SENIOR CONVERTIBLE
 
PROMISSORY NOTE PURCHASE AGREEMENT  



        THIS
SENIOR CONVERTIBLE PROMISSORY NOTE PURCHASE AGREEMENT (this “Agreement”) is
entered into as of September 21, 2004 by and between Alliance Pharmaceutical Corp., a New
York corporation (the “Company”), and each individual or entity that has entered
into this Agreement by executing a counterpart signature page hereto as a
“Lender” (collectively, the “Lenders”). 



        WHEREAS,
the Company and the Lenders have previously entered into that certain Securities Purchase
Agreement dated May 27, 2004 (the “Securities Purchase Agreement”); 



        WHEREAS,
pursuant to the Securities Purchase Agreement, the Company issued and sold a certain
number of shares of Common Stock of the Company to each Lender (the “Shares”)
and issued to each Lender a warrant to purchase an additional number of shares of Common
Stock of the Company (individually, a “Warrant,” and collectively, the
“Warrants”); 



        WHEREAS,
the Company and each Lender desire to rescind the Securities Purchase Agreement as between
the Company and each such Lender; 



        WHEREAS,
in connection with such rescission the Lenders shall deliver to the Company for
cancellation the certificate evidencing the Shares and the Warrant issued to each Lender
pursuant to the Securities Purchase Agreement and shall enter into this Agreement for the
purpose of purchasing senior convertible promissory notes in like investment amounts
pursuant to the terms of this Agreement; and 



        WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to Section
4(2) of the Securities Act (as defined below) and Rule 506 promulgated thereunder, the
Company desires to issue and sell to each Lender, and each Lender, severally and not
jointly, desires to purchase from the Company certain senior convertible promissory notes
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 the Lenders agree as follows: 



ARTICLE I. 
DEFINITIONS  



        1.1
    Definitions. In addition to the terms defined elsewhere in this Agreement, for all
purposes of this Agreement, the following terms shall have the meanings indicated in this
Section 1.1:  













        “Action”
means any action, suit, inquiry, notice of violation, proceeding (including any partial
proceeding such as a deposition) or investigation pending or threatened in writing against
or affecting the Company, any Subsidiary or any of their respective properties before or
by any court, arbitrator, governmental or administrative agency, regulatory authority
(federal, state, county, local or foreign), stock market, stock exchange or trading
facility. 



        “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. 



        “Business
Day” means any day except Saturday, Sunday and any day which is a federal legal
holiday or a day on which banking institutions in the State of New York are authorized or
required by law or other governmental action to close. 



        “Closing”
means the closing of the purchase and sale of the Notes pursuant to Article II. 



        “Closing
Date” means the date on which all of the conditions set forth in Sections 5.1
and 5.2 hereof are satisfied or waived, or such other date as the parties may agree. 



        “Commission”
means the Securities and Exchange Commission. 



        “Common
Stock” means the common stock of the Company, par value $.01 per share, and any
securities into which such common stock may hereafter be reclassified. 



        “Common
Stock Equivalents” means any securities of the Company or any Subsidiary which
entitle the holder thereof to acquire Common Stock at any time, 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 or other securities that entitle the holder to receive,
directly or indirectly, Common Stock. 



      “Company
Counsel” means Foley & Lardner LLP.



        “Company
Deliverables” has the meaning set forth in Section 2.2 (a)). 



        “Company’s
Knowledge” means the actual knowledge of Duane Roth. 



        “Confidential
Information” means trade secrets, confidential information and know-how
(including but not limited to ideas, formulae, compositions, processes, procedures and
techniques, research and development information, computer program code, performance
specifications, support documentation, drawings, specifications, designs, business and
marketing plans, and customer and supplier lists and related information). 



        “Conversion
Price” equals $0.25 (as adjusted for stock splits combinations, recapitalization
and the like). 












        “Conversion
Shares” means the shares of Common Stock issued or issuable to the Lenders upon
conversion of the Notes. 



        “Creditworthy”
means, as of any date of determination, that the ratio of such Person’s cash on
hand or other capital resources to such Person’s projected burn rate for a period of
at least the eighteen months following the date of determination (as reflected in such
Person’s most recent financial statements) shall be equal to or greater than the
ratio of the Company’s cash on hand or other capital resources to the Company’s
projected burn rate for the same period (as reflected in the Company’s most recent
financial statements). 



        “Disclosure
Materials” has the meaning set forth in Section 3.1(h). 



        “Effective
Date” means the date that the Registration Statement required by Section 2(a) of
the Registration Rights Agreement is first declared effective by the Commission. 



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



        “GAAP”
means U.S. generally accepted accounting principals. 



        “Infringe”
has the meaning set forth in Section 3.1(o). 



        “Intellectual
Property” means all of the following: (i) patents, patent applications, patent
disclosures and inventions (whether or not patentable and whether or not reduced to
practice); (ii) trademarks, service marks, trade dress, trade names, corporate names,
logos, slogans and Internet domain names, together with all goodwill associated with each
of the foregoing; (iii) copyrights and copyrightable works; (iv) registrations,
applications and renewals for any of the foregoing; (v) trade secrets, confidential
information and know-how (including but not limited to ideas, formulae, compositions,
manufacturing and production processes and techniques, research and development
information, drawings, specifications, designs, business and marketing plans, and customer
and supplier lists and related information); and (vi) proprietary computer software
(including but not limited to data, data bases and documentation). 



        “Lead
Lenders Counsel” means Debevoise & Plimpton LLP. 



        “Lender
Deliverables” has the meaning set forth in Section 2.2(b). 



        “License
Agreements” has the meaning set forth in Section 3.1(o). 



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



        “Loan
Amount” means, with respect to each Lender, the Loan Amount indicated on such
Lender’s signature page to this Agreement. 



        “Material
Adverse Effect” means any of (i) a material and adverse effect on the legality,
validity or enforceability of any Transaction Document, (ii) a material and adverse effect
on the results of operations, assets, condition (financial or otherwise) or business of
the Company and the Subsidiaries, taken as a whole, or (iii) a material and adverse
impairment to the Company’s ability to perform on a timely basis its obligations
under any Transaction Document. 












        “New
York Courts” means the state and federal courts sitting in the City of New York,
Borough of Manhattan. 



        “Notes”
means the senior convertible promissory notes in the form of Exhibit A hereto,
which are issuable to the Lenders at the Closing. 



        “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. 



        “PPM”
has the meaning set forth in Section 3.2(e). 



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



        “Purchase
Price” means the total amount loaned to the Company by all the Lenders not to
exceed an aggregate principal amount of US$11,500,000. 



        “Registration
Rights Agreement” means the Registration Rights Agreement, dated as of the date
of this Agreement, among the Company and the Lenders, in the form of Exhibit B
hereto. 



        “Registration
Statement” means a registration statement meeting the requirements set forth in
the Registration Rights Agreement and covering the resale by the Lenders of the Conversion
Shares. 



        “Rescission
and Settlement Agreement” means the Rescission and Settlement Agreement, among
the Company and the Lenders, in the form of Exhibit C hereto. 



        “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” has the meaning set forth in Section 3.1(h). 



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



        “Short
Sales” include, without limitation, all “short sales” as defined in
Rule 3b-3 of the Exchange Act and include all types of direct and indirect stock pledges,
forward sale contracts, options, puts, calls, short sales, swaps and similar arrangements
(including on a total return basis), and sales and other transactions through non US
broker-dealers or foreign regulated brokers. 












        “Subsidiary”
means any “significant subsidiary” as defined in Rule 1-02(w) of the Regulation
S-X promulgated by the Commission under the Exchange Act. 



        “Trading
Day” means (i) a day on which the Common Stock is traded on a Trading Market
(other than the OTC Bulletin Board), or (ii) if the Common Stock is not listed on a
Trading Market (other than the OTC Bulletin Board), a day on which the Common Stock is
traded in the over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if
the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is
quoted in the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions of
reporting prices); provided, that in the event that the Common Stock is not listed or
quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business
Day. 



        “Trading
Market” means whichever of the New York Stock Exchange, the American Stock
Exchange, the NASDAQ National Market, the NASDAQ SmallCap Market or OTC Bulletin Board on
which the Common Stock is listed or quoted for trading on the date in question. 



        “Transaction
Documents” means this Agreement, the Notes, the Registration Rights Agreement,
the Rescission and Settlement Agreement and any other documents or agreements executed in
connection with the transactions contemplated hereunder. 



ARTICLE II.  
PURCHASE
AND SALE  



        2.1
    Sale of Senior Convertible Promissory Notes.  




            (a)    Authorization.
The Company has authorized the sale and issuance of the           Notes in the principal
amount of $11,500,000.  




            (b)    Sale
of Senior Convertible Promissory Notes. Subject to the terms and           conditions
of this Agreement, the Company shall severally issue and sell to each           Lender,
and each Lender agrees that it shall severally purchase from the           Company, a
Note in the principal amount equal to the “Loan Amount” set           forth on
such Lender’s signature page hereto.  




            (c)    Purchase
Price. The Purchase Price will be funded entirely by use of the
          consideration originally paid by each Lender to the Company pursuant to the
          Securities Purchase Agreement, which funds shall be applied by the Company on
          behalf of each Lender for such purpose, and, upon such application by the
          Company, no Lender shall have any further obligation to make any payments to
the           Company under this Agreement.  













            (d)    Rescission
Offer and Closing. Prior to the execution of this Agreement,           the Company
has circulated a package of Transaction Documents to each purchaser           who
executed the Securities Purchase Agreement (each, a “Purchaser”)
          together with an offer by the Company to rescind the Securities Purchase
          Agreement and related Registration Rights Agreement dated May 27, 2004 (the
          “Equity Registration Rights Agreement”), each as between the Company
          and such Purchaser (the “Rescission Offer”). The Rescission Offer
          expired at 5:00 p.m. (Pacific Daylight Time) on the date hereof, which is the
          date that is ten (10) Business Days after the date of the Rescission Offer (the
          “Rescission Offer Expiration Date”). Pursuant to the terms of the
          Rescission Offer, in order to rescind the Securities Purchase Agreement and
          Equity Registration Rights Agreement and to become a Lender hereunder, each
          Purchaser must have delivered to Company counsel, in trust, at a time prior to
          5:00 p.m. Pacific Time on the date hereof, signature pages to each Transaction
          Document executed by such Purchaser as a Lender hereunder. If a Purchaser
          delivers the requisite signature pages to Company counsel prior to the time at
          which the Rescission Offer expires thereby accepting the Rescission Offer and
          becoming a Lender hereunder, the Company shall be obligated to close the
          transactions contemplated by this Agreement in accordance with the terms and
          conditions of this Agreement. Within three (3) Business Days after the
execution           and delivery of this Agreement by a Lender, such Lender shall deliver
to Company           Counsel, in trust, a stock certificate representing the number of
shares issued           to such Lender pursuant to the Securities Purchase Agreement and
the Warrant           issued to such Lender pursuant to the Securities Purchase
Agreement, with           instructions that such certificates and Warrants are to be held
for release to           the Company for cancellation only upon the satisfaction or
waiver of each of the           Closing Conditions set forth in Section 5.1 hereof. The
Closing shall take place           on the date that is three (3) Business Days after the
date hereof, unless (i)           each of the closing conditions set forth in Section 5.1
has not been satisfied           or waived by the Lender Committee (as defined in Section
4.11 hereof) or (ii)           each of the closing conditions set forth in Section 5.2
has not been satisfied           or waived by the Company (the “Closing Date”),
at which time           the certificates and Warrants shall be released to the Company
for cancellation           and the Notes shall be delivered by the Company to the Lenders
against payment           of the Purchase Price therefore, the receipt of which is hereby
acknowledged by           the Company (the “Closing”). The Closing of
the purchase and           sale of the Notes shall take place at the offices of Foley
& Lardner LLP,           402 West Broadway, Suite 2300, San Diego, California at
10:00 a.m. on the           Closing Date.  




        2.2
    Closing Deliveries.  




            (a)              At
the Closing, the Company shall deliver or cause to be delivered to each           Lender
the following (the “Company Deliverables”):  




                (i)              a
Rescission and Settlement Agreement, duly executed by the Company;  




                (ii)              a
Note in the principal amount of such Lender’s Loan Amount, duly executed
          by the Company;  




                (iii)              the
legal opinion of Company Counsel, in agreed form, addressed to the Lenders;           and  













                (iv)              the
Registration Rights Agreement, duly executed by the Company.  




            (b)              At
the Closing, each Lender shall deliver or cause to be delivered to the           Company
the following (the “Lender Deliverables”):  




                (i)              A
Rescission and Settlement Agreement, duly executed by such Lender;  




                (ii)              A
certificate evidencing the shares issued to such Lender pursuant to the
          Securities Purchase Agreement;  




                (iii)              The
Warrant issued to such Lender pursuant to the Securities Purchase Agreement;
          and  




                (iv)              the
Registration Rights Agreement, duly executed by such Lender.  




ARTICLE III.
 
REPRESENTATIONS AND WARRANTIES  



        3.1
    Representations  and  Warranties of the Company.  The Company  hereby makes the
following  representations  and  warranties to each Lender as of the date of this
Agreement: 




            (a)    Subsidiaries.
The Company has no direct or indirect Subsidiaries other           than as specified in
the SEC Reports. Except as disclosed in Schedule           3.1(a), the Company
owns, directly or indirectly, all of the capital stock           of each Subsidiary free
and clear of any and all 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.           Neither the Company
nor any Subsidiary is party to any joint venture, nor has           any ownership
interest in any other entity other than as disclosed in the SEC           Reports under
the heading “Collaborative Relationships.” 




            (b)    Organization
and Qualification. The Company and each Subsidiary are 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 of any of the provisions           of its respective
certificate or articles of incorporation, bylaws or other           organizational or
charter documents. The Company and each Subsidiary are duly           qualified to
conduct their respective businesses and are 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, individually or in the aggregate, have or reasonably           be
expected to result in a Material Adverse Effect.  













            (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, it
          officers, directors and stockholders and no further action is required by the
          Company in connection therewith. 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 as such enforceability may be limited by applicable
bankruptcy,           insolvency, reorganization, moratorium, liquidation or similar laws
relating to,           or affecting generally the enforcement of, creditors’ rights
and remedies           or by other equitable principles of general application,
including, without           limitation, limitations on rights to indemnity and rights to
a jury trial.  




            (d)    No
Conflicts. The execution, delivery and performance of the Transaction
          Documents by the Company and the consummation by the Company of the
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, 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) to the Company’s Knowledge,
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, individually or           in the aggregate,
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) the filing with the Commission of one or more Registration Statements
in           accordance with the requirements of the Registration Rights Agreement, (ii)
          filings required by state securities laws, (iii) the filing of a Notice of Sale
          of Securities on Form D with the Commission under Regulation D of the
Securities           Act, and (iv) those that have been made or obtained prior to the
date of this           Agreement.  













            (f)    Issuance
of the Notes. The Notes have been duly authorized by the Company           and, when
duly executed, issued, delivered and paid for as provided herein, will           be duly
and validly issued and outstanding and will constitute valid and legally
          binding obligations of the Company enforceable against the Company in
accordance           with their terms, except as such enforceability may be limited by
applicable           bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws           relating to, or affecting generally the enforcement of, creditors’ rights
          and remedies or by other equitable principles of general application, and the
          Company has reserved from its duly authorized capital stock the shares of
Common           Stock issuable upon conversion of the Notes.  




            (g)    Capitalization.
The number of shares and type of all authorized, issued           and outstanding capital
stock of the Company, and all shares of Common Stock           reserved for issuance
under the Company’s various option and incentive           plans, is specified in
the SEC Reports. Except as specified in the SEC Reports           or Schedule 3.1(g), no
securities of the Company are entitled to preemptive or           similar rights, and no
Person has any right of first refusal, preemptive right,           right of
participation, or any similar right to participate in the transactions
          contemplated by the Transaction Documents. Except as specified in the SEC
          Reports, there are no outstanding options, warrants, scrip rights to subscribe
          to, calls or commitments of any character whatsoever relating to, or
securities,           rights or obligations convertible into or exchangeable for, or
giving any Person           any right to subscribe for or acquire, any shares of Common
Stock, or contracts,           commitments, understandings or arrangements by which the
Company 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.           All of the issued and outstanding shares of the Company’s
capital stock           have been duly authorized and validly issued and are fully paid,
nonassessable           and were issued in full compliance with applicable state and
federal securities           law and any rights of third parties. The issue and sale of
the Notes will not,           immediately or with the passage of time, obligate the
Company to issue shares of           Common Stock or other securities to any Person
(other than the Lenders) 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.  




            (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 twelve months           preceding the
date hereof (or such shorter period as the Company was required by           law to file
such reports) (the foregoing materials being collectively referred           to herein as
the “SEC Reports” and, together with the Schedules           to this
Agreement (if any), the “Disclosure Materials”) on a           timely
basis or has timely filed 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 GAAP applied on a consistent basis during
the           periods involved, except as may be otherwise specified in such financial
          statements or the notes thereto, 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 and
except as set forth on Schedule 3.1(i), (i) there has           been no event,
occurrence or development that has had or that could reasonably           be expected to
result in a Material Adverse Effect, (ii) the Company has not           incurred any
liabilities (contingent or otherwise) other than (A) trade           payables, accrued
expenses and other liabilities incurred in the ordinary course           of business
consistent with past practice and (B) liabilities not required to be           reflected
in the Company’s financial statements pursuant to GAAP or           required to be
disclosed in filings made with the Commission, (iii) the Company           has not
altered its method of accounting or the identity of its auditors, (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 plans. The Company does not have
          pending before the Commission any request for confidential treatment of
          information.  




            (j)    Litigation.
Except as set forth on Schedule 3.1(j), there is no           Action which (i)
adversely affects or challenges the legality, validity or           enforceability of any
of the Transaction Documents or the Notes or (ii) except           as specifically
disclosed in the SEC Reports, could, if there were an           unfavorable decision,
individually or in the aggregate, have or reasonably be           expected to result in a
Material Adverse Effect; and to the Company’s           Knowledge, no such Action is
threatened or contemplated. Neither the Company nor           any Subsidiary, nor any
director or officer thereof (in his or her capacity as           such), 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, except
as specifically disclosed in the SEC Reports. There has           not been, and to the
Company’s Knowledge, there is not pending any           investigation by the
Commission involving the Company or any current or former           director or officer
of the Company (in his or her capacity as such). 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           Company’s
Knowledge, is imminent with respect to any of the employees of           the Company.  




            (l)    Compliance.
Neither the Company nor any Subsidiary (i) is in default           under or in violation
of (and no event has occurred that has not been waived           that, with notice or
lapse of time or both, would result in a default by 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 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) to the Company’s           Knowledge, is
in violation of any order of any court, arbitrator or governmental           body, or
(iii) to the Company’s Knowledge, is or has been in violation of           any
statute, rule or regulation of any governmental authority, including without
          limitation all foreign, federal, state and local laws relating to taxes,
          environmental protection, occupational health and safety, product quality and
          safety and employment and labor matters, except in each case as could not,
          individually or in the aggregate, have or reasonably be expected to result in 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, individually or in the aggregate, have or           reasonably be
expected to result in a Material Adverse Effect, and neither the           Company nor
any Subsidiary has received any notice of proceedings relating to           the
revocation or modification of any such permits.  




            (n)    Title
to Assets. The Company and the Subsidiaries have good and           marketable title
in fee simple to all real property owned by them that is           material to their
respective businesses and good and marketable title in all           personal property
owned by them that is material to their respective businesses,           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. 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, except as           could not,
individually or in the aggregate, have or reasonably be expected to           result in a
Material Adverse Effect.  




            (o)    Intellectual
Property.  




                (i)              Except
as set forth in Schedule 3.1(o), the Company has not transferred           any
rights or interest in, or granted any exclusive license with respect to, any           of
its Intellectual Property, to any third party.  




                (ii)              All
Intellectual Property of the Company and its Subsidiaries is currently in
          compliance with all legal requirements (including timely filings, proofs and
          payments of fees) and is valid and enforceable. No Intellectual Property of the
          Company or its Subsidiaries which is necessary for the conduct of the
          Company’s and each of its Subsidiaries’ respective businesses as
          currently conducted or as currently proposed to be conducted has been or is now
          involved in any cancellation, dispute or litigation, and, to the Company’s
          Knowledge, no such action is threatened. No patent of the Company or its
          Subsidiaries has been or is now involved in any interference, reissue,
          re-examination or opposition proceeding.  




                (iii)              All
of the licenses and sublicenses and consent, royalty or other agreements
          concerning Intellectual Property (including those entered into in connection
          with a Collaborative Relationship described in the SEC Reports) used in the
          conduct of the Company’s and each of its Subsidiaries respective
businesses           as currently conducted or as currently proposed to be conducted to
which the           Company or any subsidiary is a party or by which any of its assets
are bound           (other than generally commercially available, non-custom,
off-the-shelf software           application programs having a retail acquisition price
of less than $10,000 per           license) (collectively, “License Agreements”)
are valid and           binding obligations of the Company or its Subsidiaries which are
parties thereto           and, to the Company’s Knowledge, of the other parties
thereto, enforceable           in accordance with their terms, except to the extent that
enforcement thereof           may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent           conveyance or other similar laws affecting the
enforcement of creditors’          rights generally, and, neither the Company nor
any other party thereto is in           material violation or breach of any such License
Agreement, and no action or           failure to act by the Company or any Subsidiary
constitutes (with or without due           notice or lapse of time or both) a material
default by the Company thereunder.  













                (iv)              The
Company and its Subsidiaries own or have the valid right to use all of the
          Intellectual Property that is necessary for the conduct of the Company’s
          and each of its Subsidiaries’ respective businesses as currently conducted
          or as currently proposed to be conducted and for the ownership, maintenance and
          operation of the Company’s and its Subsidiaries’ properties and
          assets, free and clear of all liens, encumbrances, adverse claims or
obligations           to license all such owned Intellectual Property and Confidential
Information,           other than licenses entered into in the ordinary course of the
Company’s           and its Subsidiaries’ businesses. The Company and its
Subsidiaries have a           valid and enforceable right to use all third party
Intellectual Property and           Confidential Information used or held for use in the
respective businesses of           the Company and its Subsidiaries.  




                (v)              The
conduct of the Company’s and its Subsidiaries’ businesses as
          currently conducted does not infringe or otherwise impair or conflict with
          (collectively, “Infringe”) any Intellectual Property rights of any
          third party or any confidentiality obligation owed to a third party, and, to
the           Company’s Knowledge, the Intellectual Property and Confidential
Information           of the Company and its Subsidiaries which are necessary for the
conduct of           Company’s and each of its Subsidiaries’ respective
businesses as           currently conducted or as currently proposed to be conducted are
not being           Infringed by any third party. There is no litigation or order pending
or           outstanding or, to the Company’s Knowledge, threatened or imminent,
that           seeks to limit or challenge or that concerns the ownership, use, validity
or           enforceability of any Intellectual Property or Confidential Information of
the           Company and its Subsidiaries or the Company’s and its Subsidiaries’          use
of any Intellectual Property or Confidential Information owned by a third
          party, and, to the Company’s Knowledge, there is no valid basis for the
          same.  




                (vi)              The
consummation of the transactions contemplated hereby and by the other
          Transaction Documents will not result in the alteration, loss, impairment of or
          restriction on the Company’s or any of its Subsidiaries’ ownership or
          right to use any of the Intellectual Property or Confidential Information which
          is necessary for the conduct of the Company’s and each of its
          Subsidiaries’ respective businesses as currently conducted or as currently
          proposed to be conducted.  













                (vii)              The
Company and its Subsidiaries have taken reasonable steps to protect the           Company’s
and its Subsidiaries’ rights in their Intellectual Property           and
Confidential Information. Each employee, consultant and contractor who has           had
access to Confidential Information which is necessary for the conduct of           Company’s
and each of its Subsidiaries’ respective businesses as           currently conducted
or as currently proposed to be conducted has executed an           agreement to maintain
the confidentiality of such Confidential Information and           has executed
appropriate agreements that are substantially consistent with the           Company’s
standard forms thereof. Except under confidentiality obligations,           there has
been no material disclosure of any of the Company’s or its           Subsidiaries’ Confidential
Information to any third party.  




            (p)    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           Company’s
Knowledge, 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           Company’s
Knowledge, any entity in which any officer, director, or any such           employee has
a substantial interest or is an officer, director, trustee or           partner.  




            (q)    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. The Lenders shall have no
          obligation with respect to any fees or with respect to any claims (other than
          such fees or commissions owed by a Lender pursuant to written agreements
          executed by such Lender which fees or commissions shall be the sole
          responsibility of such Lender) 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.  




            (r)    Investment
Company. The Company is not, and is not an Affiliate of, and           immediately
following the Closing will not have become, an “investment           company” within
the meaning of the Investment Company Act of 1940, as           amended.  




            (s)    Certain
Registration Matters. Assuming the accuracy of the Lenders’          representations
and warranties set forth in Section 3.2(b)-(e), no           registration under
the Securities Act is required for the issuance and sale of           the Notes and
Conversion Shares by the Company to the Lenders under the           Transaction
Documents. The Company is eligible to register the resale of its           Common Stock
for resale by the Lenders under Form SB-2 promulgated under the           Securities Act.
Except as specified in Schedule 3.1(s), 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.  













            (t)    Listing
and Maintenance Requirements. Except as specified in the SEC           Reports or
Schedule 3.1(t), the Company has not, in the two years preceding the           date
hereof, received notice from any Trading Market to the effect that the           Company
is not in compliance with the listing or maintenance requirements           thereof. The
Company is, and has no reason to believe that it will not in the           foreseeable
future continue to be, in compliance with the listing and           maintenance
requirements for continued listing of the Common Stock on the           Trading Market on
which the Common Stock is currently listed or quoted. The           issuance and sale of
the Notes under the Transaction Documents does not           contravene the rules and
regulations of the Trading Market on which the Common           Stock is currently listed
or quoted, and no approval of the shareholders of the           Company thereunder is
required for the Company to issue and deliver to the           Lenders the Notes
contemplated by Transaction Documents.  




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




            (v)    No
Additional Agreements. The Company does not have any agreement or
          understanding with any Lender with respect to the transactions contemplated by
          the Transaction Documents other than as specified in the Transaction Documents.  




            (w)    No
Directed Selling Efforts or General Solicitation. Neither the Company           nor
any Person acting on its behalf has conducted any general solicitation or
          general advertising (as those terms are used in Regulation D) in connection
with           the offer or sale of any of the Securities.  




            (x)    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 of any Company security or solicited any offers to buy any
          security, under circumstances that would adversely affect reliance by the
          Company on Section 4(2) for the exemption from registration for the
transactions           contemplated hereby or would require registration of the Notes
under the           Securities Act.  




            (y)    Questionable
Payments. Neither the Company           nor any of its
Subsidiaries nor, to the Company’s Knowledge, any of their           respective
current or former stockholders, directors, officers, employees,           agents or other
Persons acting on behalf of the Company or any Subsidiary, has           on behalf of the
Company or any Subsidiary or in connection with their           respective businesses:
(i) used any corporate funds for unlawful contributions,           gifts, entertainment
or other unlawful expenses relating to political activity;           (ii) made any direct
or indirect unlawful payments to any governmental officials           or employees from
corporate funds; (iii) established or maintained any unlawful           or unrecorded
fund of corporate monies or other assets; (iv) made any false or           fictitious
entries on the books and records of the Company or any Subsidiary; or           (v) made
any unlawful bribe, rebate, payoff, influence payment, kickback or           other
unlawful payment of any nature.  













            (z)    Internal
Controls. The Company is in material compliance with the           provisions of the
Sarbanes-Oxley Act of 2002 currently applicable to the           Company. 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 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. The Company has established disclosure           controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for           the Company and designed
such disclosure controls and procedures to ensure that           material information
relating to the Company, including the Subsidiaries, is           made known to the
certifying officers by others within those entities,           particularly during the
period in which the Company’s most recently filed           periodic report under
the Exchange Act, as the case may be, is being prepared.           The Company’s
certifying officers have evaluated the effectiveness of the           Company’s
controls and procedures as of a date within 90 days prior to the           filing date of
the most recently filed periodic report under the Exchange Act           (such date, the
“Evaluation Date”). The Company presented in           its most recently
filed periodic report under the Exchange Act the conclusions           of the certifying
officers about the effectiveness of the disclosure controls           and procedures
based on their evaluations as of the Evaluation Date. Since the           Evaluation
Date, there have been no significant changes in the Company’s           internal
controls (as such term is defined in Item 308(c) of Regulation S-K) or,           to the
Company’s Knowledge, in other factors that could significantly           affect the
Company’s internal controls. The Company maintains and will           continue to
maintain a standard system of accounting established and           administered in
accordance with GAAP and the applicable requirements of the           Exchange Act.  




            (aa)    Environmental
Matters. To the Company’s Knowledge, neither the           Company nor any
Subsidiary is in violation of any statute, rule, regulation,           decision or order
of any governmental agency or body or any court, domestic or           foreign, relating
to the use, disposal or release of hazardous or toxic           substances or relating to
the protection or restoration of the environment or           human exposure to hazardous
or toxic substances (collectively,           “Environmental Laws”).
Neither the Company nor any Subsidiary           owns or operates any real property
contaminated with any substance that is           subject to any Environmental Laws, is
liable for any off-site disposal or           contamination pursuant to any Environmental
Laws, or is subject to any claim           relating to any Environmental Laws, which
violation, contamination, liability or           claim has had or could reasonably be
expected to have a Material Adverse Effect,           individually or in the aggregate;
and there is no pending or, to the           Company’s Knowledge, threatened
investigation that might lead to such a           claim.  













            (bb)    Tax
Matters. The Company and each Subsidiary has filed for an extension           of the
time to file its 2002 income tax returns and has not filed its 2003           income tax
returns. The charges, accruals and reserves on the books of the           Company in
respect of taxes for all fiscal periods are adequate in all material           respects,
and there are no material unpaid assessments against the Company or           any
Subsidiary nor, to the Company’s Knowledge, any basis for the           assessment
of any additional taxes, penalties or interest for any fiscal period           or audits
by any federal, state or local taxing authority except for any           assessment which
is not material to the Company and its Subsidiaries, taken as a           whole. All
taxes and other assessments and levies that the Company or any           Subsidiary is
required to withhold or to collect for payment have been duly           withheld and
collected and paid to the proper governmental entity or third party           when due.
There are no tax liens or claims pending or, to the Company’s           Knowledge,
threatened against the Company or any Subsidiary or any of their           respective
assets or property. There are no outstanding tax sharing agreements           or other
such arrangements between the Company and any Subsidiary or other           corporation
or entity.  




            (cc)    Insurance
Coverage. The Company and each Subsidiary maintains in full           force and
effect insurance coverage that is customary for comparably situated           companies
for the business being conducted and properties owned or leased by the           Company
and each Subsidiary, and the Company reasonably believes such insurance
          coverage to be adequate against all liabilities, claims and risks against which
          it is customary for comparably situated companies to insure.  




            (dd)    Disclosures.
The Company and each Person acting on its behalf has           identified for each Lender
any information that constitutes or might constitute           material, non-public
information that has been disclosed to such Lender in           connection with this
transaction and that such information must remain           confidential until such time
as the Company publicly discloses it. The written           materials delivered to the
Lenders in connection with the transactions           contemplated by the Transaction
Documents do not contain any untrue statement of           a material fact or omit to
state a material fact necessary in order to make the           statements contained
therein, in light of the circumstances under which they           were made, not
misleading.  




            (ee)    Solvency.
On and immediately after the Closing Date, the Company (after           giving effect to
the issuance of the Notes) will be Solvent. As used in this           paragraph, the term
“Solvent” means, with respect to a           particular date, that on
such date (i) the present fair market value (or present           fair saleable value) of
the assets of the Company is not less than the total           amount required to pay the
probable liabilities of the Company on its total           existing debts and liabilities
(including contingent liabilities) as they become           absolute and matured, (ii)
the Company is able to realize upon its assets and           pay its debts and other
liabilities, contingent obligations and commitments as           they mature and become
due in the normal course of business, and (iii) assuming           the sale of the Notes
as contemplated by this Agreement, the Company is not           incurring debts or
liabilities beyond its ability to pay as such debts and           liabilities mature. In
computing the amount of such contingent liabilities at           any time, it is intended
that such liabilities will be computed at the amount           that, in the light of all
the facts and circumstances existing at such time,           represents the amount that
can reasonably be expected to become an actual or           matured liability.  













        3.2
    Representations and Warranties of the Lenders. Each Lender hereby, for itself and
for no other Lender, represents and warrants to the Company as follows:  




            (a)    Organization;
Authority. Such Lender is an entity duly organized, validly           existing and in
good standing under the laws of the jurisdiction of its           organization with the
requisite corporate or partnership power and authority to           enter into and to
consummate the transactions contemplated by the applicable           Transaction
Documents and otherwise to carry out its obligations thereunder. The           execution,
delivery and performance by such Lender of the transactions           contemplated by
this Agreement has been duly authorized by all necessary           corporate or, if such
Lender is not a corporation, such partnership, limited           liability company or
other applicable like action, on the part of such Lender.           Each of this
Agreement and the Registration Rights Agreement has been duly           executed by such
Lender, and when delivered by such Lender in accordance with           terms hereof, will
constitute the valid and legally binding obligation of such           Lender, enforceable
against it in accordance with its terms, except as such           enforceability may be
limited by applicable bankruptcy, insolvency,           reorganization, moratorium,
liquidation or similar laws relating to, or           affecting generally the enforcement
of, creditors’ rights and remedies or           by other equitable principles of
general application, including, without           limitation, limitations on rights to
indemnity or rights to a jury trial.  




            (b)    Investment
Intent. Such Lender is acquiring the Notes and Conversion           Shares as
principal for its own account for investment purposes only and not           with a view
to or for distributing or reselling such securities or any part           thereof,
without prejudice, however, to such Lender’s right at all times to           sell or
otherwise dispose of all or any part of such securities in compliance           with
applicable federal and state securities laws. Subject to the immediately
          preceding sentence, nothing contained herein shall be deemed a representation
or           warranty by such Lender to hold the Notes or Conversion Shares for any
period of           time. Such Lender is acquiring the Notes and Conversion Shares
hereunder in the           ordinary course of its business. Such Lender does not have any
agreement or           understanding, directly or indirectly, with any Person to
distribute any of the           Notes or Conversion Shares.  




            (c)    Accredited
Investor Status. At the time such Lender was offered the           Notes, it was, and
at the date hereof it is, and on each date on which it           converts the Notes into
Common Stock it will be, an “accredited           investor” as defined in Rule
501(a) under the Securities Act. Such Lender           is not a registered broker-dealer
under Section 15 of the Exchange Act.  




            (d)    General
Solicitation. Such Lender is not purchasing the Notes as a result           of any
advertisement, article, notice or other communication regarding the Notes
          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.  













            (e)    Access
to Information. Such Lender acknowledges that it has reviewed the
          disclosure materials and the Private Placement Memorandum of the Company, dated
          May 6, 2004 (the “PPM”) delivered in connection with the
          Securities Purchase Agreement as well as the Disclosure Materials delivered in
          connection with this Agreement, and has been afforded (i) the opportunity to
ask           such questions as it has deemed necessary of, and to receive answers from,
          representatives of the Company concerning the terms and conditions of the
          offering of the Notes and the merits and risks of investing in the Notes and
          Conversion Shares; (ii) access to information about the Company and the
          Subsidiaries and their respective financial condition, results of operations,
          business, properties, management and prospects sufficient to enable it to
          evaluate its investment; and (iii) the opportunity to obtain such additional
          information that the Company possesses or can acquire without unreasonable
          effort or expense that is necessary to make an informed investment decision
with           respect to the investment. Neither such inquiries nor any other
investigation           conducted by or on behalf of such Lender or its representatives
or counsel shall           modify, amend or affect such Lender’s right to rely on
the truth, accuracy           and completeness of the Disclosure Materials, the PPM and
the Company’s           representations and warranties contained in the Transaction
Documents. Such           Lender acknowledges that it was advised prior to the execution
of the Securities           Purchase Agreement that Duane J. Roth, the Company’s
Chief Executive           Officer, is the brother of Byron C. Roth of Roth Capital
Partners, LLC, the           placement agent who assisted the Company in connection with
the Securities           Purchase Agreement, and that Theodore D. Roth, a director of the
Company, is an           employee of Roth Capital Partners, LLC.  




            (f)    Certain
Trading Activities. Other than in connection with the Securities           Purchase
Agreement, such Lender has not directly or indirectly, nor has any           Person
acting on behalf of or pursuant to any understanding with such Lender,           engaged
in any transactions in the securities of the Company (including, without
          limitation, any Short Sales involving the Company’s securities) since the
          earlier to occur of (1) the time that such Lender was contacted by the Company
          or any other Person regarding an investment in the Company and (2) the
          twenty-fifth (25th) day prior to the date of this Agreement. Except
          as expressly provided herein in connection with the Closing hereunder, such
          Lender covenants that neither it nor any Person acting on its behalf or
pursuant           to any understanding with it will engage in any transactions in the
securities           of the Company (including Short Sales) prior to the time that the
transactions           contemplated by this Agreement are publicly disclosed.  




            (g)    Independent
Investment Decision. Such Lender has independently evaluated           the merits of
its decision to purchase Notes pursuant to the Transaction           Documents, and such
Lender confirms that it has not relied on the advice of any           other Lender’s
business and/or legal counsel in making such decision. Such           Lender has not
relied on the business or legal advice of Roth Capital Partners,           LLC or any of
its agents, counsel or Affiliates in making its investment           decision hereunder,
and confirms that none of such Persons has made any           representations or
warranties to such Lender in connection with the transactions           contemplated by
the Transaction Documents.  




The Company acknowledges and agrees
that no Lender has made or makes 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
    (a)    The Notes and Conversion Shares may only be disposed of in compliance with state and
federal securities laws. In connection with any transfer of the Notes or Conversion
Shares other than pursuant to an effective registration statement, to the Company, to an
Affiliate of a Lender 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, 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 Notes or Conversion Shares under the Securities Act.  




            (b)                 Certificates
evidencing the Notes and Conversion Shares will contain the           following legend,
until such time as they are not required under Section           4.1(c):  




	 	
THESE
SECURITIES 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, 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. 






            (c)                 Certificates
evidencing the Conversion Shares shall not contain any legend           (including the
legend set forth in Section 4.1(b)): (i) following a sale           or transfer of
such Securities pursuant to an effective registration statement           (including the
Registration Statement), or (ii) following a sale or transfer of           such
Conversion Shares pursuant to Rule 144 (assuming the transferor is not an
          Affiliate of the Company), or (iii) while such Conversion Shares are eligible
          for sale under Rule 144(k). 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.  




        4.2
    Furnishing of Information. As long as any Lender owns Notes or Conversion Shares,
the Company covenants to use its reasonable best efforts 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 Lender owns Notes or Conversion Shares, if the Company is not required to
file reports pursuant to such laws, it will use reasonable best efforts to prepare and
furnish to the Lenders and make publicly available in accordance with Rule 144(c) such
information as is required for the Lenders to sell the Notes or Conversion Shares under
Rule 144. The Company further covenants that it will take such further action as any
holder of Notes or Conversion Shares may reasonably request, all to the extent required
from time to time to enable such Person to sell the Notes or Conversion Shares without
registration under the Securities Act within the limitation of the exemptions provided by
Rule 144.  













        4.3
    Integration. The Company shall not, and shall use its best efforts to ensure that
no Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Notes or Conversion Shares in
a manner that would require the registration under the Securities Act of the sale of the
Notes or Conversion Shares to the Lenders, or that would be integrated with the offer or
sale of the Notes or Conversion Shares for purposes of the rules and regulations of any
Trading Market in a manner that would require stockholder approval of the sale of the
Notes or Conversion Shares to the Lenders.  




        4.4
    Subsequent Registrations. Other than pursuant to the Registration Statement, prior
to the Effective Date, the Company may not file any registration statement (other than on
Form S-8) with the Commission with respect to any securities of the Company.  




        4.5
    Limitation on Issuance of Future Priced Securities. During the six months
following the Closing Date, the Company shall not issue any “Future Priced Securities” as
such term is described by NASD IM-4350-1.  




        4.6
    Non-Public Information. Each Lender covenants and agrees that until such time as
the Company publicly discloses any information provided to such Lender in connection with
this transaction which the Company identified as material, non-public information at the
time of disclosure, such Lender will maintain the confidentiality of such information.
Information provided to Lenders subsequent to the Closing shall be governed by Section
5(a) of the Registration Rights Agreement.  




        4.7
    Listing of Securities. The Company agrees that, (i) if the Company applies to have
the Common Stock traded on any other Trading Market, it will include in such application
the Conversion Shares, and will take such other action as is necessary or desirable to
cause the Conversion Shares to be listed on such other Trading Market as promptly as
possible, and (ii) it 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.  




        4.8
    No Conflicting Agreements. The Company will not take any action, enter into any
agreement or make any commitment that would conflict or interfere in any material respect
with the Company’s obligations to the Lenders under the Transaction Documents.  




        4.9
    Insurance.  The Company shall not materially reduce the insurance coverages
described in Section 3.1(cc). 













        4.10
    Compliance with Laws. The Company will comply in all material respects with all
applicable laws, rules, regulations, orders and decrees of all governmental authorities.  




        4.11
    Lender Committee. Each Lender hereby acknowledges the appointment of a committee
of the following three (3) individuals: David Kroin, Fred Toney, and Stephen McGrath (the
“Lender Committee”). Each Lender hereby acknowledges and agrees that the Lender
Committee, acting by majority vote, will have the authority and the obligation to act on
behalf of all the Lenders with respect to (i) amending or waiving each Lender’s
rights under this Agreement or the Notes except that any amendment or waiver affecting
the principal amount, maturity date, interest rate, designated currency, waiver of
payment defaults, rights of the Holder to institute suit for the enforcement of any
payment, consent to the assignment or transfer of the Company’s rights or
obligations under the Note (other than as permitted under Section 4.12 herein) or the
amendment and waiver provisions hereof shall require the consent of each Holder so
affected, (ii) approving any act by the Company set forth in Section 4.12 hereof, and
(iii) approving any conversion of the Notes pursuant to Section 5(b)(i) of the Notes.
Each Lender hereby acknowledges and agrees that all communications with the Company by
such Lender shall be directed to the Lender Committee, which shall relay to the Company
all communications received from any Lender. Each Lender having a representative on the
Lender Committee hereby acknowledges and agrees that all communications directed to the
Company by such Lender Committee shall be directed to the chairman of the Company’s
audit committee who, as of the date of this Agreement, is Stephen McGrath. Each Lender
having a representative on the Lender Committee hereby acknowledges and agrees that any
such approval or action required by this Section will not be unreasonably withheld or
delayed by the Lender Committee.  




            (a)              Any
individual serving on the Lender Committee hereunder (i) may resign at any           time
upon giving at least thirty (30) days written notice to the Company and           (ii)
must resign effective immediately upon the date that the Lender with which           such
individual is affiliated or employed ceases to hold any Notes. The Company
          shall be responsible for providing notice to the other Lenders holding Notes
          then outstanding. Any vacancies on the Lender Committee arising pursuant to
this           provision or the incapacity or death of any individual may be filled by
approval           of the holders of the majority in interest of the Notes then
outstanding.  




            (b)              None
of the persons serving on the Lender Committee shall be liable for any act           done
or omitted hereunder as a member of the Lender Committee, except due to           such
person’s gross negligence or bad faith. Except for such decisions and
          consents as are specifically reserved to each Lender herein, any decision, act,
          consent or instruction of the majority of the persons serving on the Lender
          Committee shall constitute a decision, act, consent or instruction of the
Lender           Committee and of all Lenders and shall be final, binding and conclusive
upon           each of Lender and the Company may rely upon any such decision, act,
consent or           instruction of the Lender Committee as being the decision, act,
consent or           instruction of the each and every such Lender.  




        4.12
    Restrictive  Covenants.  For so long as any Notes are  outstanding,  the Company will
not without the consent of a majority of the members of the Lender Committee: 













            (a)              amend,
alter or repeal its Restated Certificate of Incorporation or bylaws in a           manner
that materially and adversely affects the holders of the Notes;  




            (b)              (1)
agree to or effect a consolidation or merger with or into another Person
          (whether or not the Company is the surviving corporation), or (2) sell, assign,
          transfer, convey or otherwise dispose of all or substantially all of its
          properties or assets, in one or more related transactions, to another Person,
          unless, in each case (i) the transaction specifically provides that the Notes
          will be paid off in full, including accrued and unpaid interest through the
date           of such transaction, in connection with the closing of such transaction,
or (ii)           (A) the gross proceeds to the Company in such transaction represent an
aggregate           amount equal to per share consideration of $0.50 or greater on a
fully-diluted           basis, and (B) in the event the Notes are to remain outstanding
subsequent to           any such transaction the Person formed by or surviving any such
consolidation or           merger (if other than the Company), or to which such sale,
assignment, transfer,           conveyance or other disposition is to be made (I) assumes
all obligations of the           Company under the Notes and (II) on the date of such
transaction after giving           pro forma effect thereto and any related financing
transactions as if the same           had occurred on the date of determination, is
Creditworthy;  




            (c)              declare
or pay any dividend or make any other payment or distribution on account           of the
Company’s Common Stock or Common Stock Equivalents, other than the           Notes
(including, without limitation, any payment in connection with any merger           or
consolidation involving the Company) or to the direct or indirect holders of
          the Company’s Common Stock or Common Stock Equivalents, other than the
          Notes, in their capacity as such;  




            (d)              directly
or indirectly, create, incur, issue, assume, guarantee or otherwise           become
directly or indirectly liable, contingently or otherwise, with respect to
          (collectively, “incur”) any indebtedness the terms of which
          provide that it is to be senior in right or payment to or to rank pari
          passu with the Notes;  




            (e)              incur
any indebtedness the terms of which provide that it is to be subordinated           in
right of payment to the Notes or enter into lease transactions, in each case,
          in an amount greater than $250,000, except that this restriction shall not
apply           to lease transactions and other transactions entered into in the ordinary
course           of the Company’s business;  




            (f)              make
any loans or loan guarantees, except such loans to non-executive officers           or
persons who do not serve as directors of the Company as may be authorized
          pursuant to the terms of any equity incentive plan of the Company that has been
          approved by the board of directors of the Company as of the date hereof in
          accordance with applicable laws and regulations;  




            (g)              directly
or indirectly, create, incur, assume or suffer to exist any lien,           pledge,
charge, security interest, assignment or encumbrance of any kind           securing
indebtedness or trade payables on any property or asset now owned or           hereafter
acquired by the Company having a value greater than $250,000;  













            (h)              sell,
lease, convey or otherwise dispose of or encumber any property or asset           now
owned or hereafter acquired by the Company other than in the ordinary course           of
the Company’s business;  




            (i)              materially
alter the Company’s fiscal 2005 budget;  




            (j)              make
any payment to, or sell, lease, transfer or otherwise dispose of any of its
          properties or assets to, or purchase any property or assets from, or enter into
          or make or amend any transaction, contract, agreement, understanding, loan,
          advance or guarantee with, or for the benefit of, any of its (or its
          subsidiaries’) affiliates (as such term is defined in the Securities
          Exchange Act of 1934, as amended) except that this restriction shall not apply
          to any employment agreement in affect as of the date of this Agreement;  




            (k)              award
or pay any bonus to any executive officer or director in an amount greater           than
amounts paid by the Company in the ordinary course of business consistent           with
the past practice of the Company; or  




            (l)              maintain
on hand less than Five Million Five Hundred Thousand Dollars           ($5,500,000) in
cash and cash equivalents, except that this restriction shall           cease to apply on
such date as the Company shall have entered into a binding           agreement for the
joint development of Oxygent with a Qualified Third Party (as           defined below)
who, pursuant to such agreement, is obligated as of the date of           such agreement
either (i) to contribute cash in the amount of at least           $5,500,000 to the
formation of a joint venture or to make payments directly to           the Company as
license fees that are not contingent on the approval of Oxygent           for marketing
by any regulatory authority, (ii) to incur expenditures and/or           undertake
activities, in each case that are not contingent on the approval of           Oxygent for
marketing by any regulatory authority, and that result in an offset           to
expenditures that would otherwise be incurred by the Company in the aggregate
          amount of at least $5,500,000 over the life of the agreement, in each case to
          enable the Company to undertake clinical trials of Oxygent, or (iii) to
          undertake any combination of the foregoing such that such third party is
          obligated to make expenditures and/or undertake activities, in each case that
          are not contingent on the approval of Oxygent for marketing by any regulatory
          authority, and that result in an offset to expenditures that would otherwise be
          incurred by the Company in an aggregate amount of at least $5,500,000 over the
          life of the agreement and for the purpose of developing and/or commercializing
          Oxygent; upon the entry into force of any such agreement, the Company shall
          notify the members of the Lender Committee. Qualified Third party means any
          company having the appropriate capabilities and with annual sales of no less
          than $100 million and with an annual net worth of no less than $100 million.  




        4.13
    Budget. Each Lender Committee member shall execute a mutually agreeable
non-disclosure agreement evidencing such Lender Committee member’s obligation to
maintain the confidentiality of the Company’s material, non-public information prior
to reviewing the Company’s fiscal 2005 budget or any material change thereto. A
budget through the end of calendar year 2004 shall be agreed upon and approved in writing
by the Lender Committee concurrently with the execution of this Agreement, a copy of
which shall be retained by the Lender Committee in strict confidence. A budget for the
remainder of fiscal 2005 shall be submitted by the Company to the Lender Committee for
approval on or before November 30, 2004. The Lender Committee will work directly with the
audit committee of the Company in evaluating and approving the latter budget. Upon the
written approval of such budget for the remainder of fiscal 2005, the Lender Committee
shall retain a copy of such budget in strict confidence.  













        4.14
    Material Changes in Budget. With regard to approval of any proposed material
change to the fiscal 2005 budget in accordance with Section 4.12(i) above, the Lender
Committee will work directly with the audit committee of the Company in connection with
the evaluation and approval of any such change.  




        4.15
    Acts Not Constituting Breach of Restrictive Covenants. Notwithstanding anything to
the contrary set forth herein, no act or forbearance contemplated by the fiscal 2005
budget approved pursuant to Section 4.13 hereof or any material change to such fiscal
2005 budget, which such change is approved by the Lender Committee, shall constitute a
breach of any of the covenants set forth in Section 4.12 hereof.  




ARTICLE V.  
CONDITIONS
PRECEDENT TO CLOSING; TERMINATION  



        5.1
    Conditions Precedent to the Obligations of the Lenders to Purchase Notes. The
obligation of each Lender to acquire Notes at the Closing is subject to the satisfaction
or waiver by such Lender (solely for such Lender), at or before the Closing, of each of
the following conditions:  




            (a)    Representations
and Warranties. The representations and warranties made           by the Company in
ARTICLE III hereof qualified as to materiality shall be           true and correct
at all times prior to and on the Closing Date, except to the           extent any such
representation or warranty expressly speaks as of an earlier           date, in which
case such representation or warranty shall be true and correct as           of such
earlier date, and, the representations and warranties made by the           Company in
Section 3 hereof not qualified as to materiality shall be true and           correct in
all material respects at all times prior to and on the Closing Date,           except to
the extent any such representation or warranty expressly speaks as of           an
earlier date, in which case such representation or warranty shall be true and
          correct in all material respects as of such earlier date. The Company shall
have           performed in all material respects all obligations and conditions herein
          required to be performed or observed by it on or prior to the Closing Date;  




            (b)    Consents.
The Company shall have obtained any and all consents, permits,           approvals,
registrations and waivers necessary or appropriate for consummation           of the
purchase and sale of the Notes and the Conversion Shares and the           consummation
of the other transactions contemplated by the Transaction           Documents, all of
which shall be in full force and effect;  













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




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




            (e)    No
Suspensions of Trading in Common Stock; Listing. Trading in the Common
          Stock shall not have been suspended by the Commission or any Trading Market
          (except for any suspensions of trading of not more than one Trading Day solely
          to permit dissemination of material information regarding the Company) at any
          time since the date of execution of this Agreement, and the Common Stock shall
          have been at all times since such date listed for trading on a Trading Market;  




            (f)    Closing
Certificate. The Company shall have delivered a certificate,           executed on
behalf of the Company by its Chief Executive Officer or its Chief           Financial
Officer, dated as of the Closing Date, certifying to the fulfillment           of the
conditions specified in subsections (a), (b), (c), (d), and (e) of this Section 5.1;  




            (g)    Secretary’s
Certificate. The Company shall have delivered a           Certificate, executed on
behalf of the Company by its Secretary, dated as of the           Closing Date,
certifying the resolutions adopted by the Board of Directors of           the Company
approving the transactions contemplated by this Agreement and the           other
Transaction Documents and the issuance of the Notes and Conversion Shares,
          certifying the current versions of the Certificate of Incorporation and Bylaws
          of the Company and certifying as to the signatures and authority of persons
          signing the Transaction Documents and related documents on behalf of the
          Company; and  




           (h)    Company
Deliverables. The Company shall have delivered the Company           Deliverables in
accordance with Section 2.2(a).  




        5.2
    Conditions Precedent to the Obligations of the Company to sell Notes. The
obligation of the Company to sell Notes at the Closing is subject to the satisfaction or
waiver by the Company, at or before the Closing, of each of the following conditions:  




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




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




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













            (d)    Lenders
Deliverables. Each Lender shall have delivered its Lenders           Deliverables in
accordance with Section 2.2(b).  




        5.3
    Termination of Obligations to Effect Closing; Effects. 




            (a)              The
obligations of the Company, on the one hand, and the Lenders, on the other
          hand, to effect the Closing shall terminate as follows:  




               (i)              Upon
the mutual written consent of the Company and the Lenders;  




                (ii)              By
the Company if any of the conditions set forth in Section 5.2 shall           have
become incapable of fulfillment, and shall not have been waived by the           Company;
or  




                (iii)              By
any Lender (with respect to itself only) if any of the conditions set forth           in
Section 5.1 shall have become incapable of fulfillment, and shall not
          have been waived by the Lender.  




provided, however,
that, except in the case of clause (i) above, the party seeking to terminate its
obligation to effect the Closing shall not then be in breach of any of its
representations, warranties, covenants or agreements contained in this Agreement or the
other Transaction Documents if such breach has resulted in the circumstances giving rise
to such party’s seeking to terminate its obligation to effect the Closing. 



            (b)              In
the event of termination by the Company or any Lender of its obligations to
          effect the Closing pursuant to this Section 5.3, written notice thereof
          shall forthwith be given to the Lender Committee and the Lender Committee shall
          have the right to terminate the obligations of the Lenders to effect the
Closing           upon written notice to the Company and the other Lenders. Nothing in
this Section 5.3 shall be deemed to release any party from any liability for
          any breach by such party of the terms and provisions of this Agreement or the
          other Transaction Documents or to impair the right of any party to compel
          specific performance by any other party of its obligations under this Agreement
          or the other Transaction Documents.  




ARTICLE VI.  
SURVIVAL
AND INDEMNIFICATION.  



        6.1
    Survival. The representations, warranties, covenants and agreements contained in
this Agreement shall survive the Closing of the transactions contemplated by this
Agreement.  













        6.2
    Indemnification. The Company agrees to indemnify and hold harmless each Lender and
its Affiliates and their respective directors, officers, employees and agents from and
against any and all losses, claims, damages, liabilities and expenses (including without
limitation reasonable attorney fees and disbursements and other expenses incurred in
connection with investigating, preparing or defending any action, claim or proceeding,
pending or threatened and the costs of enforcement thereof) (collectively, “Losses”)
to which such Person may become subject as a result of any breach of representation,
warranty, covenant or agreement made by or to be performed on the part of the Company
under the Transaction Documents, and will reimburse any such Person for all such amounts
as they are incurred by such Person; provided, however, that no Indemnified Person shall
be entitled to bring a claim or claims for indemnification hereunder unless and until the
aggregate amount of such claim or claims equals or exceeds $50,000; provided, further,
however that the provisions of this Article VI shall not apply to any Loss based on an
alleged breach of fiduciary duty by the Board of Directors of the Company or any other
legal theory alleging a Loss due to the Rescission and Settlement Agreement.  




        6.3
    Conduct of Indemnification Proceedings. Promptly after
receipt by any Person (the “Indemnified Person”) of notice of any
demand, claim or circumstances which would or might give rise to a claim or the
commencement of any action, proceeding or investigation in respect of which indemnity may
be sought pursuant to Section 6.2, such Indemnified Person shall promptly notify
the Company in writing and the Company shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Person, and shall
assume the payment of all fees and expenses; provided, however,that
the failure of any Indemnified Person so to notify the Company shall not relieve the
Company of its obligations hereunder except to the extent that the Company is materially
prejudiced by such failure to notify. In any such proceeding, any Indemnified Person
shall have the right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Person unless: (i) the Company and the
Indemnified Person shall have mutually agreed to the retention of such counsel; or (ii)
in the reasonable judgment of counsel to such Indemnified Person (A) representation of
both parties by the same counsel would be inappropriate due to actual or potential
differing interests between them, or (B) one or more defenses is/are available to such
Indemnified Person that is/are not available to the Company. The Company shall not be
liable for any settlement of any proceeding effected without its written consent, which
consent shall not be unreasonably withheld, delayed or conditioned, but if settled with
such consent, or if there be a final judgment for the plaintiff, the Company shall
indemnify and hold harmless such Indemnified Person from and against any loss or
liability (to the extent stated above) by reason of such settlement or judgment. Without
the prior written consent of the Indemnified Person, which consent shall not be
unreasonably withheld, the Company shall not effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could have been a
party and indemnity could have been sought hereunder by such Indemnified Party, unless
such settlement includes an unconditional release of such Indemnified Person from all
liability arising out of such proceeding.  




ARTICLE VII.

MISCELLANEOUS  



        7.1
    Fees and Expenses. The payment of fees and expenses incurred in connection with
the preparation and negotiation of the Transaction Documents shall be governed by Section
17 of the Rescission and Settlement Agreement. In the event that legal proceedings are
commenced by any party to this Agreement against another party to this Agreement in
connection with this Agreement or the other Transaction Documents, the party or parties
which do not prevail in such proceedings shall severally, but not jointly, pay their pro
rata share of the reasonable attorneys’ fees and other reasonable out-of-pocket
costs and expenses incurred by the prevailing party or parties in such proceedings. The
Company shall pay all stamp and other taxes and duties levied in connection with the sale
of the Notes.  













        7.2
    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 and contemporaneous agreements,
understandings, discussions and representations, oral or written, with respect to such
matters, which the parties acknowledge have been merged into such documents, exhibits and
schedules.  




        7.3
    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 (provided the sender receives a
machine-generated confirmation of successful transmission) at the facsimile number
specified in this Section prior to 6:30 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 specified in this Section on a day that
is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, (c)
the 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
follows:  




	If to the Company:	Alliance Pharmaceutical Corp.
		6175 Lusk Boulevard
		San Diego, California 92121
		Facsimile No.: (858) 410-5201
		Telephone No.: (858) 410-5200
		Attention: Chief Financial Officer
	
With a copy to:	Foley & Lardner LLP
		402 W. Broadway
		San Diego, CA 92101
		Facsimile No.: (619) 234-3510
		Attention: Kenneth D. Polin, Esq.
	
If to an Lender:	To the address set forth under such Lender's name
		on the signature pages hereof;







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












        7.4
    Amendments; Waivers; No Additional Consideration. Except as expressly set forth
herein, no provision of this Agreement may be waived or amended except in a written
instrument signed by the Company and a majority of the members of the Lender Committee
except that any amendment or waiver affecting the principal amount, maturity date,
interest rate, designated currency, waiver of payment defaults, rights of the Holder to
institute suit for the enforcement of any payment, consent to the assignment or transfer
of the Company’s rights or obligations under the Note (other than as permitted under
Section 4.12 herein) or the amendment and waiver provisions hereof shall require the
consent of each Holder as affected. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of either
party to exercise any right hereunder in any manner impair the exercise of any such
right. No consideration shall be offered or paid to any Lender to amend or consent to a
waiver or modification of any provision of any Transaction Document unless the same
consideration is also offered to all Lenders who then hold Notes.  




        7.5
    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. This Agreement shall be construed as if drafted jointly by the
parties, and no presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any provisions of this Agreement or any of the
Transaction Documents.  




        7.6
    Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns. Any Lender may assign
any or all of its rights under this Agreement to any Person to whom such Lender assigns
or transfers any Notes, provided such transferee agrees in writing to be bound, with
respect to the transferred Notes, by the provisions hereof that apply to the “Lenders.” 




        7.7
    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 third party.  




        7.8
    Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of this Agreement 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 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, employees or agents) shall be commenced exclusively in the New
York Courts. Each party hereto hereby irrevocably submits to the exclusive jurisdiction
of the New York Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of the any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not
personally subject to the jurisdiction of any such New York Court, or that such
Proceeding has been commenced in an improper or inconvenient forum. Each party hereto
hereby irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or certified mail
or overnight delivery (with evidence of delivery) to such party at the address in effect
for notices to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein shall be
deemed to limit in any way any right to serve process in any manner permitted by law.
Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding arising out of
or relating to this Agreement or the transactions contemplated hereby. If either party
shall commence a Proceeding to enforce any provisions of a Transaction Document, then the
prevailing party in such Proceeding shall be reimbursed by the other party for its
reasonable attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Proceeding.  













        7.9
    Execution. This Agreement may be executed in two or more counterparts, all of
which when taken together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the other
party, it being understood that both parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission, such signature shall
create a valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such facsimile signature page
were an original thereof.  




        7.10
    Severability. If any provision of this Agreement is held to be invalid, illegal 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, legal and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.  




        7.11
    Replacement of Notes and Conversion Shares. If any certificate or instrument
evidencing any Note or Conversion Share 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 Notes
or Conversion Shares. If a replacement certificate or instrument evidencing any Notes or
Conversion Shares is requested due to a mutilation thereof, the Company may require
delivery of such mutilated certificate or instrument as a condition precedent to any
issuance of a replacement.  




        7.12
    Remedies. In addition to being entitled to exercise all rights provided herein or
granted by law, including recovery of damages, each of the Lenders 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.  













        7.13
    Independent Nature of Lenders’ Obligations and Rights. The obligations of
each Lender under any Transaction Document are several and not joint with the obligations
of any other Lender, and no Lender shall be responsible in any way for the performance of
the obligations of any other Lender under any Transaction Document. The decision of each
Lender to purchase Securities pursuant to the Transaction Documents has been made by such
Lender independently of any other Lender. Nothing contained herein or in any Transaction
Document, and no action taken by any Lender pursuant thereto, shall be deemed to
constitute the Lenders as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Lenders are in any way acting in concert
or as a group with respect to such obligations or the transactions contemplated by the
Transaction Documents. Except as set forth in Section 4.11, each Lender acknowledges that
no other Lender has acted as agent for such Lender in connection with making its
investment hereunder and that no Lender will be acting as agent of such Lender in
connection with monitoring its investment in the Securities or enforcing its rights under
the Transaction Documents. Each Lender 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
Lender to be joined as an additional party in any proceeding for such purpose. The
Company acknowledges that each of the Lenders has been provided with the same Transaction
Documents for the purpose of closing a transaction with multiple Lenders and not because
it was required or requested to do so by any Lender.  




        7.14
    Limitation of Liability. Notwithstanding anything herein to the contrary, the
Company acknowledges and agrees that the liability of a Lender arising directly or
indirectly, under any Transaction Document of any and every nature whatsoever shall be
satisfied solely out of the assets of such Lender, and that no trustee, officer, other
investment vehicle or any other Affiliate of such Lender or any investor, shareholder or
holder of shares of beneficial interest of such a Lender shall be personally liable for
any liabilities of such Lender.  




[Remainder of Page
Intentionally Left Blank]  










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





		ALLIANCE PHARMACEUTICAL CORP.
	

 	By:  _______________________________________
		        Name:    Duane Roth
		        Title:      Chief Executive Officer












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



		NAME OF LENDER
	

 	_______________________________________
	
 	AUTHORIZED SIGNATORY
	
 	By:_____________________________________
		      Name:
		      Title:
	
 	Loan Amount: $____________________________
	
 	ADDRESS FOR NOTICE
	
 	c/o:______________________________________
	
 	Street:____________________________________
	
 	City/State/Zip:______________________________
	
 	Attention:_________________________________
	
 	Tel:______________________________________
	
 	Fax:______________________________________
	

 	DELIVERY INSTRUCTIONS
		(if different from above)
	
 	c/o:______________________________________
	
 	Street:____________________________________
	
 	City/State/Zip:______________________________
	
 	Attention:_________________________________
	
 	Tel:______________________________________