisors or representatives shall modify, amend or affect Buyer’s right to
rely on the Company’s representations and warranties contained in Section 3
below.  The Buyer understands that its investment in the Securities
involves a significant degree of risk.  The Buyers are not aware of
any facts that may constitute a breach of any of the Company’s representations
and warranties made herein.

       

      e. Governmental
Review.  The Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed upon or
made any recommendation or endorsement of the Securities.

       

      f. Transfer
or Re-sale.  The Buyer understands that (i) except as
provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the
Company an opinion of counsel reasonably acceptable to the Company and its
counsel that shall be in form, substance and scope customary for opinions of
counsel in comparable transactions to the effect that the Securities to be sold
or transferred may be sold or transferred pursuant to an exemption from such
registration, which opinion shall be accepted by the Company, (c) the
Securities are sold or transferred to an “affiliate” (as defined in Rule 144
promulgated under the 1933 Act (or a successor rule) (“Rule 144”)) of the Buyer who
agrees to sell or otherwise transfer the Securities only in accordance with this
Section 2(f) and who is an Accredited Investor, (d) the Securities are sold
pursuant to Rule 144, or (e) the Securities are sold pursuant to Regulation
S under the 1933 Act (or a successor rule) (“Regulation S”), and the Buyer
shall have delivered to the Company an opinion of counsel reasonably acceptable
to the Company and its counsel that shall be in form, substance and scope
customary for opinions of counsel in corporate transactions, which opinion shall
be accepted by the Company; (ii) any sale of such Securities made in reliance on
Rule 144 may be made only in accordance with the terms of said Rule and further,
if said Rule is not applicable, any re-sale of such Securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the 1933 Act) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement).  Notwithstanding the foregoing or anything else
contained herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account
or other lending arrangement.  In the event that the Company does not
accept the opinion of counsel provided by the Buyer with respect to the transfer
of Securities pursuant to an exemption from registration, such as Rule 144 or
Regulation S, within three (3) business days of delivery of the opinion to the
Company, the Company shall pay to the Buyer liquidated damages of two percent
(2%) of the outstanding amount of the Notes per month plus accrued and unpaid
interest on the Notes, prorated for partial months, in cash or shares at the
option of the Company (“Standard Liquidated Damages
Amount”).  If the Company elects to be pay the Standard
Liquidated Damages Amount in shares of Common Stock, such shares shall be issued
at the Conversion Price at the time of payment.  Notwithstanding
anything herein to the contrary, in the event the Company has to pay the
Standards Liquidated Damages Amount pursuant to any provision of this Agreement,
the Buyers shall first have to give the Company advance written notice of such
breach and in such event, the Company shall have 30 days from the receipt of
such notice to cure such breach before the Standard Liquidated Damages Amount
shall be due and payable to the Buyers.

       

      g. Legends.  The
Buyer understands that the Notes and the Warrants and, until such time as the
Conversion Shares and Warrant Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement or otherwise may be sold
pursuant to Rule 144 or Regulation S without any restriction as to the number of
securities as of a particular date that can then be immediately sold, the
Conversion Shares and Warrant Shares may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Securities):

       

      “The
securities represented by this certificate have not been registered under the
Securities Act of 1933, as amended.  The securities may not be sold,
transferred or assigned in the absence of an effective registration statement
for the securities under said Act, or an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable transactions, that
registration is not required under said Act or unless sold pursuant to Rule 144
or Regulation S under said Act.”

       

      The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions, which opinion shall be
reasonably acceptable to the Company’s counsel, to the effect that a public sale
or transfer of such Security may be made without registration under the 1933
Act, which opinion shall be accepted by the Company so that the sale or transfer
is effected or (c) such holder provides the Company with reasonable assurances
that such Security can be sold pursuant to Rule 144 or Regulation
S.  The Buyer agrees to sell all Securities, including those
represented by a certificate(s) from which the legend has been removed, in
compliance with applicable prospectus delivery requirements, if
any.

       

      h. Authorization;
Enforcement. This Agreement and the Registration Rights Agreement have
been duly and validly authorized.  This Agreement has been duly
executed and delivered on behalf of the Buyer, and this Agreement constitutes,
and upon execution and delivery by the Buyer of the Registration Rights
Agreement, such agreement will constitute, valid and binding agreements of the
Buyer enforceable in accordance with their terms.

       

      i. Residency.  The
Buyer is a resident of the jurisdiction set forth immediately below such Buyer’s
name on the signature pages hereto.

       

      3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.  The Company represents and
warrants to each Buyer that:

       

      a. Organization
and Qualification.  The Company and each of its Subsidiaries
(as defined below), if any, is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction in which it is
incorporated, with full power and authority (corporate and other) to own, lease,
use and operate its properties and to carry on its business as and where now
owned, leased, used, operated and conducted.  Schedule 3(a) sets forth a
list of all of the Subsidiaries of the Company and the jurisdiction in which
each is incorporated.  The Company and each of its Subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership or use of property or the nature of
the business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect.  “Material
Adverse Effect” means any of (i) a material and adverse effect on the
legality, validity or enforceability of any document executed in connection with
this financing, (ii) a material and adverse effect on the results of operations,
assets, prospects, business or condition (financial or otherwise) of the Company
and the Subsidiaries, taken as a whole, or (iii) an adverse impairment to the
Company’s ability to perform under any of the documents executed in connection
with this inancing.  “Subsidiaries” means any
corporation or other organization, whether incorporated or unincorporated, in
which the Company owns, directly or indirectly, any equity or other ownership
interest.

       

      b. Authorization;
Enforcement.  (i) The Company has all requisite corporate power
and authority to enter into and perform this Agreement, the Registration Rights
Agreement, the Notes and the Warrants and to consummate the transactions
contemplated hereby and thereby and to issue the Securities, in accordance with
the terms hereof and thereof, (ii) the execution and delivery of this Agreement,
the Registration Rights Agreement, the Notes and the Warrants by the Company and
the consummation by it of the transactions contemplated hereby and thereby
(including without limitation, the issuance of the Notes and the Warrants and
the issuance and reservation for issuance of the Conversion Shares and Warrant
Shares issuable upon conversion or exercise thereof) have been duly authorized
by the Company’s Board of Directors and no further consent or authorization of
the Company, its Board of Directors, or its shareholders is required, (iii) this
Agreement has been duly executed and delivered by the Company by its authorized
representative, and such authorized representative is the true and official
representative with authority to sign this Agreement and the other documents
executed in connection herewith and bind the Company accordingly, and (iv) this
Agreement constitutes, and upon execution and delivery by the Company of the
Registration Rights Agreement, the Notes and the Warrants, each of such
instruments will constitute, a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its
terms.

       

      c. Capitalization.  As
of the date hereof, the authorized capital stock of the Company consists of (i)
800,000,000 shares of Common Stock, of which 138,188,868 shares are issued and
outstanding, 105,266 shares are reserved for issuance pursuant to the Company’s
stock option plans, 46,266,589 shares are reserved for issuance pursuant to
securities (other than the Notes and the Warrants) exercisable for, or
convertible into or exchangeable for shares of Common Stock and, 616,439,277
shares are reserved for issuance upon conversion of the Notes and exercise of
the Warrants (subject to adjustment pursuant to the Company’s covenant set forth
in Section 4(h) below); and (ii) 5,000,000 shares of preferred stock, of which
44,630 shares are issued and outstanding.  All of such outstanding
shares of capital stock are, or upon issuance will be, duly authorized, validly
issued, fully paid and nonassessable.  No shares of capital stock of
the Company are subject to preemptive rights or any other similar rights of the
shareholders of the Company or any liens or encumbrances imposed through the
actions or failure to act of the Company.  Except as disclosed in
Schedule 3(c), as of the
effective date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for any shares of capital stock of the Company or any of its
Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its Subsidiaries, (ii) there are no agreements or arrangements under
which the Company or any of its Subsidiaries is obligated to register the sale
of any of its or their securities under the 1933 Act (except the Registration
Rights Agreement) and (iii) there are no anti-dilution or price adjustment
provisions contained in any security issued by the Company (or in any agreement
providing rights to security holders) that will be triggered by the issuance of
the Notes, the Warrants, the Conversion Shares or Warrant Shares.  The
Company has furnished to the Buyer true and correct copies of the Company’s
Articles of Incorporation as in effect on the date hereof (“Articles of Incorporation”),
the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the terms of
all securities convertible into or exercisable for Common Stock of the Company
and the material rights of the holders thereof in respect
thereto.  The Company shall provide the Buyer with a written update of
this representation signed by the Company’s Chief Executive or Chief Financial
Officer on behalf of the Company as of the Closing Date.

       

      d. Issuance
of Shares.  The Conversion Shares and Warrant Shares are duly
authorized and reserved for issuance and, upon conversion of the Notes and
exercise of the Warrants in accordance with their respective terms, will be
validly issued, fully paid and non-assessable, and free from all taxes, liens,
claims and encumbrances with respect to the issue thereof and shall not be
subject to preemptive rights or other similar rights of shareholders of the
Company and will not impose personal liability upon the holder
thereof.

       

      e. Acknowledgment
of Dilution.   The Company understands and acknowledges
the potentially dilutive effect to the Common Stock upon the issuance of the
Conversion Shares and Warrant Shares upon conversion of the Note or exercise of
the Warrants.  The Company further acknowledges that its obligation to
issue Conversion Shares and Warrant Shares upon conversion of the Notes or
exercise of the Warrants in accordance with this Agreement, the Notes and the
Warrants is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other shareholders of the
Company.

       

      f. No
Conflicts.  The execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Notes and the Warrants by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance and reservation
for issuance of the Conversion Shares and Warrant Shares) will not (i) conflict
with or result in a violation of any provision of the Certificate of
Incorporation or By-laws or (ii) violate or conflict with, or result in a breach
of any provision of, or constitute a default (or an event which with notice or
lapse of time or both could become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture, patent, patent license or instrument to which the Company
or any of its Subsidiaries is a party, or (iii)  to the Company’s
knowledge, result in a violation of any law, rule, regulation, order, judgment
or decree (including federal and state securities laws and regulations and
regulations of any self-regulatory organizations to which the Company or its
securities are subject) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse
Effect).  Neither the Company nor any of its Subsidiaries is in
violation of its Certificate of Incorporation, By-laws or other organizational
documents and neither the Company nor any of its Subsidiaries is in default (and
no event has occurred which with notice or lapse of time or both could put the
Company or any of its Subsidiaries in default) under, and neither the Company
nor any of its Subsidiaries has taken any action or failed to take any action
that would give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party or by which any property or assets of the
Company or any of its Subsidiaries is bound or affected, except for possible
defaults as would not, individually or in the aggregate, have a Material Adverse
Effect. The businesses of the Company and its Subsidiaries, if any, are not
being conducted, and shall not be conducted so long as a Buyer owns any of the
Securities, in violation of any law, ordinance or regulation of any governmental
entity.  Except as specifically contemplated by this Agreement and as
required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency, regulatory
agency, self regulatory organization or stock market or any third party in order
for it to execute, deliver or perform any of its obligations under this
Agreement, the Registration Rights Agreement, the Notes or the Warrants in
accordance with the terms hereof or thereof or to issue and sell the Notes and
Warrants in accordance with the terms hereof and to issue the Conversion Shares
upon conversion of the Notes and the Warrant Shares upon exercise of the
Warrants.  Except as disclosed in Schedule 3(f), all consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof.  The Company is not in violation of the
quotation requirements of the Over-the-Counter Bulletin Board (the “OTCBB”) and does not
reasonably anticipate that the Common Stock will be removed by the OTCBB in the
foreseeable future.  The Company and its Subsidiaries are unaware of
any facts or circumstances which might give rise to any of the
foregoing.

       

      g. SEC
Documents; Financial Statements.  Except as disclosed in Schedule 3(g), since September
30, 2004 the Company has timely filed all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
“1934 Act”) (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents (other than exhibits to
such documents) incorporated by reference therein, being hereinafter referred to
herein as the “SEC
Documents”).  As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.  None of the statements made in any such SEC Documents
is, or has been, required to be amended or updated under applicable law (except
for such statements as have been amended or updated in subsequent filings prior
the date hereof).  As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto.  Such financial
statements have been prepared in accordance with United States generally
accepted accounting principles, consistently applied, during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may not include footnotes or may be condensed or summary
statements) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments).  Except as set forth in the
financial statements of the Company included in the SEC Documents, the Company
has no liabilities, contingent or otherwise, other than (i) liabilities incurred
in the ordinary course of business subsequent to September 30, 2007 and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in the aggregate,
are not material to the financial condition or operating results of the
Company.

       

      h. Absence
of Certain Changes.  Except as set forth in Schedule 3(h), since
September 30, 2007, there has been no material adverse change and no material
adverse development in the assets, liabilities, business, properties,
operations, financial condition, results of operations or prospects of the
Company or any of its Subsidiaries.

       

      i. Absence
of Litigation.  There is no action, suit, claim, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company
or any of its Subsidiaries, or their officers or directors in their capacity as
such, that could have a Material Adverse Effect.  Schedule 3(i) contains a
complete list and summary description of any pending or, to the knowledge of the
Company, threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it would have a Material Adverse
Effect.  The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.

       

      j. Patents,
Copyrights, etc.   The Company and each of its
Subsidiaries owns or possesses the requisite licenses or rights to use all
patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names, trade
names and copyrights (“Intellectual Property”)
necessary to enable it to conduct its business as now operated (and, except as
set forth in Schedule
3(j) hereof, to the best of the Company’s knowledge, as presently
contemplated to be operated in the future); there is no claim or action by any
person pertaining to, or proceeding pending, or to the Company’s knowledge
threatened, which challenges the right of the Company or of a Subsidiary with
respect to any Intellectual Property necessary to enable it to conduct its
business as now operated (and, except as set forth in Schedule 3(j) hereof, to the
best of the Company’s knowledge, as presently contemplated to be operated in the
future); to the best of the Company’s knowledge, the Company’s or its
Subsidiaries’ current and intended products, services and processes do not
infringe on any Intellectual Property or other rights held by any person; and
the Company is unaware of any facts or circumstances which might give rise to
any of the foregoing.  The Company and each of its Subsidiaries have
taken reasonable security measures to protect the secrecy, confidentiality and
value of their Intellectual Property.

       

      k. No
Materially Adverse Contracts, Etc.  Neither the Company nor any
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company’s officers has or is expected in the future to have a
Material Adverse Effect.  Neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment of
the Company’s officers has or is expected to have a Material Adverse
Effect.

       

      l. Tax
Status.  Except as set forth on Schedule 3(l), the Company and
each of its Subsidiaries has made or filed all federal, state and foreign income
and all other tax returns, reports and declarations required by any jurisdiction
to which it is subject (unless and only to the extent that the Company and each
of its Subsidiaries has set aside on its books provisions reasonably adequate
for the payment of all unpaid and unreported taxes) and has paid all taxes and
other governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply.  There
are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.  The Company has not executed a waiver with
respect to the statute of limitations relating to the assessment or collection
of any foreign, federal, state or local tax.  Except as set forth on
Schedule 3(l), none of
the Company’s tax returns is presently being audited by any taxing
authority.

       

      m. Certain
Transactions.  Except as set forth on Schedule 3(m) and except for
arm’s length transactions pursuant to which the Company or any of its
Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on Schedule 3(c), none of the
officers, directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.

       

      n. Disclosure.  All
information relating to or concerning the Company or any of its Subsidiaries set
forth in this Agreement and provided to the Buyers pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading.  No event or circumstance has occurred or exists with
respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed
(assuming for this purpose that the Company’s reports filed under the 1934 Act
are being incorporated into an effective registration statement filed by the
Company under the 1933 Act).

       

      o. Acknowledgment
Regarding Buyers’ Purchase of Securities.  The Company
acknowledges and agrees that the Buyers are acting solely in the capacity of
arm’s length purchasers with respect to this Agreement and the transactions
contemplated hereby.  The Company further acknowledges that no Buyer
is acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any statement made by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to the Buyers’ purchase of the Securities.  The Company further
represents to each Buyer that the Company’s decision to enter into this
Agreement has been based solely on the independent evaluation of the Company and
its representatives.

       

      p. No
Integrated Offering.  Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers.  The
issuance of the Securities to the Buyers will not be integrated with any other
issuance of the Company’s securities (past, current or future) for purposes of
any shareholder approval provisions applicable to the Company or its
securities.

       

      q. No
Brokers.  Except as set forth in Schedule 3(q), the Company has
taken no action which would give rise to any claim by any person for brokerage
commissions, transaction fees or similar payments relating to this Agreement or
the transactions contemplated hereby.

       

      r. Permits;
Compliance.  The Company and each of its Subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the “Company Permits”), and there
is no action pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits.  Neither the
Company nor any of its Subsidiaries is in conflict with, or in default or
violation of, any of the Company Permits, except for any such conflicts,
defaults or violations which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.  Since
September 30, 2007, neither the Company nor any of its Subsidiaries has received
any notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.

       

      s. Environmental
Matters.

       

      (i) Except as
set forth in Schedule
3(s), there are, to the best of the Company’s knowledge, with respect to
the Company or any of its Subsidiaries or any predecessor of the Company, no
past or present violations of Environmental Laws (as defined below), releases of
any material into the environment, actions, activities, circumstances,
conditions, events, incidents, or contractual obligations which may give rise to
any common law environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or similar
federal, state, local or foreign laws and neither the Company nor any of its
Subsidiaries has received any notice with respect to any of the foregoing, nor
is any action pending or, to the Company’s knowledge, threatened in connection
with any of the foregoing.  The term “Environmental Laws” means all
federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants contaminants, or toxic or hazardous
substances or wastes (collectively, “Hazardous Materials”) into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved
thereunder.

       

      (ii) Other
than those that are or were stored, used or disposed of in compliance with
applicable law, no Hazardous Materials are contained on or about any real
property currently owned, leased or used by the Company or any of its
Subsidiaries, and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the Company’s
or any of its Subsidiaries’ business.

       

      (iii) Except as
set forth in Schedule
3(s), to the best of the Company’s knowledge there are no underground
storage tanks on or under any real property owned, leased or used by the Company
or any of its Subsidiaries that are not in compliance with applicable
law.

       

      t. Title to
Property.  The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(t) or such as would
not have a Material Adverse Effect.  Any real property and facilities
held under lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as would not have
a Material Adverse Effect.

       

      u. Insurance.  The
Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its Subsidiaries are engaged.  Neither the
Company nor any such Subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse
Effect.

       

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

       

      w. Foreign
Corrupt Practices.  Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any Subsidiary 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 funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended, or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee.

       

      x. Solvency.  The
Company (after giving effect to the transactions contemplated by this Agreement)
is solvent (i.e., its assets have
a fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured) and
currently the Company has no information that would lead it to reasonably
conclude that the Company would not, after giving effect to the transaction
contemplated by this Agreement, have the ability to, nor does it intend to take
any action that would impair its ability to, pay its debts from time to time
incurred in connection therewith as such debts mature.

       

      y. No
Investment Company.  The Company is not, and upon the issuance
and sale of the Securities as contemplated by this Agreement will not be an
“investment company” required to be registered under the Investment Company Act
of 1940 (an “Investment
Company”).  The Company is not controlled by an Investment
Company.

       

      z. Certain
Registration Matters. Assuming the accuracy of the Buyers'
representations and warranties set forth in Section 3, no registration under the
Securities Act is required for the offer and sale of the Conversion Shares and
Warrant Shares by the Company to the Buyers under the transaction documents.
Except as specified in Schedule
3(z), the Company has not granted or agreed to grant to any Person any
rights (including "piggy-back" registration rights) to have any securities of
the Company registered with the Commission or any other governmental authority
that have not been satisfied.

       

      aa. Breach of
Representations and Warranties by the Company.  If the Company
materially breaches any of the representations or warranties set forth in this
Section 3, and in addition to any other remedies available to the Buyers
pursuant to this Agreement, the Company shall pay to the Buyer the Standard
Liquidated Damages Amount in cash or in shares of Common Stock at the option of
the Company, until such breach is cured.  If the Company elects to pay
the Standard Liquidated Damages Amounts in shares of Common Stock, such shares
shall be issued at the Conversion Price at the time of payment.

       

      4. COVENANTS.

       

      a. Best
Efforts.  The parties shall use their best efforts to satisfy
timely each of the conditions described in Section 6 and 7 of this
Agreement.

       

      b. Form D;
Blue Sky Laws.  The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing.  The Company shall,
on or before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Buyers at the
applicable closing pursuant to this Agreement under applicable securities or
“blue sky” laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to each Buyer on or prior to the Closing Date; provided, however, that the
Company shall not be required in connection therewith or as a condition thereto
to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 4(b), (b) subject
itself to general taxation in any such jurisdiction, (c) file a general
consent to service of process in any such jurisdiction, (d) provide any
undertakings that cause the Company undue expense or burden, or (e) make
any change in its charter or bylaws, which in each case the Board of Directors
of the Company determines to be contrary to the best interests of the Company
and its shareholders.

       

      c. Reporting Status;
Eligibility to Use Form S-3, SB-2 or Form

       

      S-1. The Company’s Common
Stock is registered under Section 12(g) of the 1934 Act. The Company represents
and warrants that it meets the requirements for the use of Form S-3 (or if the
Company is not eligible for the use of Form S-3 as of the Filing Date (as
defined in the Registration Rights Agreement), the Company may use the form of
registration for which it is eligible at that time) for registration of the sale
by the Buyer of the Registrable Securities (as defined in the Registration
Rights Agreement).  So long as the Buyer beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed with
the SEC pursuant to the 1934 Act, and the Company shall not terminate its status
as an issuer required to file reports under the 1934 Act even if the 1934 Act or
the rules and regulations thereunder would permit such
termination.  The Company further agrees to file all reports required
to be filed by the Company with the SEC in a timely manner so as to become
eligible, and thereafter to maintain its eligibility, for the use of Form
S-3.  The Company shall issue a press release describing the material
terms of the transaction contemplated hereby as soon as practicable following
the Closing Date but in no event more than two (2) business days of the Closing
Date, which press release shall be subject to prior review by the
Buyers.  The Company agrees that such press release shall not disclose
the name of the Buyers unless expressly consented to in writing by the Buyers or
unless required by applicable law or regulation, and then only to the extent of
such requirement.

       

      d. Use of
Proceeds.  The Company shall use the net proceeds from the sale
of the Notes and the Warrants in the manner set forth in Schedule 4(d) attached hereto
and made a part hereof and shall not, directly or indirectly, use such proceeds
for (i) any loan to or investment in any other corporation, partnership,
enterprise or other person (except in connection with its currently existing
direct or indirect Subsidiaries); (ii) the satisfaction of any portion of the
Company’s debt (other than payment of trade payables and accrued expenses in the
ordinary course of the Company’s business and consistent with prior past
practices), or (iii) the redemption of any Common Stock.

       

      e. Future
Offerings.  Subject to the exceptions described below, the
Company will not, without the prior written consent of a majority-in-interest of
the Buyers, which consent shall not be unreasonably withheld, negotiate or
contract with any party to obtain additional equity financing (including debt
financing with an equity component) that involves (A) the issuance of Common
Stock for cash at a discount to the market price of the Common Stock on the date
of issuance (taking into account the value of any warrants or options to acquire
Common Stock issued in connection therewith) or (B) the issuance of convertible
securities that are convertible into an indeterminate number of shares of Common
Stock or (C) the issuance of warrants during the period (the “Lock-up Period”) beginning on
the Closing Date and ending on the later of (i) two hundred seventy (270) days
from the Closing Date and (ii) one hundred eighty (180) days from the date the
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective (plus any days in which sales cannot be made
thereunder).  In addition, subject to the exceptions described below,
the Company will not conduct any equity financing (including debt with an equity
component) (“Future
Offerings”) during the period beginning on the Closing Date and ending
two (2) years after the end of the Lock-up Period unless it shall have first
delivered to each Buyer, at least twenty (20) business days prior to the closing
of such Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof and proposed definitive documentation
to be entered into in connection therewith, and providing each Buyer an option
during the fifteen (15) day period following delivery of such notice to purchase
its pro rata share (based on the ratio that the aggregate principal amount of
Notes purchased by it hereunder bears to the aggregate principal amount of Notes
purchased hereunder) of the securities being offered in the Future Offering on
the same terms as contemplated by such Future Offering (the limitations referred
to in this sentence and the preceding sentence are collectively referred to as
the “Capital Raising
Limitations”).  In the event the terms
and conditions of a proposed Future Offering are amended in any respect after
delivery of the notice to the Buyers concerning the proposed Future Offering,
the Company shall deliver a new notice to each Buyer describing the amended
terms and conditions of the proposed Future Offering and each Buyer thereafter
shall have an option during the fifteen (15) day period following delivery of
such new notice to purchase its pro rata share of the securities being offered
on the same terms as contemplated by such proposed Future Offering, as
amended.  The foregoing sentence shall apply to successive amendments
to the terms and conditions of any proposed Future Offering.  The
Capital Raising Limitations shall not apply to any transaction involving (i)
issuances of securities in a firm commitment underwritten public offering
(excluding a continuous offering pursuant to Rule 415 under the 1933 Act, an
equity line of credit or similar financing arrangement) resulting in net
proceeds to the Company of in excess of $1,500,000, or (ii) issuances of
securities as consideration for a merger, consolidation or purchase of assets,
or in connection with any strategic partnership or joint venture (the primary
purpose of which is not to raise equity capital), or in connection with the
disposition or acquisition of a business, product or license by the
Company.  The Capital Raising Limitations also shall not apply to the
issuance of securities upon exercise or conversion of the Company’s options,
warrants or other convertible securities outstanding as of the date hereof or to
the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan approved by
the shareholders of the Company.

       

      f. Expenses.  At
the Closing, the Company shall reimburse Buyers for expenses incurred by them in
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement and the other agreements to be executed in
connection herewith (“Documents”), including, without limitation, attorneys’ and
consultants’ fees and expenses, transfer agent fees, fees for stock quotation
services, fees relating to any amendments or modifications of the Documents or
any consents or waivers of provisions in the Documents, fees for the preparation
of opinions of counsel, escrow fees, and costs of restructuring the transactions
contemplated by the Documents.  When possible, the Company must pay
these fees directly, otherwise the Company must make immediate payment for
reimbursement to the Buyers for all fees and expenses immediately upon written
notice by the Buyer or the submission of an invoice by the
Buyer.  Notwithstanding anything herein to the contrary, the Company’s
obligation to reimburse Buyers’ expenses shall not exceed $20,000 in the
aggregate.

       

      g. Financial
Information.  The Company agrees to send the following reports
to each Buyer until such Buyer transfers, assigns, or sells all of the
Securities: (i) within ten (10) days after the filing with the SEC, a copy
of its Annual Report on Form 10-KSB its Quarterly Reports on Form 10-QSB and any
Current Reports on Form 8-K; (ii) within one (1) day after release, copies
of all press releases issued by the Company or any of its Subsidiaries; and
(iii) contemporaneously with the making available or giving to the
shareholders of the Company, copies of any notices or other information the
Company makes available or gives to such shareholders.

       

      h. Authorization
and Reservation of Shares.  Subject to Stockholder Approval,
the Company shall at all times have authorized, and reserved for the purpose of
issuance, a sufficient number of shares of Common Stock to provide for the full
conversion or exercise of the outstanding Notes and Warrants and issuance of the
Conversion Shares and Warrant Shares in connection therewith (based on the
Conversion Price of the Notes or Exercise Price of the Warrants in effect from
time to time) and as otherwise required by the Notes.  The Company
shall not reduce the number of shares of Common Stock reserved for issuance upon
conversion of Notes and exercise of the Warrants without the consent of each
Buyer.  The Company shall at all times maintain the number of shares
of Common Stock so reserved for issuance at an amount (“Reserved Amount”) equal to no
less than two (2) times the number that is then actually issuable upon full
conversion of the Notes and upon exercise of the Warrants (based on the
Conversion Price of the Notes or the Exercise Price of the Warrants in effect
from time to time).  If at any time the number of shares of Common
Stock authorized and reserved for issuance (“Authorized and Reserved
Shares”) is below the Reserved Amount, the Company will promptly take all
corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, calling a special meeting of shareholders
to authorize additional shares to meet the Company’s obligations under this
Section 4(h), in the case of an insufficient number of authorized shares, obtain
shareholder approval of an increase in such authorized number of shares, and
voting the management shares of the Company in favor of an increase in the
authorized shares of the Company to ensure that the number of authorized shares
is sufficient to meet the Reserved Amount.  If the Company fails to
obtain such shareholder approval within thirty (30) days following the date on
which the number of Reserved Amount exceeds the Authorized and Reserved Shares,
the Company shall pay to the Borrower the Standard Liquidated Damages Amount, in
cash or in shares of Common Stock at the option of the Buyer.  If the
Buyer elects to be paid the Standard Liquidated Damages Amount in shares of
Common Stock, such shares shall be issued at the Conversion Price at the time of
payment.  In order to ensure that the Company has authorized a
sufficient amount of shares to meet the Reserved Amount at all times, the
Company must deliver to the Buyer at the end of every month a list detailing (1)
the current amount of shares authorized by the Company and reserved for the
Buyer; and (2) amount of shares issuable upon conversion of the Notes and upon
exercise of the Warrants and as payment of interest accrued on the Notes for one
year.  If the Company fails to provide such list within five (5)
business days of the end of each month, the Company shall pay the Standard
Liquidated Damages Amount, in cash or in shares of Common Stock at the option of
the Buyer, until the list is delivered.  If the Buyer elects to be
paid the Standard Liquidated Damages Amount in shares of Common Stock, such
shares shall be issued at the Conversion Price at the time of
payment.

       

      i. Listing.  The
Company shall promptly secure the listing of the Conversion Shares and Warrant
Shares upon each national securities exchange or automated quotation system, if
any, upon which shares of Common Stock are then listed (subject to official
notice of issuance) and, so long as any Buyer owns any of the Securities, shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares and Warrant Shares from time to time issuable
upon conversion of the Notes or exercise of the Warrants.  The Company
will obtain and, so long as any Buyer owns any of the Securities, maintain the
listing and trading of its Common Stock on the OTCBB or any equivalent
replacement exchange, the Nasdaq National Market (“Nasdaq”), the Nasdaq SmallCap
Market (“Nasdaq
SmallCap”), the New York Stock Exchange (“NYSE”), or the American Stock
Exchange (“AMEX”) and
will comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers (“NASD”) and
such exchanges, as applicable.  The Company shall promptly provide to
each Buyer copies of any notices it receives from the OTCBB and any other
exchanges or quotation systems on which the Common Stock is then listed
regarding the continued eligibility of the Common Stock for listing on such
exchanges and quotation systems.

       

      j. Corporate
Existence.  So long as a Buyer beneficially owns any Notes or
Warrants, the Company shall maintain its corporate existence and shall not sell
all or substantially all of the Company’s assets, except in the event of a
merger or consolidation or sale of all or substantially all of the Company’s
assets, where the surviving or successor entity in such transaction (i) assumes
the Company’s obligations hereunder and under the agreements and instruments
entered into in connection herewith and (ii) is a publicly traded corporation
whose Common Stock is listed for trading on the OTCBB, Nasdaq, Nasdaq SmallCap,
NYSE or AMEX.

       

      k. No
Integration.  The Company shall not make any offers or sales of
any security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the 1933
Act or cause the offering of the Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.

       

      l. Restriction
on Short Sales. The Buyers agree that, so long as any of the Notes remain
outstanding, but in no event less than two (2) years from the date hereof, the
Buyers will not enter into or effect any “short sales” (as such term is defined
in Rule 3b-3 of the 1934 Act) of the Common Stock or hedging transaction which
establishes a net short position with respect to the Common Stock.

       

      m. Breach of
Covenants.  If the Company
breaches any of the covenants set forth in this Section 4, and in addition to
any other remedies available to the Buyers pursuant to this Agreement, the
Company shall pay to the Buyers the Standard Liquidated Damages Amount, in cash
or in shares of Common Stock at the option of the Company, until such breach is
cured.  If the Company elects to pay the Standard Liquidated Damages
Amount in shares, such shares shall be issued at the Conversion Price at the
time of payment.

       

      5. TRANSFER
AGENT INSTRUCTIONS.  The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee, for the Conversion Shares and Warrant Shares in
such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Notes or exercise of the Warrants in accordance with the terms
thereof (the “Irrevocable
Transfer Agent Instructions”).  Prior to registration of the
Conversion Shares and Warrant Shares under the 1933 Act or the date on which the
Conversion Shares and Warrant Shares may be sold pursuant to Rule 144 without
any restriction as to the number of Securities as of a particular date that can
then be immediately sold, all such certificates shall bear the restrictive
legend specified in Section 2(g) of this Agreement.  The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately sold), will
be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights
Agreement.  Nothing in this Section shall affect in any way the
Buyer’s obligations and agreement set forth in Section 2(g) hereof to comply
with all applicable prospectus delivery requirements, if any, upon re-sale of
the Securities.  If a Buyer provides the Company with (i) an opinion
of counsel reasonably acceptable to the Company and its counsel in form,
substance and scope customary for opinions in comparable transactions, to the
effect that a public sale or transfer of such Securities may be made without
registration under the 1933 Act and such sale or transfer is effected or (ii)
the Buyer provides reasonable assurances that the Securities can be sold
pursuant to Rule 144, the Company shall permit the transfer, and, in the case of
the Conversion Shares and Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates, free from restrictive legend, in such name
and in such denominations as specified by such Buyer.  The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers, by vitiating the intent and purpose of the
transactions contemplated hereby.  Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5 may be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section, that the Buyers shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate transfer, without the necessity
of showing economic loss and without any bond or other security being
required.

       

      6. CONDITIONS
TO THE COMPANY’S OBLIGATION TO SELL.  The obligation of the
Company hereunder to issue and sell the Notes and Warrants to a Buyer at the
Closing is subject to the satisfaction, at or before the Closing Date of each of
the following conditions thereto, provided that these conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion:

       

      a. The
applicable Buyer shall have executed this Agreement and the Registration Rights
Agreement, and delivered the same to the Company.

       

      b. The
applicable Buyer shall have delivered the Purchase Price in accordance with
Section 1(b) above.

       

      c. The
representations and warranties of the applicable Buyer shall be true and correct
in all material respects as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date), and the applicable Buyer shall have performed, satisfied
and complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the applicable Buyer at or prior to the Closing Date.

       

      d. No
litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.

       

      7. CONDITIONS
TO EACH BUYER’S OBLIGATION TO PURCHASE.  The obligation of each
Buyer hereunder to purchase the Notes and Warrants at the Closing is subject to
the satisfaction, at or before the Closing Date of each of the following
conditions, provided that these conditions are for such Buyer’s sole benefit and
may be waived by such Buyer at any time in its sole discretion:

       

      a. The
Company shall have executed this Agreement and the Registration Rights
Agreement, and delivered the same to the Buyer.

       

      b. The
Company shall have delivered to such Buyer duly executed Notes (in such
denominations as the Buyer shall request) and Warrants in accordance with
Section 1(b) above.

       

      c. The
Irrevocable Transfer Agent Instructions, in form and substance satisfactory to a
majority-in-interest of the Buyers, shall have been delivered to and
acknowledged in writing by the Company’s Transfer Agent.

       

      d. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at such time (except for representations and warranties that speak as of a
specific date) and the Company shall have performed, satisfied and complied in
all material respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the Company at or
prior to the Closing Date.  The Buyer shall have received a
certificate or certificates, executed by the chief executive officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by such Buyer including, but not
limited to certificates with respect to the Company’s Certificate of
Incorporation, By-laws and Board of Directors’ resolutions relating to the
transactions contemplated hereby.

       

      e. No
litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.

       

      f. No event
shall have occurred which could reasonably be expected to have a Material
Adverse Effect on the Company.

       

      g. The
Conversion Shares and Warrant Shares shall have been authorized for quotation on
the OTCBB and trading in the Common Stock on the OTCBB shall not have been
suspended by the SEC or the OTCBB.

       

      h. The Buyer
shall have received an opinion of the Company’s counsel, dated as of the Closing
Date, in form, scope and substance reasonably satisfactory to the Buyer and in
substantially the same form as Exhibit “D” attached
hereto.

       

      i. The Buyer
shall have received an officer’s certificate described in Section 3(c) above,
dated as of the Closing Date.

       

      8. GOVERNING
LAW; MISCELLANEOUS.

       

      a. Governing
Law.  THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS.  THE PARTIES HERETO HEREBY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED
IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT,
THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR
PROCEEDING.  BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A
PARTY MAILED BY REGISTERED FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT
EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING.  NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.  BOTH PARTIES AGREE THAT
A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT
OR IN ANY OTHER LAWFUL MANNER.  THE PARTY WHICH DOES NOT PREVAIL IN
ANY DISPUTE ARISING UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND
EXPENSES, INCLUDING REASONABLE ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY
IN CONNECTION WITH SUCH DISPUTE.

       

      b. Counterparts;
Signatures by Facsimile.  This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other
party.  This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.

       

      c. Headings.  The
headings of this Agreement are for convenience of reference only and shall not
form part of, or affect the interpretation of, this Agreement.

       

      d. Severability.  In
the event that any provision of this Agreement is invalid or unenforceable under
any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law.  Any provision
hereof which may prove invalid or unenforceable under any law shall not affect
the validity or enforceability of any other provision hereof.

       

      e. Entire
Agreement; Amendments.  This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters.  No
provision of this Agreement may be waived or amended other than by an instrument
in writing signed by the party to be charged with enforcement.

       

      f. Notices.  Any
notices required or permitted to be given under the terms of this Agreement
shall be sent by certified or registered mail (return receipt requested) or
delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile and shall be effective five days after being placed in
the mail, if mailed by regular United States mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery service) or
by facsimile, in each case addressed to a party.  The addresses for
such communications shall be:

       

      If to the
Company:

      

      Avitar
Inc.

       

      65 Dan
Road

       

      Canton,
MA 02021

       

      Attention:
Chief Executive Officer

       

      Telephone:  (781)
821-2440

       

      Facsimile:
(781) 821-4458

       

      With a
copy to:

       

      
        	
                 
      

              	
                Dolgenos
      Newman & Cronin LLP

              

      

      1001
Avenue of the Americas

      New York,
NY  10018

      Attention:   Eugene
Cronin, Esq.

      Telephone:  (212)
925-2800

      Facsimile:   (212)
925-0690

       

      If to a
Buyer:  To the address set forth immediately below such Buyer’s name
on the signature pages hereto.

       

      With copy
to:

      

      Ballard
Spahr Andrews & Ingersoll, LLP

      1735
Market Street

      51st
Floor

      Philadelphia,
Pennsylvania  19103

      Attention:  Gerald
J. Guarcini, Esq.

      Telephone:  215-864-8625

      Facsimile:  215-864-8999

      

      Each
party shall provide notice to the other party of any change in
address.

       

      g. Successors
and Assigns.  This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and assigns.  Neither
the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the
other.

       

      h. Third
Party Beneficiaries.  This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

       

      i. Survival.  The
representations and warranties of the Company and the agreements and covenants
set forth in Sections 3, 4, 5 and 8 shall survive the closing hereunder
notwithstanding any due diligence investigation conducted by or on behalf of the
Buyers.  The Company agrees to indemnify and hold harmless each of the
Buyers and all their officers, directors, employees and agents for loss or
damage arising as a result of or related to any breach or alleged breach by the
Company of any of its representations, warranties and covenants set forth in
Sections 3 and 4 hereof or any of its covenants and obligations under this
Agreement or the Registration Rights Agreement, including advancement of
expenses as they are incurred.

       

      j. Publicity.  The
Company and each of the Buyers shall have the right to review a reasonable
period of time before issuance of any press releases, SEC, OTCBB or NASD
filings, or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of each of the Buyers, to
make any press release or SEC, OTCBB (or other applicable trading market) or
NASD filings with respect to such transactions as is required by applicable law
and regulations (although each of the Buyers shall be consulted by the Company
in connection with any such press release prior to its release and shall be
provided with a copy thereof and be given an opportunity to comment
thereon).

       

      k. Further
Assurances.  Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

       

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

       

      m. Remedies.  The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby.  Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Agreement will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Agreement, that the Buyers shall
be entitled, in addition to all other available remedies at law or in equity,
and in addition to the penalties assessable herein, to an injunction or
injunctions restraining, preventing or curing any breach of this Agreement and
to enforce specifically the terms and provisions hereof, without the necessity
of showing economic loss and without any bond or other security being
required.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      IN WITNESS WHEREOF, the
undersigned Buyers and the Company have caused this Agreement to be duly
executed as of the date first above written.

       

      

      

      AVITAR
INC.

      

      ________________________________

      Peter
Phildius

      Chief
Executive Officer

      

      

      AJW
PARTNERS, LLC

      By:  SMS
Group, LLC

      

      

      ______________________________________

      Corey S.
Ribotsky

      Manager

      

      

      RESIDENCE:  Delaware

      

      ADDRESS:                                1044
Northern Boulevard

      Suite 302

      Roslyn, New York 11576

      Facsimile:  (516)
739-7115

      Telephone:  (516)
739-7110

      

      AGGREGATE
SUBSCRIPTION AMOUNT:

      

      Aggregate
Principal Amount of Notes: $16,430

      Number of
Warrants: 530,000

      Aggregate
Purchase Price: $16,430

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

      

      

      AJW
MASTER FUND, LTD.

      By:  First
Street Manager II, LLC

      

      

      ______________________________________

      Corey S.
Ribotsky

      Manager

      

      

      RESIDENCE:                                    Cayman
Islands

      

      ADDRESS:                                AJW
Offshore, Ltd.

      P.O. Box
32021 SMB

      Grand
Cayman, Cayman Island, B.W.I.

      

      AGGREGATE
SUBSCRIPTION AMOUNT:

      

      Aggregate
Principal Amount of Notes: $289,540

      Number of
Warrants: 9,340,000

      Aggregate
Purchase Price: $289,540

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

      NEW
MILLENNIUM CAPITAL PARTNERS II, LLC

       

      By:  First
Street Manager II, LLP

       

      ____________________________________

       

      Corey S.
Ribotsky

       

      Manager

       

      

      

      RESIDENCE:                                    New
York

      

      ADDRESS:                                1044
Northern Boulevard

      Suite 302

      Roslyn, New York 11576

      Facsimile:                                (516)
739-7115

      Telephone:                                (516)
739-7110

      

      

      AGGREGATE
SUBSCRIPTION AMOUNT:

      

      Aggregate
Principal Amount of Notes: $4,030

      Number of
Warrants: 130,000

      Aggregate
Purchase Price: $4,030

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