Exhibit 10.1


SECURITIES PURCHASE AGREEMENT


This
Securities Purchase Agreement (this “Agreement”) is dated as of August
2, 2007, by and among Callisto Pharmaceuticals, Inc., a Delaware corporation
(the “Company”), and the purchasers identified on the signature pages
hereto (each, including its successors and assigns, a “Purchaser” and
collectively the “Purchasers”).


WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”)
and Rule 506 of Regulation D promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not
jointly, desires to purchase from the Company, securities of the Company as
more fully described in this Agreement.


NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:


ARTICLE I


DEFINITIONS


1.1           Definitions.  In addition to the terms defined elsewhere in
this Agreement: (a) capitalized terms that are not otherwise defined herein
have the meanings given to such terms in the Certificate of Designation (as defined
herein), and (b) the following terms have the meanings indicated in this
Section 1.1:


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


“Actual Minimum”
means, as of any date, the maximum aggregate number of shares of Common Stock
then issued or potentially issuable in the future pursuant to the Transaction
Documents, including any Underlying Shares issuable upon exercise or conversion
in full of all Warrants and shares of Preferred Stock, ignoring any conversion
or exercise limits set forth therein, and assuming that any previously
unconverted shares of Preferred Stock are held until the second anniversary of
the date of determination and all dividends are paid in shares of Common Stock
until such second anniversary.


“Affiliate” means
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such
terms are used in and construed under Rule 144 under the Securities Act.  With respect to a Purchaser, any investment
fund or managed account that is managed on a discretionary basis by the same
investment manager as such Purchaser will be deemed to be an Affiliate of such
Purchaser.



   
 









“Business
Day” means a day, other than a Saturday or Sunday, on which banks in
New York City are open for the general transaction of business.


“Certificate of Designation” means the Certificate of Designations, Number, Voting Powers, Preferences and Right of  Series B Convertible Preferred Stock to be filed prior to the Closing by the Company with the Secretary of State of Delaware, in the form of Exhibit A attached hereto.


“Closing” means
the closing of the purchase and sale of the Securities pursuant to Section 2.1.


 “Closing
Date” means the Trading Day when all of the Transaction Documents have been
executed and delivered by the applicable parties thereto, and all conditions
precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and
(ii) the Company’s obligations to deliver the Securities have been satisfied or
waived.


“Commission” means
the Securities and Exchange Commission.


“Common Stock”
means the common stock of the Company, par value $.0001 per share, and any
securities into which such common stock shall hereinafter have been
reclassified into.


“Common Stock Equivalents” means any securities
of the Company or the Subsidiaries which would entitle the holder thereof to
acquire at any time Common Stock, including without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is at any
time convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.


“Company Counsel”
means Sichenzia Ross Friedman Ference LLP.


 “Conversion Price” shall have the
meaning ascribed to such term in the Articles of Amendment.


“Disclosure Schedules”
shall have the meaning ascribed to such term in Section 3.1 hereof.


“Effective Date”
means the date that the initial Registration Statement filed by the Company
pursuant to the Registration Rights Agreement is first declared effective by
the Commission.


“Escrow Account”
means an attorney escrow account maintained by Company Counsel.


“Escrow Agent”
means Company Counsel.



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“Escrow
Agreement” means the escrow agreement among the Company, the Escrow Agent
and the Purchasers substantially in the form annexed hereto as Exhibit B.


“Escrow Amount”
means the aggregate amounts received being held in escrow by the Escrow Agent
pursuant to the Escrow Agreement.


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


“Exempt Issuance”
means the issuance of (a) shares of Common Stock or options to employees,
officers or directors of the Company pursuant to any stock or option plan duly
adopted by a majority of the non-employee members of the Board of Directors of
the Company or a majority of the members of a committee of non-employee
directors established for such purpose, (b) securities upon the exercise of or
conversion of any securities issued hereunder, convertible securities, options
or warrants issued and outstanding on the date of this Agreement, provided that
such securities have not been amended since the date of this Agreement to
increase the number of such securities, and (c) securities issued pursuant to
acquisitions or strategic transactions, provided any such issuance shall only
be to a Person which is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of the Company and in which
the Company receives benefits in addition to the investment of funds, but shall
not include a transaction in which the Company is issuing securities primarily
for the purpose of raising capital or to an entity whose primary business is
investing in securities.


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


“Lead Investors”
means RAB Special Situations (Master) Fund Limited and Absolute Octane Master
Fund Limited.


“Lead Investors
Put Option Agreement” means the put option agreement among the Company and
the Lead Investors substantially in the form annexed hereto as Exhibit C.


“Lead Investors
Escrow Account” means the escrow account maintained by the Lead Investors
Escrow Agent.


“Lead Investors
Escrow Agent” means StockTrans, Inc.


“Lead Investors
Escrow Agreement” means the escrow agreement among the Company, StockTrans,
Inc. and the Lead Investors substantially in the form annexed hereto as Exhibit
D.


“Lead Investors
Escrow Amount” means a minimum of $8,480,000 of the net proceeds from the
sale of the Securities to the Lead Investors.


“Liens” means a
lien, charge, security interest, encumbrance, right of first refusal,
preemptive right or other restriction.



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


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


“Person” means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.


“Preferred Stock” means the up to 2,000,000 shares of the Company’s Series B Convertible Preferred Stock issued hereunder having the rights, preferences and privileges set forth in the Certificate of Designation.


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


“Registration Rights
Agreement” means the Registration Rights Agreement, dated the date hereof,
among the Company and the Purchasers, in the form of Exhibit E attached
hereto.


“Registration
Statement” means a registration statement meeting the requirements set
forth in the Registration Rights Agreement and covering the resale of the
Underlying Shares by each Purchaser as provided for in the Registration Rights
Agreement.


 “Required Approvals” shall have the
meaning ascribed to such term in Section 3.1(e).


“Rule 144” means
Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such Rule.


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


“Securities” means
the Preferred Stock, the Warrants and the Underlying Shares.


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


 “Shareholder Approval”
means such approval as may be required by the applicable rules and regulations
of the Trading Market (or any successor entity) from the shareholders of the
Company with respect to the transactions contemplated by the Transaction
Documents, including the issuance of all of the Underlying Shares and shares of
Common Stock issuable upon exercise of the Warrants in excess of 19.99% of the
issued and outstanding Common Stock on the Closing Date.



 4
 









“Short
Sales” include, without limitation, all “short sales” as defined in
Rule 200 promulgated under Regulation SHO under the Exchange Act, whether or not
against the box, and all types of direct and indirect stock pledges, forward
sale contracts, options, puts, calls, short sales, swaps, “put equivalent
positions” (as defined in Rule 16a-1(h) under the Exchange Act) and similar
arrangements (including on a total return basis), and sales and other
transactions through non-US broker dealers or foreign regulated brokers.


“Stated Value”
means $10 per share of Preferred Stock.


“Subscription Amount”
shall mean, as to each Purchaser, the amount to be paid for the Preferred Stock
purchased hereunder as specified below such Purchaser’s name on the signature
page of this Agreement and next to the heading “Subscription Amount”, in United
States Dollars and in immediately available funds.


“Subsidiary” means
any subsidiary of the Company as set forth on Schedule 3.1(a).


“Trading Day”
means a day on which the Common Stock is traded on a Trading Market.


“Trading Market” means the following markets or
exchanges on which the Common Stock is listed or quoted for trading on the date
in question: the Over-The-Counter Bulletin Board, the Nasdaq Global Market, the
American Stock Exchange, the New York Stock Exchange or the Nasdaq Capital
Market.


 “Transaction Documents” means this
Agreement, the Certificate of Designation, the Warrants, the Registration
Rights Agreement and any other documents or agreements executed in connection
with the transactions contemplated hereunder.


“Underlying Shares”
means the shares of Common Stock issuable upon conversion of the Preferred
Stock, upon exercise of the Warrants and issued and issuable in lieu of the
cash payment of dividends on the Preferred Stock.


“Warrants” means
collectively the Common Stock purchase warrants, in the form of Exhibit F
delivered to the Purchasers at the Closing in accordance with Section 2.2(a)
hereof, which Warrants shall be exercisable immediately and have a term of
exercise commencing on the date of issuance and ending three years after
issuance.


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


ARTICLE
II


PURCHASE
AND SALE


2.1           Closing.  On the Closing Date, upon the terms and
subject to the conditions set forth herein, concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company agrees to sell,
and each Purchaser agrees to purchase in the aggregate, severally



 5
 









and not jointly, up to $20,000,000 of shares
of Preferred Stock with an aggregated Stated Value equal to such Purchaser’s
Subscription Amount and Warrants as determined by pursuant to Section
2.2(a)(iii).  The aggregate number of
shares of Preferred Stock sold hereunder shall be up to 2,000,000.  Each Purchaser shall deliver to the Escrow
Account via wire transfer of immediately available funds pursuant to the wire
instructions set forth in the Escrow Agreement (or certified check) an amount
equal to their Subscription Amount and upon Closing, the Company shall (i)
instruct the Escrow Agent to wire the Escrow Amount less the Lead Investors
Escrow Amount to the Company in accordance with the Escrow Agreement, (ii)
instruct the Escrow Agent to wire the Lead Investors Escrow Amount to the Lead
Investors Escrow Account in accordance with the Lead Investors Escrow Agreement
and (iii) irrevocably instruct the Escrow Agent to deliver to each Purchaser
their respective certificates evidencing the shares of Preferred Stock and
Warrants as determined pursuant to Section 2.2(a) and the other items set forth
in Section 2.2 issuable at the Closing within three (3) Business Days of the
Closing Date.  Upon satisfaction of the
conditions set forth in Section 2.2, the Closing shall occur at the offices of
Company Counsel, or such other location as the parties shall mutually
agree.  There may be multiple Closings.


2.2           Deliveries.


a)             On the Closing Date,
the Company shall deliver or cause to be delivered to each Purchaser the
following:


(i)            this Agreement duly
executed by the Company;


(ii)           a certificate
evidencing a number of shares of Preferred Stock equal to such Purchaser’s
Subscription Amount divided by the Stated Value, registered in the name of such
Purchaser (or its nominee);


(iii)          a Warrant registered in
the name of such Purchaser (or its nominee) to purchase up to a number of
shares of Common Stock equal to 100% of such Purchaser’s Subscription Amount
divided by the Conversion Price immediately prior to the Closing Date, with an
exercise price equal to $0.70, subject to adjustment therein;


(iv)          the Registration Rights
Agreement duly executed by the Company;


(v)           a legal opinion of
Company Counsel, in the form of Exhibit G attached hereto;


(vi)          a certificate, dated the
Closing Date, duly executed by an officer of the Company to the effect that the
conditions specified in Sections 2.3(b)(i) and 2.3(b)(ii) have been satisfied
and stating the complete capitalization of the Company, including all issued
and outstanding common stock, preferred stock, warrants, options, convertible
debt and all other convertible securities and the terms on which such
securities may be converted;



 6
 









(vii)         the Escrow Agreement duly executed by the
Company;


(viii)        a copy of the Certificate of Designation as
filed with the State of Delaware; and


(ix)           a
copy of the American Stock Exchange Additional Listing Application for the
listing of the Underlying Shares on the American Stock Exchange to be filed
promptly after the Closing Date.


b)            On the Closing Date,
each Purchaser shall deliver or cause to be delivered to the Company the
following:


(i)            this Agreement duly
executed by such Purchaser;


(ii)           such Purchaser’s
Subscription Amount by wire transfer to the account as specified in writing by
the Company;


(iii)          the Registration Rights
Agreement duly executed by such Purchaser;


(iv)          the Escrow Agreement
duly executed by such Purchaser; and


(v)           the
Investor Questionnaire duly executed by such Purchaser.


c)             On
the Closing Date, the Company and the Lead Investors shall deliver or cause to
be delivered to each other:


(i)            the
Lead Investor Put Option Agreement; and


(ii)           the Lead Investor
Escrow Agreement.


2.3           Closing
Conditions.


a)             The obligations of the
Company hereunder in connection with the Closing are subject to the following
conditions being met:


(i)            the accuracy in all
material respects when made and on the Closing Date of the representations and
warranties of the Purchasers contained herein;


(ii)           all obligations,
covenants and agreements of the Purchasers required to be performed at or prior
to the Closing Date shall have been performed; and


(iii)          the delivery by the
Purchasers of the items set forth in Section 2.2(b) of this Agreement.



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b)            The
respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:


(i)            the accuracy in all material respects when
made and on the Closing Date of the representations and warranties of the Company
contained herein;


(ii)           all obligations, covenants and agreements of
the Company required to be performed at or prior to the Closing Date shall have
been performed;


(iii)          the delivery
by the Company of the items set forth in Section 2.2(a) of this Agreement;


(iv)          there shall
have been no Material Adverse Effect with respect to the Company since the date
hereof; and


(v)           From the date hereof to the Closing Date,
trading in the Common Stock shall not have been suspended by the Commission
(except for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the Closing), and, at
any time prior to the Closing Date, trading in securities generally as reported
by Bloomberg Financial Markets shall not have been suspended or limited, or
minimum prices shall not have been established on securities whose trades are
reported by such service, or on any Trading Market, nor shall a banking
moratorium have been declared either by the United States or New York State
authorities nor shall there have occurred any material outbreak or escalation
of hostilities or other national or international calamity of such magnitude in
its effect on, or any material adverse change in, any financial market which,
in each case, in the reasonable judgment of each Purchaser, makes it
impracticable or inadvisable to purchase the Preferred Stock at the Closing.


c)             The
respective obligations of the Lead Investors in their capacity as Purchasers,
hereunder in connection with the Closing are subject to the additional  condition that the Company deliver the items
set forth in Section 2.2(c) of this Agreement.


ARTICLE
III


REPRESENTATIONS AND WARRANTIES


3.1           Representations and
Warranties of the Company.  Except as
set forth under the corresponding section of the disclosure schedules delivered
to the Purchasers concurrently herewith (the “Disclosure Schedules”)
which Disclosure Schedules shall be deemed a part



 8
 









hereof, the
Company hereby makes the representations and warranties set forth below to each
Purchaser.


(a)           Subsidiaries.  All of the direct and indirect subsidiaries
of the Company are set forth on Schedule 3.1(a).  Except as set forth on Schedule 3.1(a),
the Company owns, directly or indirectly, all of the capital stock or other
equity interests of each Subsidiary free and clear of any Liens, and all the
issued and outstanding shares of capital stock of each Subsidiary are validly
issued and are fully paid, non-assessable and free of preemptive and similar
rights to subscribe for or purchase securities.


(b)           Organization and Qualification.  Each of the Company and the Subsidiaries is
an entity duly incorporated or otherwise organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently
conducted.  Neither the Company nor any
Subsidiary is in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents.  Each of the Company
and the Subsidiaries is duly qualified to conduct business and is in good
standing as a foreign corporation or other entity in each jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to
result in (i) a material adverse effect on the legality, validity or
enforceability of any Transaction Document, (ii) a material adverse effect on
the results of operations, assets, business, prospects or financial condition
of the Company and the Subsidiaries, taken as a whole, or (iii) a material
adverse effect on the Company’s ability to perform in any material respect on a
timely basis its obligations under any Transaction Document (any of (i), (ii)
or (iii), a “Material Adverse Effect”) and no Proceeding has been
instituted in any such jurisdiction revoking, limiting or curtailing or seeking
to revoke, limit or curtail such power and authority or qualification.


(c)           Authorization; Enforcement.  The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
each of the Transaction Documents and otherwise to carry out its obligations
thereunder.  The execution and delivery
of each of the Transaction Documents by the Company and the consummation by it
of the transactions contemplated thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required
by the Company in connection therewith other than in connection with the
Required Approvals.  Each Transaction
Document has been (or upon delivery will have been) duly executed by the
Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally and (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.



 9
 









(d)           No Conflicts.  The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the other transactions contemplated thereby do not and will not: (i) conflict
with or violate any provision of the Company’s or any Subsidiary’s certificate
or articles of incorporation, bylaws or other organizational or charter
documents, or (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, result in the
creation of any Lien upon any of the properties or assets of the Company or any
Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both)
of, any agreement, credit facility, debt or other instrument (evidencing a
Company or Subsidiary debt or otherwise) or other understanding to which the
Company or any Subsidiary is a party or by which any property or asset of the
Company or any Subsidiary is bound or affected, or (iii) subject to the
Required Approvals, conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected; except
in the case of each of clauses (ii) and (iii), such as could not have or
reasonably be expected to result in a Material Adverse Effect.


(e)           Filings, Consents and Approvals.  The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than (i) filings required pursuant to Section 4.6, (ii) the filing with the
Commission of the Registration Statement, (iii) the notice and/or
application(s) to each applicable Trading Market for the issuance and sale of
the Preferred Stock and Warrants and the listing of the Underlying Shares for
trading thereon in the time and manner required thereby, (iv) the filing of
Form D with the Commission and such filings as are required to be made under
applicable state securities laws and (vi) the approvals set forth on Schedule
3.1(e) (collectively, the “Required Approvals”).


(f)            Issuance of the Securities.  The Preferred Stock and the Underlying Shares
are duly authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued, fully paid
and nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction Documents.  The Company has reserved from its duly
authorized capital stock a number of shares of Common Stock for issuance of the
Underlying Shares at least equal to the Actual Minimum on the date hereof.  The Company has not, and to the knowledge of
the Company, no Affiliate of the Company has sold, offered for sale or
solicited offers to buy or otherwise negotiated in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers, or
that would be integrated



 10
 









with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market.


(g)           Capitalization.  The capitalization of the Company is as
described in the Company’s most recent report filed with the Commission.  Except as set forth on Schedule 3.1(g), the
Company has not issued any capital stock since such filing other than pursuant
to the employee stock option plan.  No
Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents which shall not have been waived
prior to Closing.  Except as disclosed in
the Company’s reports filed with the Commission, issued pursuant to the Company’s
stock incentive plan or as a result of the purchase and sale of the Securities,
there are no outstanding options, warrants, script rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities, rights
or obligations convertible into or exchangeable for, or giving any Person any
right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock,
or securities or rights convertible or exchangeable into shares of Common
Stock.  Except as set forth on Schedule
3.1(g), the issuance and sale of the Securities will not obligate the
Company to issue shares of Common Stock or other securities to any Person
(other than the Purchasers) and will not result in a right of any holder of
Company securities to adjust the exercise, conversion, exchange or reset price
under such securities. All of the outstanding shares of capital stock of the
Company are validly issued, fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities, except as set forth on Schedule
3.1(g).  No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale of the shares of Preferred Stock.


(h)           SEC Reports; Financial Statements.  The Company has filed all reports required to
be filed by it under the Securities Act and the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the
date hereof (or such shorter period as the Company was required by law to file
such material) (the foregoing materials, including the exhibits thereto, being
collectively referred to herein as the “SEC Reports”) on a timely basis
or has received a valid extension of such time of filing and has filed any such
SEC Reports prior to the expiration of any such extension.  As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the Commission
promulgated thereunder, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.  The financial statements of
the Company included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing.  Such financial statements have been prepared
in accordance with United States generally accepted accounting principles



 11
 









applied on a consistent basis during the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.


(i)            Material Changes.  Since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in a
Material Adverse Effect, except as disclosed in Schedule 3.1(i), (ii) the
Company has not incurred any liabilities (contingent or otherwise) other than
(A) trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required to be
reflected in the Company’s financial statements pursuant to GAAP or required to
be disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company stock
option plan or restricted stock plan.


(j)            Litigation.  Except as set forth in SEC Reports, there is
no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting
the Company, any Subsidiary or any of their respective properties before or by
any court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an “Action”)
which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or (ii)
could, if there were an unfavorable decision, have or reasonably be expected to
result in a Material Adverse Effect. 
Neither the Company nor any Subsidiary, nor any director or officer
thereof, is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a claim of
breach of fiduciary duty.  There has not
been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company.  The Commission has not issued any stop order
or other order suspending the effectiveness of any registration statement filed
by the Company or any Subsidiary under the Exchange Act or the Securities Act.


(k)           Labor Relations.  No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company which could reasonably be expected to result in a Material Adverse
Effect.


(l)            Compliance.  Except as set forth in the SEC Reports or on
Schedule 3.1(l), neither the Company nor any Subsidiary (i) is in material
default under or in violation of



 12
 









(and no event has occurred that has not been waived that, with notice
or lapse of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received notice of a
claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other material agreement or instrument to which
it is a party or by which it or any of its properties is bound (whether or not
such default or violation has been waived), (ii) is in violation of any order
of any court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws
applicable to its business except in each case as could not have a Material
Adverse Effect.


(m)          Regulatory Permits.  The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not have or reasonably be expected to result in a
Material Adverse Effect (“Material Permits”), and neither the Company
nor any Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.


(n)           Title to Assets.  Except as set forth on Schedule 3.1(n),
the Company and the Subsidiaries have good and marketable title in fee simple
to all real property owned by them that is material to the business of the Company
and the Subsidiaries and good and marketable title in all personal property
owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for Liens as do
not materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by the
Company and the Subsidiaries and Liens for the payment of federal, state or
other taxes, the payment of which is neither delinquent nor subject to
penalties.  Any real property and
facilities held under lease by the Company and the Subsidiaries are held by
them under valid, subsisting and enforceable leases of which the Company and
the Subsidiaries are in compliance.


(o)           Patents and Trademarks.  The Company and the Subsidiaries have, or
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other
similar rights that are necessary or material for use in connection with their
respective businesses as described in the SEC Reports and which the failure to
so have could have a Material Adverse Effect (collectively, the “Intellectual
Property Rights”).  Neither the
Company nor any Subsidiary has received a written notice that the Intellectual
Property Rights used by the Company or any Subsidiary violates or infringes
upon the rights of any Person. To the knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no existing infringement
by another Person of any of the Intellectual Property Rights of others.


(p)           Insurance.  The Company and the Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and
risks and in such amounts as



 13
 









are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged.  To the
best of Company’s knowledge, such insurance contracts and policies are accurate
and complete.  Neither the Company nor
any Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.


(q)           Transactions With Affiliates and
Employees.  Except as set forth in
the SEC Reports, none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently a
party to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any
such employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $120,000 other than (i) for payment of
salary or consulting fees for services rendered, (ii) reimbursement for
expenses incurred on behalf of the Company and (iii) for other employee
benefits, including stock option agreements under any stock option plan of the
Company and restricted stock agreements under any restricted stock plan of the
Company.


(r)            Sarbanes-Oxley; Internal Accounting
Controls.  Except as set forth in the
SEC Reports, the Company is in material compliance with all provisions of the
Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing
Date.  The
Company and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.


(s)           Certain Fees.  No brokerage or finder’s fees or commissions
are or will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other Person
with respect to the transactions contemplated by this Agreement, except as set
forth on Schedule 3.1(s).  The
Purchasers shall have no obligation with respect to any fees or with respect to
any claims made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement.


(t)            Private Placement. Assuming the
accuracy of the Purchasers representations and warranties set forth in Section
3.2, no registration under the Securities Act is required for the offer and sale
of the Securities by the Company to the Purchasers



 14
 









as contemplated hereby. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Trading Market.


(u)           Investment Company. The Company is
not, and is not an Affiliate of, and immediately after receipt of payment for
the shares of Preferred Stock, will not be or be an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as
amended.  The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act.


(v)           Listing and
Maintenance Requirements.  The
Company’s Common Stock is registered pursuant to Section 15(d) of the Exchange
Act, and the Company has taken no action designed to, or which to its knowledge
is likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification that
the Commission is contemplating terminating such registration.  Except as disclosed on Schedule 3.1(v), the
Company has not, in the 12 months preceding the date hereof, received notice
from any Trading Market on which the Common Stock is or has been listed or
quoted to the effect that the Company is not in compliance with the listing or
maintenance requirements of such Trading Market.


(w)          Disclosure.  The Company understands and confirms that the
Purchasers will rely on the foregoing representations and covenants in
effecting transactions in securities of the Company.  All disclosure provided to the Purchasers
regarding the Company, its business and the transactions contemplated hereby,
including the Disclosure Schedules to this Agreement, furnished by or on behalf
of the Company with respect to the representations and warranties made herein
are true and correct with respect to such representations and warranties and do
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or has made any representations
or warranties with respect to the transactions contemplated hereby other than
those specifically set forth in Section 3.2 hereof.


(x)            No Integrated
Offering. Assuming the accuracy of the Purchasers’ representations and
warranties set forth in Section 3.2, neither the Company, nor any of its
affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of
the Securities Act or any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of any exchange
or automated quotation system on which any of the securities of the Company are
listed or designated.  


(y)           Tax Status.  Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and each Subsidiary has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid or accrued all taxes shown as due thereon, and the 



 15
 









Company has no knowledge of a tax deficiency
which has been asserted or threatened against the Company or any Subsidiary.


(z)            No General
Solicitation.  Neither the Company
nor any person acting on behalf of the Company has offered or sold any of the
Securities by any form of general solicitation or general advertising.  The Company has offered the Securities for
sale only to the Purchasers and certain other “accredited investors” within the
meaning of Rule 501 under the Securities Act.


(aa)         Acknowledgment
Regarding Purchasers’ Purchase of Securities.  The Company acknowledges and agrees that each
of the Purchasers is acting solely in the capacity of an arm’s length purchaser
with respect to the Transaction Documents and the transactions contemplated
hereby.  The Company further acknowledges
that no Purchaser 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 advice given by any Purchaser or any
of their respective representatives or agents in connection with this Agreement
and the transactions contemplated hereby is merely incidental to the Purchasers’
purchase of the Securities.  The Company
further represents to each Purchaser that the Company’s decision to enter into
this Agreement has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.  The
Company further understands and acknowledges that (a) one or more Purchasers
may engage in hedging activities at various times during the period that the
Securities are outstanding, including, without limitation, during the periods
that the value of the Underlying Shares deliverable with respect to Securities
are being determined and that such hedging activities will be done in
accordance with all applicable laws, rules and regulations and (b) such hedging
activities (if any) could reduce the value of the existing stockholders’ equity
interests in the Company at and after the time that the hedging activities are
being conducted.


3.2           Representations and
Warranties of the Purchasers.  Each
Purchaser hereby, for itself and for no other Purchaser, represents and
warrants as of the date hereof and as of the Closing Date to the Company as
follows:


(a)          Organization; Authority.  Such Purchaser is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with full right, corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations thereunder. The execution,
delivery and performance by such Purchaser of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate or similar
action on the part of such Purchaser. 
Each Transaction Document to which it is a party has been duly executed
by such Purchaser, and when delivered by such Purchaser in accordance with the
terms hereof, will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws



 16
 









relating to the availability of specific performance, injunctive relief
or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.


(b)           Purchaser Representation.  Such Purchaser understands that the
Securities are “restricted securities” and have not been registered under the Securities
Act or any applicable state securities law and is acquiring the Securities as
principal for its own account and not with a view to or for distributing or
reselling such Securities or any part thereof, has no present intention of
distributing any of such Securities and has no arrangement or understanding
with any other persons regarding the distribution of such Securities (this
representation and warranty not limiting such Purchaser’s right to sell the
Securities pursuant to the Registration Statement or otherwise in compliance
with applicable federal and state securities laws).  Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business. Such Purchaser does not have
any agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.


(c)           Purchaser Status.  At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on which it
exercises any Warrants, it will be either: (i) an “accredited investor” as
defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the
Securities Act or (ii) a “qualified institutional buyer” as defined in Rule
144A(a) under the Securities Act.  Such
Purchaser is not required to be registered as a broker-dealer under Section 15
of the Exchange Act.


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


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


(f)            Certain Trading
Activities.  Other than with
respect to the transactions contemplated herein, since the earlier to occur of
(1) the time that such Purchaser was first contacted by the Company or any
other Person regarding this investment in the Company and (2) the tenth (10th)
day prior to the date of this Agreement, neither the Purchaser nor any Affiliate
of such Purchaser which (x) had knowledge of the transactions contemplated
hereby, (y) has or shares discretion relating to such Purchaser’s investments
or trading or information concerning such Purchaser’s investments, including in
respect of the Securities, and (z) is subject to such Purchaser’s review or
input concerning such Affiliate’s investments or trading (collectively, “Trading Affiliates”) has



 17
 









directly or indirectly, nor has any Person
acting on behalf of or pursuant to any understanding with such Purchaser or
Trading Affiliate, effected or agreed to effect any transactions in the
securities of the Company (including, without limitation, any Short Sales
involving the Company’s securities).  Notwithstanding the foregoing, no
Purchaser makes any representation, warranty or covenant hereby that it will
not engage in Short Sales in the securities of the Company after the time that
the transactions contemplated by this Agreement are first publicly announced.


(g)           Material Non-Public
Information.  Such Purchaser
understands that any material non-public information provided to such Purchaser
pursuant to a confidentiality agreement is preliminary and subject to change at
any time prior to any public announcement, if any.  Such Purchaser acknowledges that there can be
no assurance that the Company will consummate or execute any transaction or
agreement disclosed to such Purchaser and considered by the Company to be
material non-public information.  Such
Purchaser hereby represents that it is not entering into this Agreement solely
on the basis of any material non-public information provided to such Purchaser.


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


ARTICLE
IV


OTHER
AGREEMENTS OF THE PARTIES


4.1           Transfer
Restrictions.


(a)           The Securities may only be disposed of in
compliance with state and federal securities laws.  In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to the
Company or to an affiliate of a Purchaser or in connection with a pledge as
contemplated in Section 4.1(b), the Company may require the transferor thereof
to provide to the Company an opinion of counsel selected by the transferor and
reasonably acceptable to the Company, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such transfer
does not require registration of such transferred Securities under the
Securities Act.  As a condition of
transfer, any such transferee shall agree in writing to be bound by the terms
of this Agreement and shall have the rights of a Purchaser under this Agreement
and the Registration Rights Agreement.


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


[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO
WHICH THESE SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE [NOT] BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933,



 18
 









AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES
AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.


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


(c)           Certificates evidencing the Underlying
Shares shall not contain any legend (including the legend set forth in Section
4.1(b) hereof): (i) while a registration statement (including the Registration
Statement) covering the resale of such security is effective under the
Securities Act, or (ii) following any sale of such Underlying Shares pursuant
to Rule 144, or (iii) if such Underlying Shares are eligible for sale under
Rule 144(k), or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company shall cause
its counsel to issue a legal opinion to the Company’s transfer agent promptly
after the Effective Date if required by the Company’s transfer agent to effect
the removal of the legend hereunder. If all or any shares of Preferred Stock or
any portion of a Warrant is converted or exercised (as applicable) at a time
when there is an effective registration statement to cover the resale of the
Underlying Shares, or if such Underlying Shares may be sold under Rule 144(k)
or if such legend is not otherwise required under applicable requirements of
the Securities Act (including judicial interpretations thereof) then such
Underlying Shares shall be issued



 19
 









free of all legends.  The Company
agrees that following the Effective Date or at such time as such legend is no
longer required under this Section 4.1(c), it will, no later than five Trading
Days following the delivery by a Purchaser to the Company or the Company’s
transfer agent of a certificate representing Underlying Shares, as applicable,
issued with a restrictive legend (such third Trading Day, the “Legend
Removal Date”), deliver or cause to be delivered to such Purchaser a
certificate representing such shares that is free from all restrictive and
other legends.  The Company may not make
any notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this Section.


(d)           Each Purchaser,
severally and not jointly with the other Purchasers, agrees that the removal of
the restrictive legend from certificates representing Securities as set forth
in this Section 4.1 is predicated upon the Company’s reliance that the
Purchaser will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus
delivery requirements, or an exemption therefrom.


4.2           Acknowledgment of Dilution.  The Company acknowledges that the issuance of
the Securities may result in dilution of the outstanding shares of Common
Stock, which dilution may be substantial under certain market conditions.  The Company further acknowledges that its
obligations under the Transaction Documents, including without limitation its
obligation to issue the Underlying Shares pursuant to the Transaction
Documents, are unconditional and absolute and not subject to any right of set
off, counterclaim, delay or reduction, regardless of the effect of any such
dilution or any claim the Company may have against any Purchaser and regardless
of the dilutive effect that such issuance may have on the ownership of the
other stockholders of the Company.


4.3           Furnishing of
Information.  Until the earliest of
the time that (i) no Purchaser owns Securities or (ii) the Securities can be
resold pursuant to Rule 144(k) under the Securities Act, the Company covenants
to timely file (or obtain extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Company after the date
hereof pursuant to the Exchange Act.  As
long as any Purchaser owns Securities, if the Company is not required to file
reports pursuant to the Exchange Act, it will prepare and furnish to the
Purchasers and make publicly available in accordance with Rule 144(c) such
information as is required for the Purchasers to sell the Securities under Rule
144.  The Company further covenants that
it will take such further action as any holder of Securities may reasonably
request, all to the extent required from time to time to enable such Person to
sell such Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144.


4.4           Integration.  The Company shall not sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Trading Market.



 20
 









4.5           Conversion and
Exercise Procedures.  The form of
Notice of Exercise included in the Warrants and the Notice of Conversion
included in the Articles of Amendment set forth the totality of the procedures
required of the Purchasers in order to exercise the Warrants or convert the
Preferred Stock.  No additional legal
opinion or other information or instructions shall be required of the
Purchasers to exercise their Warrants or convert their Preferred Stock.  The Company shall honor exercises of the
Warrants and conversions of the Preferred Stock and shall deliver Underlying
Shares in accordance with the terms, conditions and time periods set forth in
the Transaction Documents.


4.6           Securities Laws
Disclosure; Publicity.  The Company
and each Purchaser shall consult with each other in issuing any other press
releases with respect to the transactions contemplated hereby, and neither the
Company nor any Purchaser shall issue any such press release or otherwise make
any such public statement without the prior consent of the Company, with
respect to any press release of any Purchaser, or without the prior consent of
each Purchaser, with respect to any press release of the Company, which consent
shall not unreasonably be withheld, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication.


4.7           Non-Public
Information.  The Company covenants
and agrees that neither it nor any other Person acting on its behalf will provide
any Purchaser or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Purchaser shall have executed a written agreement regarding the confidentiality
and use of such information.  The Company
understands and confirms that each Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the Company.


4.8           Use of Proceeds.  Except as set forth on Schedule 4.8
attached hereto, the Company agrees that at least 50% of the net proceeds from
the sale of the Securities to the Lead Investor hereunder shall be dedicated to
the development and clinical trials of Guanilib and the remaining net proceeds
shall be used for working capital purposes.


4.9           Indemnification of
Purchasers.   Subject to the
provisions of this Section 4.9, the Company will indemnify and hold the
Purchasers and their directors, officers, shareholders, partners, employees and
agents (each, a “Purchaser Party”) harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses
(collectively, “Losses”), including all judgments, amounts paid in settlements,
court costs and reasonable attorneys’ fees and costs of investigation that any
such Purchaser Party may suffer or incur as a result of or relating to (a) any
breach of any of the representations, warranties, covenants or agreements made
by the Company in this Agreement or in the other Transaction Documents or (b)
any action instituted against a Purchaser, or any of them or their respective
Affiliates, by any stockholder of the Company who is not an Affiliate of such
Purchaser, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of such
Purchaser’s representation, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser may have with any
such stockholder or any violations by the Purchaser of state or federal securities
laws or any conduct by such Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance).



 21















If any action shall be brought against any
Purchaser Party in respect of which indemnity may be sought pursuant to this
Agreement, such Purchaser Party shall promptly notify the Company in writing,
and the Company shall have the right to assume the defense thereof with counsel
of its own choosing.  Any Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to
assume such defense and to employ counsel or (iii) in such action the Purchaser
Party reasonable concludes that, either (x) one or more defenses are available
to the Purchaser Party that are not available to the Company or (y) a conflict
or potential conflict exists between the Company, on the one hand, and such
Purchaser Party, on the other hand, that would make such separate
representation advisable.  The Company
will not be liable to any Purchaser Party under this Agreement (i) for any
settlement by a Purchaser Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or (ii) to the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Purchaser Party’s breach of any of the representations,
warranties, covenants or agreements made by the Purchasers in this Agreement or
in the other Transaction Documents.


4.10         Contribution.  If the indemnification provided for in this
Article IV from the Company is unavailable to a Purchaser Party hereunder in
respect of any Losses referred to herein, then the Company, in lieu of
indemnifying such Purchaser Party, shall contribute to the amount paid or
payable by such Purchaser Party as a result of such Losses in such proportion
as is appropriate to reflect the relative fault of the Company and Purchaser
Party in connection with the actions which resulted in such Losses, as well as
any other relevant equitable considerations. 
The relative faults of the Company and such Purchaser Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, the Company or such Purchaser Party, and the parties relative
intent, knowledge, access to information and opportunity to correct or prevent
such action.  The amount paid or payable
by a party as a result of the Losses referred to above shall be deemed to
include any legal or other fees, charges or expenses reasonably incurred by
such party in connection with any investigation or proceeding.


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


4.12         Equal Treatment of
Purchasers.  No consideration shall
be offered or paid to any person to amend or consent to a waiver or
modification of any provision of any of the Transaction Documents unless the
same consideration is also offered to all of the parties to the Transaction
Documents.  For clarification purposes,
this provision constitutes a separate right granted to each Purchaser by the
Company and negotiated separately by each Purchaser, and is intended to treat
for the Company the Purchasers as a class and shall not in any way be construed
as the Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.



 22
 









4.13         Listing of Common
Stock.   The Company hereby agrees to
use its best efforts to maintain the listing of the Common Stock on the
American Stock Exchange, and as soon as reasonably practicable following the
Closing to list all of the Underlying Shares on the American Stock Exchange.
The Company further agrees, if the Company applies to have the Common Stock
traded on any other Trading Market, it will include in such application all of
the Underlying Shares, and will take such other action as is necessary to cause
all of the Underlying Shares to be listed on such other Trading Market as
promptly as possible.  The Company will
take all action reasonably necessary to continue the listing and trading of its
Common Stock on a Trading Market and will comply in all material respects with
the Company’s reporting, filing and other obligations under the bylaws or rules
of the Trading Market.


4.14         Form D; Blue Sky
Filings. The Company agrees to timely file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof,
promptly upon request of any Purchaser. The Company shall take such action as
the Company shall reasonably determine is necessary in order to obtain an
exemption for, or to qualify the Securities for, sale to the Purchasers at the
Closing under applicable securities or “Blue Sky” laws of the states of the
United States, and shall provide evidence of such actions promptly upon request
of any Purchaser.


4.15         Transactions and Confidentiality After The
Date Hereof.  Each
Purchaser shall not, and shall cause its Trading Affiliates not to, engage,
directly or indirectly, in any transactions in the securities of the Company
(including, without limitation, any Short Sales) involving the Company’s
securities during the period from the date hereof until such time as (i) after
the transactions contemplated by this Agreement are first publicly announced or
(ii) this Agreement is terminated in full.  Notwithstanding the foregoing,
in the case of a Purchaser or Trading Affiliate that is a multi-managed
investment vehicle whereby separate portfolio managers manage separate portions
of such Purchaser’s or Trading Affiliate’s assets and the portfolio managers
have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser’s or Trading Affiliate’s
assets, the representation set forth above shall only apply with respect to the
portion of assets managed by the portfolio manager that made the investment
decision to purchase the Securities covered by this Agreement.  Each
Purchaser understands and acknowledges, severally and not jointly with any
other Purchaser, that the Commission currently takes the position that covering
a short position established prior to effectiveness of a resale registration
statement with shares included in such registration statement would be a
violation of Section 5 of the Securities Act, as set forth in Item 65, Section
5 under Section A, of the Manual of Publicly Available Telephone Interpretations,
dated July 1997, compiled by the Office of Chief Counsel, Division of
Corporation Finance.  Each Purchaser, severally and not jointly with the
other Purchasers, covenants that until such time as the transactions
contemplated by this Agreement are publicly disclosed by the Company, such
Purchaser will maintain the confidentiality of all disclosures made to it in
connection with this transaction (including the existence and terms of this
transaction).


4.16         Shareholder Approval.  By September 30, 2007, the Company shall seek
to obtain the Shareholder Approval necessary to issue the Underlying Shares
pursuant to the American Stock Exchange Rules and Regulations.



 23
 









4.18         Lead Investor Escrow.  The Company shall use its reasonable best
efforts to protect the Lead Investors Escrow Amount from the claims of the
Company’s creditors.


ARTICLE V


MISCELLANEOUS


5.1           Termination.  This Agreement may be terminated by any
Purchaser, by written notice to the other parties, if the Closing has not been
consummated on or before August 31, 2007; provided that no such termination
will affect the right of any party to sue for any breach by the other party (or
parties).


5.2           Fees and Expenses.  Except as expressly set forth in the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement.  The Company has agreed to pay the
non-accountable due diligence and legal fees of RAB Special Situations (Master)
Fund Limited in an amount not to exceed $20,000, which shall be deducted from
the gross proceeds of the sale of the Securities at the time of Closing.  The Company shall pay all transfer agent
fees, stamp taxes and other taxes and duties levied in connection with the
issuance of any Securities.


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


5.4           Notices.  Any and all notices or other communications
or deliveries required or permitted to be provided hereunder shall be in
writing and shall be deemed given and effective on the earliest of (a) the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile number set forth on the signature pages attached hereto prior to
5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature pages attached
hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York
City time) on any Trading Day, (c) the second Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or
(d) upon actual receipt by the party to whom such notice is required to be
given.  The address for such notices and
communications shall be as set forth on the signature pages attached hereto.


5.5           Amendments; Waivers.  No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought.  No waiver of any default with respect to any
provision, condition or



 24
 









requirement of this Agreement shall be deemed
to be a continuing waiver in the future or a waiver of any subsequent default
or a waiver of any other provision, condition or requirement hereof, nor shall
any delay or omission of either party to exercise any right hereunder in any
manner impair the exercise of any such right.


5.6           Construction.  The headings herein are for convenience only,
do not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.  The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction
will be applied against any party.


5.7           Successors and
Assigns.  This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
permitted assigns.  The Company may not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of each Purchaser.  Any
Purchaser may assign any or all of its rights under this Agreement and the
Registration Rights Agreement to any Person to whom such Purchaser assigns or
transfers any Securities, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof
that apply to the “Purchasers”.


5.8           No Third-Party
Beneficiaries.  This Agreement is
intended for the benefit of the parties hereto and their respective successors
and permitted assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other Person, except as otherwise set forth in
Section 4.9.


5.9           Governing Law.  All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof.  Each party agrees that all
legal proceedings concerning the interpretations, enforcement and defense of
the transactions contemplated by this Agreement and any other Transaction
Documents (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the City of New
York.  Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting
in the City of New York, borough of Manhattan for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the
enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or inconvenient venue for such
proceeding.  Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.  The
parties hereby waive all rights to a trial by jury.  If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its



 25
 









attorneys’ fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such action or
proceeding.


5.10         Survival.  The representations and warranties contained
herein shall survive the Closing and the delivery, exercise and/or conversion
of the Securities, as applicable for the applicable statue of limitations.


5.11         Execution.  This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. 
In the event that any signature is delivered by facsimile transmission,
such signature shall create a valid and binding obligation of the party
executing (or on whose behalf such signature is executed) with the same force
and effect as if such facsimile signature page were an original thereof.


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


5.13         Replacement of
Securities.  If any certificate or
instrument evidencing any Securities is mutilated, lost, stolen or destroyed,
the Company shall issue or cause to be issued in exchange and substitution for
and upon cancellation thereof, or in lieu of and substitution therefor, a new
certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary
and reasonable indemnity, if requested. 
The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with
the issuance of such replacement Securities.


5.14         Remedies.  In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, each
of the Purchasers and the Company will be entitled to specific performance
under the Transaction Documents.  The
parties agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be adequate.


5.15         Independent Nature of
Purchasers’ Obligations and Rights. 
The obligations of each Purchaser under any Transaction Document are
several and not joint with the obligations of any other Purchaser, and no
Purchaser shall be responsible in any way for the performance of the
obligations of any other Purchaser under any Transaction Document.  Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association,
a joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction



 26
 









Document.  Each Purchaser shall be entitled to
independently protect and enforce its rights, including without limitation, the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose.  Each Purchaser has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents.  The Company has elected to
provide all Purchasers with the same terms and Transaction Documents for the
convenience of the Company and not because it was required or requested to do
so by the Purchasers.


[SIGNATURE PAGE
FOLLOWS]



 27
 









IN WITNESS
WHEREOF, the parties hereto have caused this Securities Purchase Agreement to
be duly executed by their respective authorized signatories as of the date
first indicated above.


	
  CALLISTO PHARMACEUTICALS, INC.

  	
   

  	
  Address for Notice:

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
  Callisto Pharmaceuticals, Inc.  

  
	
  Name: Gary
  Jacob, Ph.D.

  	
   

  	
  420 Lexington Avenue, Suite 1609

  
	
  Title: Chief
  Executive Officer

  	
   

  	
  New York, NY 10170

  
	
   

  	
   

  	
   

  
	
  With a copy to
  (which shall not constitute notice): 

  	
   

  	
   

  
	
  Jeffrey J.
  Fessler, Esq. 

  	
   

  	
   

  
	
  Sichenzia Ross
  Friedman Ference LLP

  	
   

  	
   

  
	
  1065 Avenue of
  the Americas 

  	
   

  	
   

  
	
  New York, New
  York 10018

  	
   

  	
   

  
					



 


[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK


SIGNATURE PAGE FOR
PURCHASER FOLLOWS]



 28
 









[PURCHASER
SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]


IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.


	
  

  	
  RAB Special Situations (Master) Fund Limited by

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Signature)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Name)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Signature)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Name)

  
	
   

  	
   

  
	
   

  	
  Authorised
  signatories for RAB Capital plc for and on

  behalf of RAB Special Situations (Master) Fund Limited

  
	
   

  	
   

  
	
   

  	
  Address: 

  	
  c/o RAB Capital
  plc

  
	
   

  	
   

  	
    1
  Adam Street

  
	
   

  	
   

  	
    London
  WC2N 6LE

  
	
   

  	
   

  	
    United
  Kingdom

  
	
   

  	
   

  
	
   

  	
  Facsimile: (+44)
  20 7389 7057

  
				



 


Registration
Information


Registration
of the certificates representing the Preferred Stock and Warrants should be
made exactly as follows:


Credit Suisse Client Nominees (UK) Limited

One Cabot Square

London, United Kingdom

E14 4QJ



 29
 









Delivery
of Certificates


The
certificates representing the Preferred Stock and Warrants are to be delivered
as follows:


Martin Feast

Prime Brokerage Settlements

CSFB (Europe) Ltd.

One Cabot Square

London E14 4QJ


United Kingdom


Phone:  44 20 7888 1187

Fax:  44 20 7458 8245


Notation:                                                                                      RAB Special Situations
(Master) Fund Limited


Subscription Amount: 
$5,000,000


Shares of Preferred Stock:  500,000


Warrant Shares:  10,000,000


[SIGNATURE PAGES CONTINUE]



 30
 









[PURCHASER
SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]


	
  

  	
  Absolute Octane Master Fund Limited

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Signature)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Name)

  



 


Subscription Amount:  $5,000,000


Shares of Preferred Stock: 
500,000


Warrant Shares:  10,000,000


[SIGNATURE PAGES CONTINUE]



 31
 









 


	
  Name of Investing Entity:

  	
   

  	
   

  
	
  Signature of Authorized Signatory of Investing
  Entity:

  	
   

  	
   

  
	
  Name of Authorized Signatory:

  	
   

  	
   

  
	
  Title of Authorized Signatory:

  	
   

  	
   

  
	
  Email Address of Authorized Signatory:

  	
   

  	
   

  
	
  Tax ID number of Investing Entity:

  	
   

  	
   

  
								



 


Address for Notice of Investing
Entity:


Address for Delivery of
Securities for Investing Entity (if not same as above):


Subscription Amount:


Shares of Preferred Stock:


Warrant Shares:



 32
 









EXHIBIT A


[Certificate of Designation]



 33
 









EXHIBIT B


[Escrow Agreement]



 34
 









EXHIBIT C


[Lead Investors Put Option Agreement]



 35
 









EXHIBIT D


[Lead Investors Escrow Agreement]



 36
 









EXHIBIT E


[Registration Rights Agreement]



 37
 









EXHIBIT F


[Form of Warrant]



 38
 









EXHIBIT G


[Form of Opinion of Company Counsel]



 39