Document:

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                                                                    Exhibit 10.1

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                   COMMON STOCK AND WARRANT PURCHASE AGREEMENT

                                   DATED AS OF

                                 AUGUST 13, 2003

                                  BY AND AMONG

              SPECTRUM PHARMACEUTICALS, INC., AS ISSUER AND SELLER
                                       AND

             EACH OF THE PARTIES LISTED ON SCHEDULE 1, AS PURCHASERS
                                 WITH RESPECT TO

        COMMON STOCK AND SERIES 2003-1 WARRANTS TO PURCHASE COMMON STOCK

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                         TABLE OF EXHIBITS AND SCHEDULES

<TABLE>
<S>                        <C>
Exhibit A                  Form of Series 2003-1 Common Stock Purchase Warrant
Exhibit B                  Form of Registration Rights Agreement

Schedule 1                 Purchasers
Schedule 3                 Schedule of Representations and Warranties of
                                 Spectrum Pharmaceuticals, Inc.
</TABLE>
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         COMMON STOCK AND WARRANT PURCHASE AGREEMENT (the "Agreement") dated as
of August 13, 2003, by and among Spectrum Pharmaceuticals, Inc., a Delaware
corporation (the "Seller"), and each of the persons listed on Schedule 1 hereto
(individually, "Purchaser" and collectively, the "Purchasers").

                                   WITNESSETH:

         WHEREAS, each of the Purchasers is willing to purchase from the Seller,
and the Seller desires to sell to the Purchasers, the numbers of shares set
forth on Schedule 1 attached hereto, which aggregate 762,040 shares (the
"Purchased Shares") of its common stock, $0.001 par value per share (the "Common
Stock"), at a price per share of $4.10, and Series 2003-1 Common Stock Purchase
Warrants (the "Series 2003-1 Warrants" or the "Warrants") entitling the holders
thereof to purchase up to an aggregate of 381,020 shares of the Seller's Common
Stock, at an exercise price of $4.75 per share (subject to adjustment as more
fully set forth herein and in the Warrants).

         NOW, THEREFORE, in consideration of the mutual promises and
representations, warranties, covenants and agreements set forth herein, the
parties hereto, intending to be legally bound, hereby agree as follows:

                          ARTICLE I - PURCHASE AND SALE

         1.1      PURCHASE AND SALE. On the terms and subject to the conditions
set forth in this Agreement, at the Closing (as defined in Section 2.2), the
Seller will sell and each of the Purchasers will purchase (i) the number of
Purchased Shares set forth on Schedule 1 hereto, and (ii) the number of Warrants
set forth on Schedule 1 hereto. The shares of Common Stock issuable upon
exercise of the Warrants are referred to herein as the "Warrant Shares." The
Purchased Shares, the Warrants and the Warrant Shares are collectively referred
to as the "Securities."

         1.2      TERMS OF THE WARRANTS. The terms and provisions of the
Warrants are more fully set forth in the Form of Series 2003-1 Common Stock
Purchase Warrant, in the form attached hereto as EXHIBIT A.

         1.3      TRANSFERS; LEGENDS.

                  (a)      Any of the Securities may be transferred, in whole or
in part, by any of the Purchasers at any time by delivering written transfer
instructions to the Seller, and the Seller shall reflect such transfer on its
books and records and reissue certificates evidencing the Securities being
transferred. The Seller hereby consents to and agrees to register on the books
of the Seller and with any transfer agent for the securities of the Seller any
transfer of Securities by a Purchaser to an Affiliate of such Purchaser. Any
transferee other than a purchaser of shares of Common Stock which have been
registered under the Securities Act shall have the rights of a Purchaser under
this Agreement and the Registration Rights Agreement. The Seller shall reissue
certificates evidencing the Securities upon surrender of certificates evidencing
the Securities being transferred in accordance with this Section 1.3(a). Any
such transfer shall be made by a Purchaser in accordance with applicable federal
and state securities laws and other applicable laws. An "Affiliate" means any
Person (as such term is defined below) that, directly or

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indirectly through one or more intermediaries, controls or is controlled by or
is under common control with a Person, as such terms are used in and construed
under Rule 144 under the Securities Act of 1933, as amended (the "Securities
Act"). With respect to a Purchaser, any investment fund or managed account that
is managed on a discretionary basis by the same investment manager as such
Purchaser will be deemed to be an Affiliate of such Purchaser. A "Person" means
any individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision of any thereof) or other
entity of any kind.

                  (b)      The certificates representing the Securities shall
bear a legend in substantially the following form:

                  "THE SECURITIES REPRESENTED BY, OR ACQUIRABLE UPON EXERCISE OF
                  SECURITIES EVIDENCED BY, THIS CERTIFICATE HAVE NOT BEEN
                  REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
                  MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
                  REGISTRATION STATEMENT UNDER SAID ACT UNLESS THE ISSUER OF
                  THIS CERTIFICATE RECEIVES AN OPINION OF LEGAL COUNSEL
                  REASONABLY ACCEPTABLE TO THE ISSUER AND ITS LEGAL COUNSEL THAT
                  SUCH SALE IS EXEMPT FROM REGISTRATION UNDER SUCH ACT AND IS IN
                  COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS
                  UNLESS SUCH REGISTRATION IS NOT REQUIRED."

                     ARTICLE II - PURCHASE PRICE AND CLOSING

         2.1      PURCHASE PRICE. The aggregate purchase price (the "Purchase
Price") to be paid by the Purchasers to the Seller to acquire the Purchased
Shares and the Warrants shall be the total amount set forth on Schedule 1
hereto.

         2.2      THE CLOSING. The closing of the transactions contemplated
under this Agreement (the "Closing") shall take place at the offices of Kane
Kessler, P.C., 1350 Avenue of the Americas, 26th Floor, New York, New York, on
the date hereof. The date on which the Closing occurs is herein called the
"Closing Date." All proceedings to be taken and all documents to be executed at
the Closing shall be deemed to have been taken, delivered and executed
simultaneously, and no proceeding shall be deemed taken nor documents deemed
executed or delivered until all have been taken, delivered and executed.

         2.3      DELIVERIES.

                  (A)      DELIVERIES BY THE SELLER. At the Closing, the Seller
shall deliver or cause to be delivered to each of the Purchasers the following:

                  1.       (i) One or more certificates evidencing the aggregate
                           number of Purchased Shares, duly authorized, issued,
                           fully paid and non-assessable, as is indicated on
                           Schedule 1 for such Purchaser, registered in the name
                           of

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                           such Purchaser, in such denominations as is indicated
                           on Schedule 1 for such Purchaser;

                           (ii) One or more Warrants in the form of EXHIBIT A
                           hereto, registered in the name of such Purchaser, in
                           such denominations as is indicated on Schedule 1 for
                           such Purchaser, pursuant to which such Purchaser
                           shall be entitled to purchase an aggregate of that
                           number of shares of Common Stock as is indicated on
                           Schedule 1 for such Purchaser.

                  2.       The Registration Rights Agreement, in the form
                           attached hereto as EXHIBIT B (the "Registration
                           Rights Agreement"), duly executed by the Seller.

                  3.       The legal opinion of Latham & Watkins LLP ("Seller's
                           Counsel"), counsel to the Seller, in form and
                           substance reasonably satisfactory to the Purchasers.

                  4.       A certificate of the Secretary of the Seller (the
                           "Secretary's Certificate"), in form and substance
                           satisfactory to the Purchasers, certifying as
                           follows:

                           (i)      that attached to the Secretary's Certificate
                                    is true and complete copy of the Certificate
                                    of Incorporation of the Seller together with
                                    all amendments thereto and all certificates
                                    of designation with respect to the preferred
                                    stock of the Seller;

                           (ii)     that a true copy of the Bylaws of the
                                    Seller, as amended to the Closing Date, is
                                    attached to the Secretary's Certificate;

                           (iii)    that attached to the Secretary's Certificate
                                    are true and complete copies of the
                                    resolutions of the Board of Directors of the
                                    Seller authorizing the execution, delivery
                                    and performance of this Agreement and the
                                    Related Documents (as defined below),
                                    instruments and certificates required to be
                                    executed by it in connection herewith and
                                    therewith and approving the consummation of
                                    the transactions in the manner contemplated
                                    hereby including, but not limited to, the
                                    authorization and issuance of the Purchased
                                    Shares,

                           (iv)     the names and true signatures of the
                                    officers of the Seller signing this
                                    Agreement and all other documents to be
                                    delivered in connection with this Agreement.

                  5.       A wire transfer representing the Purchasers'
                           reasonable legal fees and expenses as described in
                           Section 7.2 hereof; such fee may, at the election of
                           the Seller, be paid out of the funds due from the
                           Purchasers at the Closing.

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                  (B)      DELIVERIES BY THE PURCHASERS. At the Closing, each of
the Purchasers shall deliver or cause to be delivered to the Seller the
following:

                  1.       Payment of the purchase price set forth opposite such
                           Purchaser's name on Schedule 1, in cash by wire
                           transfer of immediately available funds to an account
                           designated in writing by Seller.

                  2.       The Registration Rights Agreement duly executed by
                           such Purchaser.

           ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE SELLER

         For purposes of this Article III, all references to the Seller and its
Subsidiaries shall be deemed to include all their respective predecessor
entities, if any. The Seller represents, warrants and covenants to the
Purchasers, except as set forth on the Schedule of Representations and
Warranties attached hereto as Schedule 3 specifically identifying the applicable
section of this Article III, it being understood that information disclosed
under a particular section of Schedule 3 shall be deemed disclosed only for
purposes of such section and not for purposes of or with respect to any other
section of this Article III, as of the date hereof, as follows:

         3.1      CORPORATE EXISTENCE AND POWER; SUBSIDIARIES. The Seller and
its Subsidiaries are corporations duly incorporated, validly existing and in
good standing under the laws of the state in which they are incorporated, and
have all corporate powers required to carry on their business as now conducted.
The Seller and its Subsidiaries are duly qualified to do business as a foreign
corporation and are in good standing in each jurisdiction where the character of
the property owned or leased by them or the nature of their activities makes
such qualification necessary, except for those jurisdictions where the failure
to be so qualified would not have a Material Adverse Effect on the Seller or any
of its Subsidiaries. For purposes of this Agreement, the term "Material Adverse
Effect" means, with respect to any person or entity, a material adverse effect
on its or its Subsidiaries' condition (financial or otherwise), business,
properties, assets, liabilities (including contingent liabilities), and results
of operations. True and complete copies of the Seller's Certificate of
Incorporation, as amended (including without limitation the Certificate of
Designation and Certificate of Increase with respect to the Series D Preferred
Stock (as hereinafter defined)), and Bylaws, as amended (collectively, the
"Charter" and Bylaws") have previously been provided to the Purchasers. For
purposes of this Agreement, the term "Subsidiary" or "Subsidiaries" means, with
respect to any entity, any corporation or other organization of which securities
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are
directly or indirectly owned by such entity or of which such entity is a partner
or is, directly or indirectly, the beneficial owner of 50% or more of any class
of equity securities or equivalent profit participation interests. The Seller
has no Subsidiaries other than as set forth in Exhibit 21 to the Seller's annual
report on Form 10-K for the fiscal year ended December 31, 2002.

         3.2      CORPORATE AUTHORIZATION; RIGHTS PLAN. (a) The execution,
delivery and performance by the Seller of this Agreement, the Warrants, the
Registration Rights Agreement and each of the other documents executed pursuant
to and in connection with this Agreement (the "Related Documents"), and the
consummation of the transactions contemplated hereby and thereby (including, but
not limited to, the sale and delivery of the Purchased Shares and the

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Warrants, and the subsequent issuance of the Warrant Shares upon exercise of the
Warrants) have been duly authorized, and no additional corporate action is
required for the approval of this Agreement or the Related Documents. The
Warrant Shares have been duly reserved for issuance by the Seller. This
Agreement and the Related Documents have been or, to the extent contemplated
hereby or by the Related Documents, will be duly executed and delivered and
constitute the legal, valid and binding agreement of the Seller, enforceable
against the Seller in accordance with their terms, except as may be limited by
bankruptcy, reorganization, insolvency, moratorium and similar laws of general
application relating to or affecting the enforcement of rights of creditors, and
except as enforceability of its obligations hereunder are subject to general
principles of equity.

                  (b)      The Purchased Shares issued and delivered to the
Purchasers at Closing are duly authorized, validly issued, fully paid and
non-assessable and free of restrictions on transfer other than applicable state
and federal securities laws. The Common Stock issuable upon exercise of the
Warrants has been duly and validly reserved for issuance, and upon issuance in
accordance with the terms of the Warrants, will be duly authorized, validly
issued, fully paid and non-assessable and free of restrictions on transfer other
than applicable federal and state securities laws and, assuming the accuracy of
the representations and warranties of the Purchasers, will be issued in
compliance with all applicable federal and state securities laws.

                  (c)      The issuance of the Purchased Shares, the Warrants
and the Warrant Shares, as applicable, will not result in or obligate the Seller
to (i) issue or offer to issue, with or without consideration, any securities or
rights to acquire any securities to any person, whether as a pre-emptive right,
or pursuant to any to rights plan, or pursuant to any agreement, undertaking or
other obligation of any nature, or (ii) adjust the number or kind of securities
held by or issuable (with or without the payment of any consideration) to any
person.

         3.3      CORPORATE RECORDS. The minute books of the Seller and its
Subsidiaries contain complete and accurate records of all meetings and other
corporate actions of the board of directors, committees of the board of
directors, incorporators and shareholders of the Seller and its Subsidiaries
from the date of their incorporation to the date hereof. All material corporate
decisions and actions have been validly made or taken. The Seller's share
transfer register complies with applicable laws and regulations and has been
regularly updated through the date hereof. Such books fully and correctly
reflect all the decisions of the shareholders. The Seller maintains complete and
correct books and records of the Seller and its Subsidiaries which fairly
present, in all material respects, the financial position and the results of
operations and cash flows of the Seller and its Subsidiaries as of the dates and
for the periods indicated therein, subject to customary and usual audit
adjustments consistently applied.

         3.4      GOVERNMENTAL AUTHORIZATION; NASD AND NASDAQ. (a) Except as
otherwise specifically contemplated in this Agreement and the Related Documents,
and except for: (i) the filing of the Registration Statement with the
Commission, and (ii) any filings required under SEC Regulation D or any state
securities laws that are permitted to be made after the date hereof, including
but not limited to filings pursuant to Section 25102(f) of the California
Corporate Securities Law of 1968, as amended, and the rules thereunder, the
execution, delivery and performance by the Seller of this Agreement and the
Related Documents, and the consummation of the transactions contemplated hereby
and thereby (including, but not limited to, the sale and

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delivery of the Purchased Shares and Warrants and the subsequent issuance of the
Warrant Shares upon exercise of the Warrants, as applicable) by the Seller
require no action by or in respect of, or filing with, any governmental body,
agency, official or authority.

                  (b)      The Seller will provide a Listing Notice, which shall
include true copies of this Agreement, the form of Warrant, and form of
Registration Rights Agreement, to the Nasdaq SmallCap Market with respect to the
Warrant Shares.

         3.5      NON-CONTRAVENTION. The execution, delivery and performance by
the Seller and its Subsidiaries, as applicable, of this Agreement and the
Related Documents, and the consummation by the Seller of the transactions
contemplated hereby and thereby (including, but not limited to, the issuance of
the Warrant Shares) do not and will not (a) violate or conflict with the Charter
and Bylaws of the Seller and its Subsidiaries or any material agreement (which,
for purposes of this Agreement, means any agreement, contract or other document
which the Seller would be required to disclose pursuant to SEC Regulation S-K,
Item 601, Exhibits 1, 2, 3, 4, 9 or 10) to which the Seller or any of its
Subsidiaries is a party or bound; (b) violate or conflict with or constitute a
material violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to the Seller or any of
its Subsidiaries; (c) constitute a default under or give rise to a right of
termination, cancellation or acceleration or loss of any benefit under any
material agreement, contract or other instrument binding upon the Seller or any
of its Subsidiaries or under any material license, franchise, permit or other
similar authorization held by the Seller or any of its Subsidiaries; or (d)
result in the creation or imposition of any Lien (as defined below) on any
material asset of the Seller or any of its Subsidiaries. For purposes of this
Agreement, the term "Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest, claim or encumbrance of any kind in respect
of such asset.

         3.6      SEC DOCUMENTS. The Seller is obligated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") to file reports pursuant
to Sections 13 and 15(d) thereof (all such reports filed or required to be filed
by the Seller, including all exhibits thereto or incorporated therein by
reference, and all documents filed by the Seller under the Securities Act are
hereinafter called the "SEC Documents"). The Seller has filed all reports or
other documents required to be filed under the Exchange Act. All SEC Documents
filed by the Seller (i) were prepared in all material respects in accordance
with the requirements of the Exchange Act and the Securities Act and (ii) did
not at the time they were filed (or, if amended or superseded by a filing prior
to the date hereof, then on the date of such filing) contain any untrue
statement of a material fact or omit 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 Seller has
previously delivered to the Purchaser a correct and complete copy of each report
which the Seller filed with the Securities and Exchange Commission (the "SEC" or
the "Commission") under the Exchange Act for any period ending on or after
December 31, 2001 (the "Recent Reports," which term includes all exhibits
thereto and all exhibits and other information incorporated by reference into
the Recent Reports) other than those Recent Reports, if any, which have been
filed via the SEC's EDGAR filing system; Schedule 3.6 identifies all Recent
Reports which have not been filed via the SEC's EDGAR filing system. All of the
information about the Seller or its Subsidiaries which has been disclosed to the
Purchasers herein or in the course of discussions and negotiations with respect
hereto which is material to the Seller has been disclosed in the Recent Reports.

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         3.7      FINANCIAL STATEMENTS. Each of the Seller's consolidated
balance sheet and related consolidated statements of income, cash flows and
changes in stockholders' equity (including the related notes), as contained in
the Recent Reports (collectively, the "Seller's Financial Statements" or the
"Financial Statements") (x) present fairly in all material respects the
financial position of the Seller and its consolidated Subsidiaries as of the
dates thereof and the results of operations, cash flows and stockholders' equity
as of and for each of the periods then ended, except that any unaudited
financial statements are subject to normal year-end adjustments, and (y) were
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved, in each case,
except as otherwise indicated in the notes thereto.

         3.8      COMPLIANCE WITH LAW. The Seller and its Subsidiaries are in
compliance and have conducted their business so as to comply in all respects
with all laws, rules and regulations, judgments, decrees or orders of any court,
administrative agency, commission, self regulatory organization, regulatory
authority or other governmental authority or instrumentality, domestic or
foreign, applicable to its operations except as in each case could not in the
aggregate have or result in a Material Adverse Effect. There are no judgments or
orders, injunctions, decrees, stipulations or awards (whether rendered by a
court or administrative agency or by arbitration), including any such actions
relating to affirmative action claims or claims of discrimination, against the
Seller or its Subsidiaries or against any of their properties or businesses.

         3.9      NO DEFAULTS. The Seller and its Subsidiaries are not, nor will
they be with the passage of time, giving of notice, or both, (i) in violation of
any provision of their Charter and Bylaws (ii) in default or violation of any
term, condition or provision of (A) any judgment, decree, order, injunction or
stipulation applicable to the Seller or its Subsidiaries or (B) any material
agreement, note, mortgage, indenture, contract, lease or instrument, permit,
concession, franchise or license to which the Seller or its Subsidiaries are a
party or by which the Seller or its Subsidiaries or their properties or assets
may be bound, and no circumstances exist which would entitle any party to any
material agreement, note, mortgage, indenture, contract, lease or instrument to
which such Seller or its Subsidiaries are a party, to terminate such as a result
of such Seller or its Subsidiaries, having failed to meet any provision thereof
including, but not limited to, meeting any applicable milestone under any
material agreement or contract.

         3.10     LITIGATION. Except as disclosed in Item 3 of the Seller's
Annual Report on Form 10-K for the year ended December 31, 2002, there is no
action, suit, proceeding, judgment, claim or investigation pending or, to the
best knowledge of the Seller, threatened against the Seller and any of its
Subsidiaries which could, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Seller or its Subsidiaries.
There is no action, suit, proceeding, judgment, claim or investigation pending
or, to the best knowledge of the Seller, threatened, which in any manner
challenges or seeks to prevent, enjoin, alter or materially delay any of the
transactions contemplated hereby, and, to the Seller's knowledge, there is no
basis for the assertion of any of the foregoing. There are no claims or
complaints existing or, to the knowledge of the Seller or its Subsidiaries,
threatened for product liability in respect of any product of the Seller or its
Subsidiaries, and the Seller and its Subsidiaries are not aware of any basis for
the assertion of any such claim.

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         3.11     ABSENCE OF CERTAIN CHANGES. Since December 31, 2002, the
Seller has conducted its business only in the ordinary course and there has not
occurred, except as set forth in the Recent Reports:

                  (a)      Any event that could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on the
Seller or any of its Subsidiaries;

                  (b)      Any amendments or changes in the Charter or Bylaws of
the Seller and its Subsidiaries, other than on account of the filing of the
Certificate of Designation and Certificate of Increase with respect to the
Series D Preferred Stock;

                  (c)      Any damage, destruction or loss, whether or not
covered by insurance, that would, individually or in the aggregate, have a
Material Adverse Effect on the Seller and its Subsidiaries;

                  (d)      Any

                           (i)      incurrence, assumption or guarantee by the
                                    Seller or its Subsidiaries of any debt for
                                    borrowed money (other than for equipment
                                    leases or working capital lines of credit);

                           (ii)     issuance or sale of any securities
                                    convertible into or exchangeable for
                                    securities of the Seller other than (A)
                                    issuances or sales to directors, employees
                                    and consultants pursuant to existing equity
                                    compensation or stock purchase plans of the
                                    Seller in accordance with past business
                                    practices, and (B) the sale of an aggregate
                                    of 600 shares of Series D Preferred Stock,
                                    Series D-1 Warrants and Series D-2 Warrants,
                                    and the issuance of Series D-3 Warrants to
                                    certain persons in connection with such
                                    sales of Series D Preferred Stock, Series
                                    D-1 Warrants and Series D-2 Warrants;

                           (iii)    issuance or sale of options or other rights
                                    to acquire from the Seller or its
                                    Subsidiaries, directly or indirectly,
                                    securities of the Seller or any securities
                                    convertible into or exchangeable for any
                                    such securities, other than (A) options
                                    issued to directors, employees and
                                    consultants in the ordinary course of
                                    business pursuant to existing equity
                                    compensation or stock purchase plans of the
                                    Seller in accordance with past practices,
                                    and (B) the sale of an aggregate of 600
                                    shares of Series D Preferred Stock, Series
                                    D-1 Warrants and Series D-2 Warrants, and
                                    the issuance of Series D-3 Warrants to
                                    certain persons in connection with such
                                    sales of Series D Preferred Stock, Series
                                    D-1 Warrants and Series D-2 Warrants;

                           (iv)     issuance or sale of any stock, bond or other
                                    corporate security other than (A) options
                                    issued to directors, employees and
                                    consultants in the ordinary course of
                                    business pursuant to existing equity
                                    compensation or stock purchase plans of the
                                    Seller in accordance with past practices,
                                    and (B) the sale of an aggregate of

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                                    600 shares of Series D Preferred Stock,
                                    Series D-1 Warrants and Series D-2 Warrants,
                                    and the issuance of Series D-3 Warrants to
                                    certain persons in connection with such
                                    sales of Series D Preferred Stock, Series
                                    D-1 Warrants and Series D-2 Warrants;

                           (v)      declaration or making any dividend, payment
                                    or other distribution to shareholders or
                                    purchase or redemption of any share of its
                                    capital stock or other security other than
                                    with respect to the Series D Preferred
                                    Stock;

                           (vi)     sale, assignment or transfer any of its
                                    intangible assets except in the ordinary
                                    course of business, or cancellation of any
                                    debt or claim except in the ordinary course
                                    of business all in accordance with past
                                    practices;

                           (vii)    waiver of any right of substantial value
                                    whether or not in the ordinary course of
                                    business;

                           (viii)   material change in officer compensation; or

                           (ix)     other commitment (contingent or otherwise)
                                    to do any of the foregoing.

                  (e)      Any creation, sufferance or assumption by the Seller
or any of its Subsidiaries of any Lien on any asset or any making of any loan,
advance or capital contribution to or investment in any Person in an aggregate
amount which exceeds $25,000 outstanding at any time;

                  (f)      Any entry into, amendment of, relinquishment,
termination or non-renewal by the Seller or its Subsidiaries of any material
contract, license, lease, transaction, commitment or other right or obligation,
other than in the ordinary course of business; or

                  (g)      Any transfer or grant of a right with respect to the
patents, patent applications, patent licenses, trademarks, trade names, service
marks, trade secrets, copyrights or other intellectual property rights owned or
licensed by the Seller or its Subsidiaries, except as among the Seller and its
Subsidiaries.

         3.12     NO UNDISCLOSED LIABILITIES. The Seller and its Subsidiaries do
not have any direct or indirect indebtedness, liabilities, claim, loss, damage,
deficiency, obligation or responsibility, known or unknown, fixed or unfixed,
choate or inchoate, liquidated or unliquidated, secured or unsecured, absolute,
accrued, contingent or otherwise, whether or not of a kind required by GAAP to
be set forth in financial statements, including but not limited to off-balance
sheet financings, guarantees and similar transactions ("Liabilities") which are
not fully and adequately reflected in the Financial Statements. To the knowledge
of the Seller, there are no existing circumstances, conditions, events or
arrangements which may hereafter give rise to any Liabilities of the Seller or
its Subsidiaries except in the ordinary course of business.

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         3.13     TAXES. All tax returns and tax reports required to be filed
with respect to the income, operations, business or assets of the Seller and its
Subsidiaries have been timely filed (or appropriate extensions have been
obtained) with the appropriate governmental agencies in all jurisdictions in
which such returns and reports are required to be filed, and all of the
foregoing as filed are correct and complete and, in all material respects,
reflect accurately all liability for taxes of the Seller and its Subsidiaries
for the periods to which such returns relate, and all amounts shown as owing
thereon have been paid. All income, profits, franchise, sales, use, value added,
occupancy, property, excise, payroll, withholding, FICA, FUTA and other taxes
(including interest and penalties), if any, collectible or payable by the Seller
and its Subsidiaries or relating to or chargeable against any of its material
assets, revenues or income or relating to any employee, independent contractor,
creditor, stockholder or other third party through the Closing Date, were fully
collected and paid by such date if due by such date or provided for by adequate
reserves in the Financial Statements as of and for the periods ended December
31, 2002 (other than taxes accruing after such date) and all similar items due
through the Closing Date will have been fully paid by that date or provided for
by adequate reserves, whether or not any such taxes were reported or reflected
in any tax returns or filings. No taxation authority has sought to audit the
records of the Seller or any of its Subsidiaries for the purpose of verifying or
disputing any tax returns, reports or related information and disclosures
provided to such taxation authority, or for the Seller's or any of its
Subsidiaries' alleged failure to provide any such tax returns, reports or
related information and disclosure. To the knowledge of Seller and its
Subsidiaries, no material claims or deficiencies have been asserted against or
inquiries raised with the Seller or any of its Subsidiaries with respect to any
taxes or other governmental charges or levies which have not been paid or
otherwise satisfied, including claims that, or inquiries whether, the Seller or
any of its Subsidiaries has not filed a tax return that it was required to file,
and there exists no reasonable basis for the making of any such claims or
inquiries. Neither the Seller nor any of its Subsidiaries has waived any
restrictions on assessment or collection of taxes or consented to the extension
of any statute of limitations relating to taxation. Neither the Seller nor any
of its Subsidiaries is a party to any tax sharing or indemnification agreement,
and none of them is liable for the taxes of any other Person (other than
Subsidiaries) whether as a transferee, successor, by contract or otherwise.

         3.14     INTERESTS OF OFFICERS, DIRECTORS AND OTHER AFFILIATES. The
description of any material interest held, directly or indirectly, by any
officer, director or other Affiliate of Seller in any property, real or
personal, tangible or intangible, used in or pertaining to Seller's business,
including any interest in the Seller's Intellectual Property (as defined in
Section 3.15 hereof), as set forth in the Recent Reports, is true and complete,
and no officer, director or, to the Seller's knowledge, other Affiliate of the
Seller has any interest in any property, real or personal, tangible or
intangible, used in or pertaining to the Seller's business, including the
Seller's Intellectual Property, other than as set forth in the Recent Reports.

         3.15     INTELLECTUAL PROPERTY. Other than as set forth in the Recent
Reports: (a) the Seller or a Subsidiary thereof has the right to use or is the
sole and exclusive owner of all right, title and interest in and to all foreign
and domestic patents, patent rights, patent applications, trademarks, service
marks, trade names, brands and copyrights (whether or not registered and, if
applicable, including pending applications for registration) owned, used or
controlled by the Seller and its Subsidiaries (collectively, the "Rights") and
in and to each material invention, software, trade secret, technology, product,
composition, formula, method of process used by the

                                       10
<PAGE>
Seller and any intangible property and assets that are material to the business
of the Seller or its Subsidiaries (the Rights and such other items, the
"Intellectual Property"), and has the right to use the same, free and clear of
any claim or conflict with the rights of others; (b) no royalties or fees
(license or otherwise) are payable by the Seller or its Subsidiaries to any
Person by reason of the ownership or use of any of the Intellectual Property
except as set forth on Schedule 3.15; (c) to the Seller's knowledge, there have
been no claims made against the Seller or any Subsidiary asserting the
invalidity, abuse, misuse, or unenforceability of any of the Intellectual
Property, and, to each of their knowledge, there are no reasonable grounds for
any such claims; (d) neither the Seller nor any subsidiary has made any claim of
any violation or infringement by others of its rights in the Intellectual
Property, and to the best of their knowledge, no reasonable grounds for such
claims exist; and (e) neither the Seller nor any Subsidiary has received any
notice that it is in conflict with or infringing upon the asserted rights of
others in connection with the Intellectual Property, and to the best of their
knowledge, no reasonable grounds for such claims exist. Each of the Seller and
its Subsidiaries has taken security measures designed to enable it to assert
trade secret protection in its non-patented technology.

         3.16     RESTRICTIONS ON BUSINESS ACTIVITIES. Other than as set forth
in the Recent Reports, there is no agreement, judgment, injunction, order or
decree binding upon the Seller or its Subsidiaries which has or could reasonably
be expected to have the effect of prohibiting or materially impairing any
business practice of the Seller or its Subsidiaries, any acquisition of property
by the Seller or its Subsidiaries or the conduct of business by the Seller or
its Subsidiaries as currently conducted or as currently proposed to be conducted
by the Seller.

         3.17     PREEMPTIVE RIGHTS. No Person possesses any preemptive rights,
registration rights or anti-dilution rights, in respect of the Purchased Shares
or the Warrant Shares to be issued to the Purchasers upon exercise of the
Warrants.

         3.18     INSURANCE. The insurance policies providing insurance coverage
to the Seller or its Subsidiaries, including for product liability, provide
adequate and customary coverage for the business conducted by the Seller and its
Subsidiaries and are sufficient for compliance by the Seller and its
Subsidiaries with all requirements of law and all material agreements to which
the Seller or its Subsidiaries are a party or by which any of their assets are
bound. All of such policies are with financially sound and reputable insurers
having an "A" rating or better from Best's Rating Service (or any successor
thereto), are in full force and effect and are valid and enforceable in
accordance with their terms, and the Seller and its Subsidiaries have complied
with all material terms and conditions of such policies, including premium
payments. None of the insurance carriers has indicated to the Seller or its
Subsidiaries an intention to cancel any such policy.

         3.19     SUBSIDIARIES AND INVESTMENTS. Except as set forth in the
Recent Reports or on Schedule 3.19, the Seller has no Subsidiaries or
Investments. For purposes of this Agreement, the term "Investments" shall mean,
with respect to any Person, all advances, loans or extensions of credit to any
other Person, all purchases or commitments to purchase any stock, bonds, notes,
debentures or other securities of any other Person, and any other investment in
any other Person, including partnerships or joint ventures (whether by capital
contribution or otherwise) or other similar arrangement (whether written or
oral) with any Person, including but not limited to arrangements in which (i)
the Person shares profits and losses, (ii) any such other Person has the

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<PAGE>
right to obligate or bind the Person to any third party, or (iii) the Person may
be wholly or partially liable for the debts or obligations of such partnership,
joint venture or other arrangement.

         3.20     CAPITALIZATION. The authorized capital stock of the Seller
consists of 50,000,000 shares of common stock, $0.001 par value per share, of
which 3,357,436 shares are issued and outstanding as of the date hereof, and
5,000,000 shares of preferred stock, issuable in one or more classes or series,
with such relative rights and preferences as the Board of Directors may
determine, none of which has been authorized for issuance or designated and
provided with terms, other than as follows:

                  400 shares have been designated 5% Series A Preferred Stock,
                           of which no shares are outstanding and as to which
                           there is no obligation (including any contingent
                           obligation) to issue any such shares;

                  200,000 shares have been designated Series B Junior
                           participating Preferred Stock, of which no shares are
                           outstanding and as to which there is no obligation
                           (including any contingent obligation) to issue any
                           such shares, other than pursuant to the Rights
                           Agreement by and between the Seller and U.S. Stock
                           Transfer Corporation (the "Rights Plan");

                  200 shares have been designated 7% Series C Preferred Stock,
                           of which no shares are outstanding and as to which
                           there is no obligation (including any contingent
                           obligation) to issue any such shares;

                  600 shares have been designated Series D 8% Cumulative
                           Convertible Voting Preferred Stock, all of which were
                           issued on or about May 7 and May 13, 2003, of which
                           577 shares remain outstanding immediately prior to
                           the execution of this Agreement.

All shares of the Seller's issued and outstanding capital stock have been duly
authorized, are validly issued and outstanding, and are fully paid and
nonassessable. No securities issued by the Seller from January 1, 2000, to the
date hereof were issued in violation of any statutory, contractual or common law
preemptive rights. There are no dividends which have accrued or been declared
but are unpaid on the capital stock of the Seller. All taxes required to be paid
by Seller in connection with the issuance and any transfers of the Seller's
capital stock have been paid. All permits or authorizations required to be
obtained from or registrations required to be effected with any Person in
connection with any and all issuances of securities of the Seller from January
1, 2000, to the date hereof have been obtained or effected, and all securities
of the Seller issued on or after January 1, 2000, have been issued in accordance
with the provisions of all applicable securities or other laws.

         3.21     OPTIONS, WARRANTS, RIGHTS. Except as set forth on Schedule
3.21, there are no outstanding (a) securities, notes or instruments convertible
into or exercisable for any of the capital stock or other equity interests of
the Seller or its Subsidiaries; (b) options, warrants, subscriptions or other
rights to acquire capital stock or other equity interests of the Seller or its
Subsidiaries; or (c) commitments, agreements or understandings of any kind,
including employee

                                       12
<PAGE>
benefit arrangements, relating to the issuance or repurchase by the Seller or
its Subsidiaries of any capital stock or other equity interests of the Seller or
its Subsidiaries, any such securities or instruments convertible into or
exercisable for securities or any such options, warrants or rights. Other than
the rights of the Purchasers under the Warrants, and except as set forth on
Schedule 3.21, neither the Seller nor any Subsidiary has granted anti-dilution
rights to any person or entity in connection with any option, warrant,
subscription or any other instrument convertible into or exercisable for the
securities of the Seller or any of its Subsidiaries. Other than pursuant to the
rights granted to the Purchasers under the Registration Rights Agreement, there
are no outstanding rights which permit the holder thereof to cause the Seller or
the Subsidiaries to file a registration statement under the Securities Act or
which permit the holder thereof to include securities of the Seller or any of
its Subsidiaries in a registration statement filed by the Seller or any of its
Subsidiaries under the Securities Act, and there are no outstanding agreements
or other commitments which otherwise relate to the registration of any
securities of the Seller or any of its Subsidiaries for sale or distribution in
any jurisdiction, except as set forth on Schedule 3.21.

         3.22     EMPLOYEES, EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS.
(a) Except as set forth in the Recent Reports or on Schedule 3.22, there are no
employment, consulting, severance or indemnification arrangements, agreements,
or understandings between the Seller or its Subsidiaries and any officer,
director, consultant or employee of the Seller or its Subsidiaries (the
"Employment Agreements"). No Employment Agreement provides for the acceleration
or change in the award, grant, vesting or determination of options, warrants,
rights, severance payments, or other contingent obligations of any nature
whatsoever of the Seller or its Subsidiaries in favor of any such parties in
connection with the transactions contemplated by this Agreement. Except as
disclosed in the Recent Reports or on Schedule 3.22, the terms of employment or
engagement of all directors, officers, employees, agents, consultants and
professional advisors of the Seller and its Subsidiaries are such that their
employment or engagement may be terminated upon not more than two weeks' notice
given at any time without liability for payment of compensation or damages and
the Seller and its Subsidiaries have not entered into any agreement or
arrangement for the management of their business or any part thereof other than
with their directors or employees.

                  (b)      Except as set forth on Schedule 3.22, the Seller and
its Subsidiaries have no pension, retirement, stock purchase, stock bonus, stock
ownership, stock option, profit sharing, savings, medical, disability,
hospitalization, insurance, deferred compensation, bonus, incentive, welfare or
any other employee benefit plan, policy, agreement, commitment, arrangement or
practice currently or previously maintained or contributed to by the Seller or
its Subsidiaries for any of its directors, officers, consultants, employees or
former employees (the "Seller Plans"). The Seller has previously made available
to Purchaser, to the extent applicable, (i) a true and complete copy of all of
the Seller Plans (or, if oral, a true and complete written summary thereof);
(ii) a current summary plan description (plus summaries of any subsequent
modifications thereto) for each Seller Plan; (iii) the latest IRS determination
letter obtained with respect to any Seller Plan qualified under Section 401 or
501 of the Code; and (iv) Forms 5500 for the last three (3) plan years for each
Seller Plan required to file such form. Except as set forth on Schedule 3.22,
none of the Seller Plans is subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and, except as set forth on Schedule 3.22,
neither the Seller nor any of its Subsidiaries has established, maintained, made
or been required to make any contributions to, or terminated, and has no
liability with respect to, any "employee benefit

                                       13
<PAGE>
plan" within the meaning of ERISA. The Seller and its Subsidiaries have not
incurred any liability to the Pension Benefit Guaranty Corporation (the "PBGC"),
and, to the Seller's knowledge, no facts or circumstances exist which might give
rise to any liability of the Seller or its Subsidiaries to the PBGC or which
could reasonably be anticipated to result in any claims being made against the
Purchaser, the Seller or their Subsidiaries by the PBGC. To the Seller's
knowledge, no facts or circumstances exist which might give rise to any
liability of any Seller Plan to any other Person, other than in the ordinary
course of the Seller's business. The Seller and its Subsidiaries have paid all
amounts required under applicable law and any Seller Plan to be paid as a
contribution to any Seller Plan through the date hereof. The Seller has set
aside adequate reserves to meet contributions which are not yet due under any
Seller Plan. Neither the Seller, nor its Subsidiaries nor, to the Seller's
knowledge, any other Person has engaged in any transaction with respect to any
Seller Plan which would subject the Seller to any tax, penalty or liability for
prohibited transactions. No director, officer or employee of the Seller or its
Subsidiaries, to the extent he or she is a fiduciary with respect to any Seller
Plan, has breached any of his/her responsibilities or obligations imposed upon
fiduciaries or which could result in any claim being made under, by or on behalf
of any Seller Plan. No Seller Plan provides post-employment medical, health, or
life insurance benefits for present or future retirees or present or future
terminated employees, except for continuation coverage provided pursuant to the
requirements of Section 4980B of the Code or Sections 601-608 of ERISA or a
similar state law.

                  (c)      No material labor dispute with employees of the
Seller exists or, to the best knowledge of the Seller is imminent.

         3.23     ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Seller, nor
any Affiliate of the Seller (including, but not limited to, its Subsidiaries),
nor any agent or employee of the Seller, any other Person acting on behalf of or
associated with the Seller, or any individual related to any of the foregoing
Persons, acting on behalf of the Seller alone or together, has: (a) received,
directly or indirectly, any rebates, payments, commissions, promotional
allowances or any other economic benefits, regardless of their nature or type,
from any customer, supplier, trading company, shipping company, governmental
employee or other Person with whom the Seller or its Subsidiaries has done
business directly or indirectly; or (b) directly or indirectly, given or agreed
to give any gift or similar benefit to any customer, supplier, trading company,
shipping company, governmental employee or other Person who is or may be in a
position to help or hinder the business of the Seller or its Subsidiaries (or
assist the Seller or its Subsidiaries in connection with any actual or proposed
transaction) which (i) may subject the Seller or its Subsidiaries to any damage
or penalty in any civil, criminal or governmental litigation or proceeding, (ii)
if not given in the past, may have had an adverse effect on the Seller or its
Subsidiaries or (iii) if not continued in the future, may adversely affect the
assets, business, operations or prospects of the Seller or its Subsidiaries or
subject the Seller or its Subsidiaries to suit or penalty in any private or
governmental litigation or proceeding.

         3.24     PRODUCTS AND SERVICES. There exists no set of facts (i) which
could furnish a basis for the withdrawal, suspension or cancellation of any
registration, license, permit or other governmental approval or consent of any
governmental or regulatory agency issued to the Seller with respect to any
component of any product being developed by, or that is material to and used by,
the Seller or its Subsidiaries, or (ii) which could have a Material Adverse
Effect on the continued development of any product candidate of the Seller or
its Subsidiaries or which could

                                       14
<PAGE>
otherwise cause the Seller or its Subsidiaries to withdraw, suspend or cancel
development of any such product, it being understood that the Seller is not
presently offering any product or service for sale and has never in the past
offered any product or service for sale, and that the Seller's product
candidates will require, before they can be offered for commercial sale, certain
governmental or regulatory licenses, permits or approvals which have not been
issued.

         3.25     ENVIRONMENTAL MATTERS. None of the premises or any other
property owned, occupied or leased by the Seller or its Subsidiaries (the
"Premises") in the past has been used by the Seller or its Subsidiaries, or to
the Seller's knowledge, by any other Person, to manufacture, treat, utilize,
store, or dispose of any waste, pollutant or toxic or hazardous substance
(including, without limitation, asbestos, radioactive material and pesticides)
or any other substance that has been designated to be a "hazardous substance"
under Environmental Laws ("Hazardous Substances") other than substances
customarily used in the Seller's or its Subsidiaries' businesses and in
accordance with applications laws and regulations. The Seller and its
Subsidiaries have not disposed of, discharged, emitted or released any Hazardous
Substances which would require, under applicable Environmental Laws,
remediation, investigation or similar response activity. No Hazardous Substances
are present as a result of the actions of the Seller or its Subsidiaries or, to
the Seller's or its Subsidiaries' knowledge, any other Person, in, on or under
the Premises which would give rise to any liability or clean-up obligations of
the Seller or its Subsidiaries under applicable Environmental Laws. The Seller
and its Subsidiaries and, to the Seller's and its Subsidiaries' knowledge, any
other Person for whose conduct it may be responsible, are in material compliance
with all laws, regulations and other federal, state or local governmental
requirements, and all applicable judgments, orders, writs, notices, decrees,
permits, licenses, approvals, consents or injunctions in effect on the
applicable Closing Date relating to the generation, management, handling,
transportation, treatment, disposal, storage, delivery, discharge, release or
emission of any waste, pollutant or toxic or hazardous substance (including,
without limitation, asbestos, radioactive material and pesticides) or to any
other actions, omissions or conditions affecting the environment (the
"Environmental Laws"). Neither the Seller nor its Subsidiaries nor, to the
Seller's or its Subsidiaries' knowledge, any other Person for whose conduct it
may be responsible has received any complaint, notice, order, or citation of any
actual, threatened or alleged noncompliance with any of the Environmental Laws,
and there is no proceeding, suit or investigation pending or, to the Seller's or
its Subsidiaries knowledge, threatened against the Seller or its Subsidiaries or
any such Person with respect to any violation or alleged violation of the
Environmental Laws, and there is no basis for the institution of any such
proceeding, suit or investigation.

         3.26     LICENSES; COMPLIANCE WITH FDA AND OTHER REGULATORY
REQUIREMENTS.

                  (A)      GENERAL. The Seller and its Subsidiaries hold all
authorizations, consents, approvals, franchises, licenses and permits required
under applicable law or regulation for the operation of the business of the
Seller and its Subsidiaries as presently operated (the "Governmental
Authorizations"). All the Governmental Authorizations have been duly issued or
obtained and are in full force and effect, and the Seller and its Subsidiaries
are in compliance with the terms of all the Governmental Authorizations. The
Seller and its Subsidiaries have not engaged in any activity that could cause
revocation or suspension of any such Governmental Authorizations. The Seller and
its Subsidiaries have no knowledge of any facts which could reasonably be
expected to cause them to believe that the Governmental Authorizations will not

                                       15
<PAGE>
be renewed by the appropriate governmental authorities in the ordinary course.
Neither the execution, delivery nor performance of this Agreement will adversely
affect the status of any of the Governmental Authorizations.

                  (B)      FDA. Without limiting the generality of the
representations and warranties made in paragraph (a) above, the Seller
represents and warrants that (i) the Seller and each of its Subsidiaries is in
compliance in all material respects with all applicable provisions of the United
States Federal Food, Drug, and Cosmetic Act (the "FDC Act"), (ii) the Seller and
each of its Subsidiaries is in compliance with the following specific
requirements: (A) all of the products used by the Seller and its Subsidiaries
comply in all material respects with any conditions of approval and the terms of
the applications, if any, submitted by or on behalf of the Seller to the United
States Food and Drug Administration (the "FDA"); (B) all adverse events that
were required to be reported by Seller or its Subsidiaries to the FDA have been
reported to the FDA in a timely manner; (C) neither the Seller nor any of its
Subsidiaries is, to their knowledge, employing or utilizing the services of any
individual who has been debarred under the FDC Act; (D) all stability studies
required to be performed by or on behalf of the Seller for products used by the
Seller or any of its Subsidiaries have been completed or are ongoing in
accordance with the applicable FDA requirements; and (E) any substances exported
by the Seller or any of its Subsidiaries have been exported in compliance in all
material respects with the FDC Act. Without limiting the general liability of
the representations and warranties made in paragraph (a) above, the Seller and
its Subsidiaries are in compliance in all material respects with all applicable
provisions of the Controlled Substances Act.

         3.27     BROKERS. Except as set forth in Schedule 3.27 hereto, no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement, based upon any arrangement made by or on behalf of the Seller or any
of its Affiliates.

         3.28     SECURITIES LAWS. Neither the Seller nor its Subsidiaries nor
any agent acting on behalf of the Seller or its Subsidiaries has taken or will
take any action which might cause this Agreement or any of the Securities to
violate the Securities Act or the Exchange Act or any rules or regulations
promulgated thereunder, or any applicable state securities laws, as in effect on
the Closing Date. All offers and sales of capital stock, securities and notes of
the Seller were conducted and completed in compliance with the Securities Act,
the rules and regulations promulgated thereunder and applicable state securities
laws. All shares of capital stock and other securities issued by the Seller and
its Subsidiaries prior to the date hereof have been issued in transactions that
were either registered offerings or were exempt from the registration
requirements under the Securities Act and all applicable state securities or
state securities laws and in compliance with all applicable corporate laws.

         3.29     DISCLOSURE. No representation or warranty made by the Seller
in this Agreement, nor in any document, written information, financial
statement, certificate, schedule or exhibit prepared and furnished by the Seller
pursuant hereto or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact, or omits to
state a material fact necessary to make the statements or facts contained herein
or therein not misleading in light of the circumstances under which they were
furnished.

                                       16
<PAGE>
         3.30     CHANGE IN CONTROL. Assuming that there are no contractual
agreements (other than this Agreement) among any two or more of the Purchasers
with respect to the purchase, sale or other disposition, or voting of the equity
securities of the Company, the execution, delivery and performance of this
Agreement and the Related Documents, and the consummation of the transactions
contemplated hereby and thereby (including the exercise of some or all of the
Warrants and the issuance of the Warrant Shares) do not and will not constitute
a change in control under or give rise to a right of termination, cancellation,
severance or similar payments, or acceleration or loss of any benefit under any
material agreement, contract or other instrument binding upon the Seller or any
of its Subsidiaries, under any material license, franchise, permit or other
similar authorization held by the Seller or any of its Subsidiaries or under any
agreement or arrangement between the Seller or any of its Subsidiaries and their
directors, officers, employees or consultants.

         3.31     APPLICATION OF TAKEOVER PROTECTION. The Seller and its board
of directors have taken all necessary action in order to render inapplicable,
and have rendered inapplicable, any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti- takeover provision under the Charter, the By-laws, the
laws of the state of its incorporation or any rights plan or similar arrangement
which is or could become applicable as a result of the transactions contemplated
by this Agreement, including, without limitation, the Seller's issuance of the
Securities and the Purchasers' ownership of the Purchased Shares, the Warrants
or the Warrant Shares.

         3.32     NASDAQ COMPLIANCE. (a) The Common Stock is registered pursuant
to Section 12(g) of the Exchange Act, and is listed on the Nasdaq SmallCap
Market (the "Nasdaq Stock Market"), and the Seller has taken no action designed
to, or which to its knowledge is likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from the Nasdaq Stock Market. The issuance of the Securities does not
require stockholder approval, including, without limitation, pursuant to the
Nasdaq Marketplace Rules as in effect on the Closing Date, including without
limitation all Interpretive Materials issued on or before the Closing Date. No
order ceasing or suspending trading in any securities of Seller or prohibiting
the issuance and/or sale of the Purchased Shares, Warrants or Warrant Shares is
in effect and no proceedings for such purpose are pending or, to the Seller's
knowledge, threatened.

                  (b)      The staff of the Nasdaq Stock Market has verbally
confirmed to the Seller that (i) it has reviewed this Agreement, the form of
Series 2003-1 Warrant, and the form of Registration Rights Agreement, and (ii)
on the basis of such review, approval by the stockholders of the Seller of the
issuance of the Purchased Shares, the Warrants and the Warrant Shares is not
required, and the Seller shall not have received from such staff any oral or
written information or advice contrary to such verbal confirmation.

         3.33     MATERIAL CONTRACTS. Each of the Seller's and its Subsidiaries
material contracts (which, for purposes of this Agreement, means any agreement,
contract or other document which the Seller would be required to disclose
pursuant to SEC Regulation S-K, Item 601, Exhibits 1, 2, 3, 4, 9 or 10) are
listed as exhibits to the Recent Reports and are in full force and effect on the
date hereof, and none of the Seller, its Subsidiaries nor, to the Seller's or
any Subsidiary's knowledge, any other party to such contracts is in breach of or
default under any of such

                                       17
<PAGE>
contracts. The Seller is not required to file and will not be required to file
any agreement, note, lease, mortgage, deed or other instrument entered into by
the Seller or any Subsidiary prior to the date hereof which has not been
previously filed as an exhibit to its Recent Reports.

         3.34     TITLE TO AND CONDITION OF PERSONAL PROPERTY; NO LIENS. The
Seller and its Subsidiaries have good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of their
tangible properties and assets, real, personal and mixed, used in their
business, free and clear of any Liens, except as set forth on Schedule 3.34. All
tangible personal property owned by the Seller and its Subsidiaries is in good
operating condition and in a good state of maintenance and repair, and is
adequate for the business conducted and proposed to be conducted by the Seller
and its Subsidiaries. Except for the Leases specifically identified in Schedule
3.34, there are no assets owned by any third party which are material to the
operation of the business of the Seller or its Subsidiaries, as presently
conducted or proposed to be conducted.

          ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

                  Each Purchaser, for itself, hereby severally, and not jointly,
represents and warrants to the Seller as follows:

         4.1      EXISTENCE AND POWER. The Purchaser is duly organized, validly
existing and in good standing under the laws of the jurisdiction of such
Purchaser's organization. The Purchaser has all powers required to carry on such
Purchaser's business as now conducted.

         4.2      AUTHORIZATION. The execution, delivery and performance by the
Purchaser of this Agreement, the Related Documents to which such Purchaser is a
party, and the consummation by the Purchaser of the transactions contemplated
hereby have been duly authorized, and no additional action is required for the
approval of this Agreement. This Agreement and the Related Documents to which
the Purchaser is a party have been or, to the extent contemplated hereby, will
be duly executed and delivered and constitute valid and binding agreements of
the Purchaser, enforceable against such Purchaser in accordance with their
terms, except as may be limited by bankruptcy, reorganization, insolvency,
moratorium and similar laws of general application relating to or affecting the
enforcement of rights of creditors and except that enforceability of their
obligations thereunder are subject to general principles of equity.

         4.3      INVESTMENT. The Purchaser is acquiring the Securities for its
own account for investment and not with a view to, or for sale in connection
with, any distribution thereof, nor with the intention of distributing or
reselling the same, provided, however, that by making the representation herein,
the Purchaser does not agree to hold any of the securities for any minimum or
other specific term and reserves the right to dispose of the Securities at any
time in accordance with or pursuant to a registration statement or an exemption
under the Securities Act. The Purchaser is aware that none of the Securities has
been registered under the Securities Act or under applicable state securities or
blue sky laws. The Purchaser is an "Accredited Investor" as such term is defined
in Rule 501 of Regulation D, as promulgated under the Securities Act.

         4.4      NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will violate any constitution,

                                       18
<PAGE>
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which
Purchaser is subject or any provision of its charter or bylaws or other similar
governing instruments.

         4.5      NO REGISTRATION. The Purchaser understands that the Purchased
Shares and Warrants are being offered and sold to such Purchaser in reliance
upon specific exemptions from the registration requirements of United States
federal and state securities laws and that the Seller is relying upon the truth
and accuracy of, and such Purchaser's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of such Purchaser set
forth herein in order to determine the availability of such exemptions and the
eligibility of such Purchaser to acquire the Securities.

         4.6      BUSINESS OR FINANCIAL EXPERTISE. Purchaser has, by reason of
Purchaser's business or financial expertise or the business or financial
experience of its professional advisors who are unaffiliated with and who are
not, to such Purchaser's knowledge, compensated by the Seller or any affiliate
or selling agent of the Seller, directly or indirectly, the capacity to protect
its own interests in connection with its acquisition of the Securities.
Purchaser has had the opportunity to ask questions about the Seller's business
affairs and financial condition, and has acquired sufficient information about
the Seller to reach an informed and knowledgeable decision to acquire the
Securities.

         4.7      BROKERS' FEES. Purchaser has no liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Seller could become
liable or obligated.

               ARTICLE V - COVENANTS OF THE SELLER AND PURCHASERS

         5.1      INSURANCE. The Seller and its Subsidiaries shall maintain
insurance coverage which is adequate and customary coverage for the business in
which the Seller and its Subsidiaries shall then be engaged in. The Seller and
its Subsidiaries shall, from time to time upon the written request of the
Purchasers, promptly furnish or cause to be furnished to the Seller evidence, in
form and substance reasonably satisfactory to the Purchasers, of the maintenance
of all insurance maintained by it for loss or damage by fire and other hazards,
damage or injury to persons and property, including from product liability, and
under workmen's compensation laws.

         5.2      INVESTIGATION. The representations, warranties, covenants and
agreements set forth in this Agreement shall not be affected or diminished in
any way by any investigation (or failure to investigate) at any time by or on
behalf of the party for whose benefit such representations, warranties,
covenants and agreements were made. Without limiting the generality of the
foregoing, the inability or failure of the Purchasers to discover any breach,
default or misrepresentation by the Seller under this Agreement or the Related
Documents (including under any certificate furnished pursuant to this Agreement)
shall not in any way diminish any liability hereunder.

         5.3      PUBLIC ANNOUNCEMENTS. Neither the Purchasers nor the Seller
shall (and each such party shall use its reasonable efforts to cause its
Subsidiaries, Affiliates, directors, officers,

                                       19
<PAGE>

employees and authorized representatives not to), issue any press release, make
any public announcement or furnish any written statement to its employees or
stockholders generally concerning the transactions contemplated by this
Agreement without the consent of the other party (which consent shall not be
unreasonably withheld), except to the extent required by applicable law or the
applicable requirements of applicable stock exchange rules (including Nasdaq) or
as otherwise contemplated herein (and in either such case such party shall, to
the extent consistent with timely compliance with such requirement, consult with
the other party prior to making the required release, announcement or
statement). Notwithstanding the foregoing, the Seller shall, promptly after the
Closing, issue a press release disclosing the transactions contemplated hereby.

      5.4 USE OF PROCEEDS. The Seller covenants and agrees that the proceeds of
the Purchase Price shall be used by the Seller for working capital and general
corporate purposes.

      5.5 LISTING OF SHARES. The Seller shall use its best efforts to list the
Purchased Shares and Warrant Shares on each securities exchange or quotation
system upon which the Common Stock may be listed from time to time during the
time period that the Common Stock is listed on such securities exchange or
quotation system.

      5.6 RESERVATION OF SHARES. The Seller shall hereafter take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 100% of the number of shares of Common Stock needed to
provide for the issuance of the shares of Common Stock upon exercise of all
outstanding Warrants (without regard to any limitations on conversions or
exercise).

      5.7 INTERNAL ACCOUNTING CONTROLS. The Seller and each of its Subsidiaries
shall 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
and (iii) assets are amortized and depreciated, as applicable, in accordance
with generally accepted accounting principles.

      5.8 FILING OF FORM D. The Seller will timely file Form D in accordance
with the provisions of Regulation D promulgated by the SEC under the Securities
Act.

      5.9 INDEMNIFICATION FOR CLAIMS. The Seller agrees to indemnify and hold
harmless the Purchasers, their Affiliates, each of their officers, directors,
employees and agents and their respective successors and assigns (for purposes
of this subsection 5.9, the "Indemnified Parties"), from and against any losses,
damages, or expenses (net of any related insurance proceeds) incurred by the
Indemnified Parties due to any and all third party actions, suits, proceedings,
claims, demands, judgments, costs and expenses (including reasonable legal fees
and expenses) which are brought by or on behalf of a third party or any of its
successors or assigns claiming a right to participate as a placement agent,
underwriter, financial advisor, finder or broker with respect to the offering of
the Securities pursuant to this Agreement, against any of the Indemnified
Parties, with respect to any act or omission occurring on or before the Closing
Date. The indemnification herein provided shall be provided in the manner and in
accordance with the

                                       20
<PAGE>
procedures set forth in Section 6.3 hereof. The indemnification provided for in
this Section 5.9 shall be made notwithstanding the reference to any
underwriting, placement agent, financial advisory, finder's or broker's
agreement in the Schedule to the Representations and Warranties, and
notwithstanding any knowledge or information which the Purchasers have with
respect to any underwriting, placement agent, financial advisory, finder's or
broker's agreement.

                         ARTICLE VI - - INDEMNIFICATION

      6.1 SURVIVAL OF REPRESENTATIONS. Except as otherwise provided herein, the
representations and warranties of the Seller and the Purchasers contained in or
made pursuant to this Agreement shall survive the execution and delivery of this
Agreement and the Closing Date and shall continue in full force and effect for a
period of 24 months after the Closing Date and shall in no way be affected by
any investigation of the subject matter thereof made by or on behalf of the
Seller or the Purchasers.

      6.2 INDEMNIFICATION. (a) The Seller agrees to indemnify and hold harmless
the Purchasers, their Affiliates, each of their officers, directors, employees
and agents and their respective successors and assigns, from and against any
losses, damages, or expenses (net of any related insurance proceeds) due to any
and all third party actions, suits, proceedings, claims, demands, judgments,
costs and expenses (including reasonable legal fees and expenses) (all of the
foregoing, "Third Party Claims") which are caused by or arise out of (i) any
breach or default in the performance by the Seller of any covenant or agreement
made by the Seller in this Agreement or in any of the Related Documents; (ii)
any breach of warranty or representation made by the Seller in this Agreement or
in any of the Related Document.

                  (b) Each of the Purchasers agrees to indemnify and hold
harmless the Seller, its Affiliates, each of their officers, directors,
employees and agents and their respective successors and assigns, from and
against any Third Party Claims (net of any related insurance proceeds) which are
caused by or arise out of (i) any breach or default in the performance by it of
any covenant or agreement made by it in this Agreement or in any of the Related
Documents; (ii) any breach of warranty or representation made by it in this
Agreement or in any of the Related Documents; provided, however, that a
Purchaser's liability under this Section 6.2(b) shall not exceed the Purchase
Price paid by such Purchaser hereunder.

      6.3 INDEMNITY PROCEDURE. A party or parties hereto agreeing to be
responsible for or to indemnify against any matter pursuant to this Agreement is
referred to herein as the "Indemnifying Party" and the other party or parties
claiming indemnity is referred to as the "Indemnified Party".

                  An Indemnified Party under this Agreement shall, with respect
to claims asserted against such party by any third party, give written notice to
the Indemnifying Party of any liability which might give rise to a claim for
indemnity under this Agreement within sixty (60) business days of the receipt of
any written claim from any such third party, but not later than twenty (20) days
prior to the date any answer or responsive pleading is due, and with respect to
other matters for which the Indemnified Party may seek indemnification, give
prompt written notice to the Indemnifying Party of any liability which might
give rise to a claim for indemnity;

                                       21
<PAGE>
provided, however, that any failure to give such notice will not waive any
rights of the Indemnified Party except to the extent the rights of the
Indemnifying Party are materially prejudiced.

                  The Indemnified Party shall have the right to conduct and
control, through counsel of its choosing, the defense, compromise or settlement
of any third Person claim, action or suit against such Indemnified Party as to
which indemnification will be sought by any Indemnified Party from any
Indemnifying Party hereunder, and in any such case the Indemnifying Party shall
cooperate in connection therewith and shall furnish such records, information
and testimony and attend such conferences, discovery proceedings, hearings,
trials and appeals as may be reasonably requested by the Indemnified Party in
connection therewith; provided, that the Indemnifying Party may participate,
through counsel chosen by it and at its own expense, in the defense of any such
claim, action or suit as to which the Indemnified Party has so elected to
conduct and control the defense thereof; and provided, further, that the
Indemnified Party shall not, without the written consent of the Indemnifying
Party (which written consent shall not be unreasonably withheld), pay,
compromise or settle any such claim, action or suit, except that no such consent
shall be required if, following a written request from the Indemnified Party,
the Indemnifying Party shall fail, within 14 days after the making of such
request, to acknowledge and agree in writing that, if such claim, action or suit
shall be adversely determined, such Indemnifying Party has an obligation to
provide indemnification hereunder to such Indemnified Party. Notwithstanding the
foregoing, the Indemnified Party shall have the right to pay, settle or
compromise any such claim, action or suit without such consent, provided, that
in such event the Indemnified Party shall waive any right to indemnity therefor
hereunder unless such consent is unreasonably withheld.

                  The parties agree to cooperate in defending such third party
claims and the Indemnified Party shall provide such cooperation and such access
to its books, records and properties as the Indemnifying Party shall reasonably
request with respect to any matter for which indemnification is sought
hereunder; and the parties hereto agree to cooperate with each other in order to
ensure the proper and adequate defense thereof.

                  With regard to claims of third parties for which
indemnification is payable hereunder, such indemnification shall be paid by the
Indemnifying Party upon the earlier to occur of: (i) the entry of a judgment
against the Indemnified Party and the expiration of any applicable appeal
period, or if earlier, five (5) days prior to the date that the judgment
creditor has the right to execute the judgment; (ii) the entry of an
unappealable judgment or final appellate decision against the Indemnified Party;
or (iii) a settlement of the claim. Notwithstanding the foregoing, the
reasonable expenses of counsel to the Indemnified Party shall be reimbursed on a
current basis by the Indemnifying Party if such expenses are required to be paid
pursuant to this Agreement. With regard to other claims for which
indemnification is payable hereunder, such indemnification shall be paid
promptly by the Indemnifying Party upon demand by the Indemnified Party.

                           ARTICLE VII - MISCELLANEOUS

      7.1 FURTHER ASSURANCES. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to better evidence and

                                       22
<PAGE>
reflect the transactions described herein and contemplated hereby and to carry
into effect the intents and purposes of this Agreement, and further agrees to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable under applicable law to
consummate and make effective the transactions contemplated hereby, to obtain
all necessary waivers, consents and approvals, to effect all necessary
registrations and filings, and to remove any injunctions or other impediments or
delays, legal or otherwise, in order to consummate and make effective the
transactions contemplated by this Agreement for the purpose of securing to the
parties hereto the benefits contemplated by this Agreement.

      7.2 FEES AND EXPENSES. The Seller shall be responsible for the payment of
reasonable legal fees and expenses of one counsel to the Purchasers relating to
the preparation and negotiation of this Agreement, the Related Documents or the
exercise of any Warrants.

      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 at the facsimile number
specified in this Section prior to 5:00 p.m. (New York City time) on a business
day, (b) the next business 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 business day or later than 5:00 p.m. (New
York City time) on any business day, or (c) the business day following the date
of mailing, if sent by U.S. nationally recognized overnight courier service such
as Federal Express. The address for such notices and communications shall be as
follows:

<TABLE>
<S>                                          <C>
If to the Purchasers, to their respective    If to the Seller:
addresses set forth on Schedule 1.           Spectrum Pharmaceuticals, Inc.
                                             157 Technology Dr
                                             Irvine, CA 92618
                                             Att'n: CEO
                                             Fax No. 949-788-6706

With a copy in each case to:                 With a copy in each case to:
Kane Kessler, P.C.                           Latham & Watkins LLP
1350 Avenue of the Americas - 26th Floor     650 Town Center Drive, Twentieth Floor
New York, New York 10019                     Costa Mesa, California 92626
Attention:  Robert L. Lawrence, Esq.         Att'n: Alan W. Pettis, Esq.
Fax No.: (212) 245-3009                      Fax No. 714-755-8290
</TABLE>

Unless otherwise stated above, such communications shall be effective when they
are received by the addressee thereof in conformity with this Section. Any party
may change its address for such communications by giving notice thereof to the
other parties in conformity with this Section.

      7.4 GOVERNING LAW. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
enforced in accordance with the laws of the State of New York without reference
to the choice of law principles thereof.

                                       23
<PAGE>
      7.5 JURISDICTION AND VENUE. This Agreement shall be subject to the
exclusive jurisdiction of the Federal and State Courts located in New York
County, New York. The parties to this Agreement agree that any breach of any
term or condition of this Agreement shall be deemed to be a breach occurring in
the State of New York by virtue of a failure to perform an act required to be
performed in the State of New York and irrevocably and expressly agree to submit
to the jurisdiction of the Federal District Court, Southern District of New York
and if such court does not have proper jurisdiction, the State Courts of New
York County, New York for the purpose of resolving any disputes among the
parties relating to this Agreement or the transactions contemplated hereby. The
parties irrevocably waive, to the fullest extent permitted by law, any objection
which they may now or hereafter have to the laying of venue of any suit, action
or proceeding arising out of or relating to this Agreement, or any judgment
entered by any court in respect hereof brought in New York County, New York, and
further irrevocably waive any claim that any suit, action or proceeding brought
in Federal or State Courts located in New York County, New York has been brought
in an inconvenient forum.

      7.6 SUCCESSORS AND ASSIGNS. This Agreement is personal to each of the
parties and may not be assigned without the written consent of the other
parties; provided, however, that any of the Purchasers shall be permitted to
assign their rights under this Agreement to any transferee of such Purchaser to
whom it assigns or transfers Securities, as provided in Section 1.3 hereof.

      7.7 SEVERABILITY. If any provision of this Agreement, or the application
thereof, shall for any reason or to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances shall continue in full force and effect and in no way be
affected, impaired or invalidated.

      7.8 ENTIRE AGREEMENT. This Agreement and the other agreements and
instruments referenced herein constitute the entire understanding and agreement
of the parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings.

      7.9 OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party shall be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law, or in equity
on such party, and the exercise of any one remedy shall not preclude the
exercise of any other.

      7.10 AMENDMENT AND WAIVERS. Any term or provision of this Agreement may be
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a writing signed by the Seller, the holders of at least a majority of
the outstanding Purchased Shares. The waiver by a party of any breach hereof or
default in the performance hereof shall not be deemed to constitute a waiver of
any other default or any succeeding breach or default.

      7.11 NO WAIVER. The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.

      7.12 CONSTRUCTION OF AGREEMENT; KNOWLEDGE. For purposes of this Agreement,
the term "knowledge," when used in reference to a corporation means the
knowledge of the directors, officers and managers of such corporation assuming
such officers shall have made

                                       24
<PAGE>
inquiry that is customary and appropriate under the circumstances to which
reference is made, and when used in reference to an individual means the
knowledge of such individual assuming the individual shall have made inquiry
that is customary and appropriate under the circumstances to which reference is
made.

      7.13 COUNTERPARTS; FACSIMILE. This Agreement may be executed in any number
of counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as signatories. 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.

      7.14 NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and permitted assigns, any
rights or remedies under or by reason of this Agreement.

                            [SIGNATURE PAGES FOLLOW:]

                                       25
<PAGE>
      IN WITNESS WHEREOF, the undersigned Purchasers and the Seller have caused
this Common Stock and Warrant Purchase Agreement to be duly executed as of the
date first above written.

                                    SELLER:

                                    SPECTRUM PHARMACEUTICALS, INC.

                                    By:   /s/ Rajesh C. Shrotriya
                                        --------------------------------------
                                          Rajesh C. Shrotriya, M.D.
                                          Chief Executive Officer
<PAGE>
                            OMNIBUS SIGNATURE PAGE TO
                         SPECTRUM PHARMACEUTICALS, INC.
                   COMMON STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Common Stock and Warrant
Purchase Agreement to which this signature page is attached, which, together
with all counterparts of the Agreement and signature pages of the other parties
named in said Agreement, shall constitute one and the same document in
accordance with the terms of the Agreement.

                              Print Name:    BayStar Capital II, L.P.
                                         -------------------------------
                              By:            /s/ Steve Derby
                                         -------------------------------
                              Name:          Steve Derby
                                         -------------------------------
                              Title:         Managing Member
                                         -------------------------------
                              Address:       c/o BayStar Capital Management, LLC
                                         -------------------------------
                                             xxxxxxxx
                                         -------------------------------
                                             xxxxxxxx
                                         -------------------------------
                              Telephone:     (XXX)XXX-XXXX
                                         -------------------------------
                              Facsimile:     (XXX)XXX-XXXX
                                         -------------------------------
                              SOC/EIN#:      XX-XXXXXXX
                                         -------------------------------

                              Number of Shares of Common Stock to be

                              Purchased      183,540
                                         -------------------------------

                              Series 2003-1 Warrants to be

                              Purchased        91,770
                                        --------------------------------

                              Aggregate Purchase Price  $   752,514
                                                         ---------------
<PAGE>
                            OMNIBUS SIGNATURE PAGE TO
                         SPECTRUM PHARMACEUTICALS, INC.
                   COMMON STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Common Stock and Warrant
Purchase Agreement to which this signature page is attached, which, together
with all counterparts of the Agreement and signature pages of the other parties
named in said Agreement, shall constitute one and the same document in
accordance with the terms of the Agreement.

                                    Print Name:    James T. Betts
                                               -------------------------------
                                    By:            /s/ James T. Betts
                                               -------------------------------
                                    Name:          James T. Betts
                                               -------------------------------
                                    Title:
                                               -------------------------------
                                    Address:       c/o Shipman & Goodwin LLP
                                               -------------------------------
                                                   xxxxxxxx
                                               -------------------------------
                                                   xxxxxxxx
                                               -------------------------------
                                    Telephone:     (XXX) XXX-XXXX
                                               -------------------------------
                                    Facsimile:     (XXX) XXX-XXXX
                                               -------------------------------
                                    SOC/EIN#:      XXX-XX-XXXX
                                               -------------------------------

                                    Number of Shares of Common Stock to be

                                    Purchased      25,000
                                               -------------------------------

                                    Series 2003-1 Warrants to be

                                    Purchased       12,500
                                               -------------------------------

                                    Aggregate Purchase Price  $   102,500
                                                               ---------------
<PAGE>
                            OMNIBUS SIGNATURE PAGE TO
                         SPECTRUM PHARMACEUTICALS, INC.
                   COMMON STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Common Stock and Warrant
Purchase Agreement to which this signature page is attached, which, together
with all counterparts of the Agreement and signature pages of the other parties
named in said Agreement, shall constitute one and the same document in
accordance with the terms of the Agreement.

                                    Print Name:    Shanta Chawla
                                               -------------------------------
                                    By:            /s/ Shanta Chawla
                                               -------------------------------
                                    Name:
                                               -------------------------------
                                    Title:
                                               -------------------------------

                                    Address:       XXXXXXXX
                                               -------------------------------
                                                   XXXXXXXX
                                               -------------------------------
                                    Telephone:     (XXX) XXX-XXXX
                                               -------------------------------
                                    Facsimile:     (XXX) XXX-XXXX
                                               -------------------------------
                                    SOC/EIN#:      XXX-XX-XXXX
                                               -------------------------------

                                    Number of Shares of Common Stock to be

                                    Purchased      12,500
                                               -------------------------------

                                    Series 2003-1 Warrants to be

                                    Purchased       6,250
                                              --------------------------------

                                    Aggregate Purchase Price  $  51,250
                                                               ---------------
<PAGE>
                            OMNIBUS SIGNATURE PAGE TO
                         SPECTRUM PHARMACEUTICALS, INC.
                   COMMON STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Common Stock and Warrant
Purchase Agreement to which this signature page is attached, which, together
with all counterparts of the Agreement and signature pages of the other parties
named in said Agreement, shall constitute one and the same document in
accordance with the terms of the Agreement.

                                    Print Name:    Cranshire Capital, L.P.
                                               ---------------------------------
                                    By:            /s/ Mitchell D. Kopin
                                               ---------------------------------
                                    Name:          Mitchell D. Kopin
                                               ---------------------------------
                                    Title:         President - Downsview Capital
                                               ---------------------------------

                                    Address:       XXXXXXXX
                                               ---------------------------------
                                                   XXXXXXXX

                                    Telephone:     (XXX) XXX-XXXX
                                               ---------------------------------
                                    Facsimile:     (XXX) XXX-XXXX
                                               ---------------------------------
                                    SOC/EIN#:      XX-XXXXXXX
                                               ---------------------------------

                                    Number of Shares of Common Stock to be

                                    Purchased      122,000
                                               ---------------------------------

                                    Series 2003-1 Warrants to be

                                    Purchased      61,000
                                               ---------------------------------

                                    Aggregate Purchase Price  $     500,200
                                                               -----------------
<PAGE>
                            OMNIBUS SIGNATURE PAGE TO
                         SPECTRUM PHARMACEUTICALS, INC.
                   COMMON STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Common Stock and Warrant
Purchase Agreement to which this signature page is attached, which, together
with all counterparts of the Agreement and signature pages of the other parties
named in said Agreement, shall constitute one and the same document in
accordance with the terms of the Agreement.

                                    Print Name:    Creative Investors Group, LLC
                                               ---------------------------------
                                    By:            /s/ Paresh Mital
                                               ---------------------------------
                                    Name:          Paresh Mital
                                               ---------------------------------
                                    Title:         Managing Member
                                               ---------------------------------
                                    Address:       XXXXXXX
                                               ---------------------------------
                                                   XXXXXXX
                                               ---------------------------------
                                    Telephone:     (XXX) XXX-XXXX
                                               ---------------------------------
                                    Facsimile:     (XXX) XXX-XXXX
                                               ---------------------------------
                                    SOC/EIN#:      XX-XXXXXXX
                                               ---------------------------------

                                    Number of Shares of Common Stock to be

                                    Purchased      25,000
                                               ---------------------------------

                                    Series 2003-1 Warrants to be

                                    Purchased       12,500
                                               ---------------------------------

                                    Aggregate Purchase Price  $     102,500
                                                               -----------------
<PAGE>
                            OMNIBUS SIGNATURE PAGE TO
                         SPECTRUM PHARMACEUTICALS, INC.
                   COMMON STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Common Stock and Warrant
Purchase Agreement to which this signature page is attached, which, together
with all counterparts of the Agreement and signature pages of the other parties
named in said Agreement, shall constitute one and the same document in
accordance with the terms of the Agreement.

                                    Print Name:    Ashok Y. Gore
                                               -------------------------------
                                    By:            /ss Ashok Y. Gore
                                               -------------------------------
                                    Name:
                                               -------------------------------
                                    Title:
                                               -------------------------------

                                    Address:       XXXXXXX
                                               -------------------------------
                                                   XXXXXXX
                                               -------------------------------
                                    Telephone:     (XXX) XXX-XXXX
                                               -------------------------------
                                    Facsimile:
                                               -------------------------------
                                    SOC/EIN#:      XXX-XX-XXXX
                                               -------------------------------

                                    Number of Shares of Common Stock to be

                                    Purchased      12,500
                                               -------------------------------

                                    Series 2003-1 Warrants to be

                                    Purchased        6,250
                                               -------------------------------

                                    Aggregate Purchase Price  $    51,250
                                                               ---------------
<PAGE>
                            OMNIBUS SIGNATURE PAGE TO
                         SPECTRUM PHARMACEUTICALS, INC.
                   COMMON STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Common Stock and Warrant
Purchase Agreement to which this signature page is attached, which, together
with all counterparts of the Agreement and signature pages of the other parties
named in said Agreement, shall constitute one and the same document in
accordance with the terms of the Agreement.

                                    Print Name:    North Sound Legacy Fund LLC
                                               ---------------------------------
                                    By:            /s/ Andrew Wilder
                                               ---------------------------------
                                    Name:          Andrew Wilder
                                               ---------------------------------
                                    Title:         Chief Financial Officer
                                               ---------------------------------

                                    Address:       c/o North Sound Capital LLC
                                               ---------------------------------
                                                   XXXXXXX
                                               ---------------------------------
                                                   XXXXXXX
                                               ---------------------------------
                                    Telephone:     (XXX) XXX-XXXX
                                               ---------------------------------
                                    Facsimile:     (XXX) XXX-XXXX
                                               ---------------------------------
                                    SOC/EIN#:      XX-XXXXXXX
                                               ---------------------------------

                                    Number of Shares of Common Stock to be

                                    Purchased      7,800
                                               ---------------------------------

                                    Series 2003-1 Warrants to be

                                    Purchased       3,900
                                               ---------------------------------

                                    Aggregate Purchase Price  $     31,980
                                                              ------------------
<PAGE>
                            OMNIBUS SIGNATURE PAGE TO
                         SPECTRUM PHARMACEUTICALS, INC.
                   COMMON STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Common Stock and Warrant
Purchase Agreement to which this signature page is attached, which, together
with all counterparts of the Agreement and signature pages of the other parties
named in said Agreement, shall constitute one and the same document in
accordance with the terms of the Agreement.

                            Print Name:    North Sound Legacy International Ltd.
                                       ---------------------------------
                            By:            /s/ Andrew Wilder
                                       ---------------------------------
                            Name:          Andrew Wilder
                                       ---------------------------------
                            Title:         Chief Financial Officer
                                       ---------------------------------

                            Address:       c/o North Sound Capital LLC
                                       ---------------------------------
                                           XXXXXX
                                       ---------------------------------
                                           XXXXXX
                                       ---------------------------------
                            Telephone:     (XXX) XXX-XXXX
                                       ---------------------------------
                            Facsimile:     (XXX) XXX-XXXX
                                       ---------------------------------
                            SOC/EIN#:      XX-XXXXXXX
                                       ---------------------------------

                            Number of Shares of Common Stock to be

                            Purchased      86,400
                                       -------------------------------

                            Series 2003-1 Warrants to be

                            Purchased      43,200
                                       ---------------------------------

                            Aggregate Purchase Price  $     354,240
                                                       -----------------
<PAGE>
                            OMNIBUS SIGNATURE PAGE TO
                         SPECTRUM PHARMACEUTICALS, INC.
                   COMMON STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Common Stock and Warrant
Purchase Agreement to which this signature page is attached, which, together
with all counterparts of the Agreement and signature pages of the other parties
named in said Agreement, shall constitute one and the same document in
accordance with the terms of the Agreement.

                          Print Name:  North Sound Legacy Institutional Fund LLC

                          By:              /s/ Andrew Wilder
                                       -------------------------------
                          Name:            Andrew Wilder
                                       -------------------------------
                          Title:           Chief Financial Officer
                                       -------------------------------
                          Address:         c/o North Sound Capital LLC
                                       -------------------------------
                                           XXXXXX
                                       -------------------------------
                                           XXXXXX
                                       -------------------------------
                          Telephone:       (XXX) XXX-XXXX
                                       -------------------------------
                          Facsimile:       (XXX) XXX-XXXX
                                       -------------------------------
                          SOC/EIN#:        XX-XXXXXXX
                                       -------------------------------

                          Number of Shares of Common Stock to be

                          Purchased        78,800
                                       -------------------------------

                          Series 2003-1 Warrants to be

                          Purchased        39,400
                                       -------------------------------

                          Aggregate Purchase Price  $     323,080
                                                     -----------------
<PAGE>
                            OMNIBUS SIGNATURE PAGE TO

                         SPECTRUM PHARMACEUTICALS, INC.

                   COMMON STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Common Stock and Warrant
Purchase Agreement to which this signature page is attached, which, together
with all counterparts of the Agreement and signature pages of the other parties
named in said Agreement, shall constitute one and the same document in
accordance with the terms of the Agreement.

                                    Print Name:    Omnicron Master Trust
                                               -------------------------------
                                    By:            /s Bruce Bernstein
                                               -------------------------------
                                    Name:          Bruce Bernstein
                                               -------------------------------
                                    Title:         Managing Member
                                               -------------------------------
                                    Address:       XXXXX
                                               -------------------------------
                                                   XXXXX
                                               -------------------------------
                                                   XXXXX
                                               -------------------------------
                                    Telephone:     (XXX) XXX-XXXX
                                               -------------------------------
                                    Facsimile:     (XXX) XXX-XXXX
                                               -------------------------------
                                    SOC/EIN#:      XX-XXXXXXX
                                               -------------------------------

                                    Number of Shares of Common Stock to be

                                    Purchased      122,000
                                               -------------------------------

                                    Series 2003-1 Warrants to be

                                    Purchased       61,000
                                               -------------------------------

                                    Aggregate Purchase Price  $    500,200
                                                               ---------------
<PAGE>
                            OMNIBUS SIGNATURE PAGE TO
                         SPECTRUM PHARMACEUTICALS, INC.
                   COMMON STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Common Stock and Warrant
Purchase Agreement to which this signature page is attached, which, together
with all counterparts of the Agreement and signature pages of the other parties
named in said Agreement, shall constitute one and the same document in
accordance with the terms of the Agreement.

                                    Print Name:    Hetal Patel
                                               -------------------------------
                                    By:            /s/ Hetal Patel
                                               -------------------------------
                                    Name:
                                               -------------------------------
                                    Title:
                                               -------------------------------
                                    Address:       XXXXX
                                               -------------------------------
                                                   XXXXX
                                               -------------------------------
                                                   XXXXX
                                               -------------------------------
                                    Telephone:     (XXX) XXX-XXXX
                                               -------------------------------
                                    Facsimile:     (XXX) XXX-XXXX
                                               -------------------------------
                                    SOC/EIN#:      XX-XXXXXXX
                                               -------------------------------

                                    Number of Shares of Common Stock to be

                                    Purchased      25,000
                                               -------------------------------

                                    Series 2003-1 Warrants to be

                                    Purchased       12,500
                                               -------------------------------

                                    Aggregate Purchase Price  $     102,500
                                                               -----------------
<PAGE>
                            OMNIBUS SIGNATURE PAGE TO
                         SPECTRUM PHARMACEUTICALS, INC.
                   COMMON STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Common Stock and Warrant
Purchase Agreement to which this signature page is attached, which, together
with all counterparts of the Agreement and signature pages of the other parties
named in said Agreement, shall constitute one and the same document in
accordance with the terms of the Agreement.

                                    Print Name:    Paul Scharfer
                                               -------------------------------
                                    By:            /s/ Paul Scharfer
                                               -------------------------------
                                    Name:
                                               -------------------------------
                                    Title:
                                               -------------------------------

                                    Address:       XXXXXXXXXX
                                               -------------------------------
                                                   XXXXXXXXXX
                                               -------------------------------
                                    Telephone:     (XXX) XXX-XXXX
                                               -------------------------------
                                    Facsimile:
                                               -------------------------------
                                    SOC/EIN#:      XX-XXXXXXX
                                               -------------------------------

                                    Number of Shares of Common Stock to be

                                    Purchased      36,500
                                               -------------------------------

                                    Series 2003-1 Warrants to be

                                    Purchased       18,250
                                               -------------------------------

                                    Aggregate Purchase Price  $    149,650
                                                               ---------------
<PAGE>

                                   SCHEDULE 1
                                       TO
                   COMMON STOCK AND WARRANT PURCHASE AGREEMENT
          PURCHASERS AND SHARES OF COMMON STOCK AND WARRANTS PURCHASED

<TABLE>
<CAPTION>
                                                             Shares of
                                                             Common Stock
                                                             Acquirable
                                          Shares of          under Series        Total
Name and Address of Purchaser             Common Stock       2003-1 Warrants     Purchase Price
-----------------------------             ------------       ---------------     --------------
<S>                                       <C>                <C>                 <C>
BayStar Capital II, L.P.                    183,540              91,770            $  752,514
XXXXX
XXXXX
Att'n:  XXX
Facsimile: XXX

James Betts                                  25,000              12,500            $  102,500
XXXXX
XXXXX
Att'n:  XXX
Facsimile: XXX

Shanta Chawla, M.D                           12,500               6,250            $   51,250
XXXXX
XXXXX

Cranshire Capital, LP                       122,000              61,000            $  500,200
XXXXX
XXXXX
Style  XXX
Facsimile: XXX

Creative Investors Group, LLC                25,000              12,500            $  102,500
XXXXX
XXXXX
Att'n: XXX

Ashok Gore, Ph.D                             12,500               6,250            $   51,250
XXXXX
XXXXX

North Sound Legacy Fund LLC                   7,800               3,900            $   31,980
XXXXX
XXXXX
Att'n:  XXX
Facsimile: XXX

North Sound Legacy Institutional             78,800              39,400            $  323,080
Fund LLC
XXXXX
XXXXX
Att'n:  XXX
Facsimile: XXX

North Sound Legacy International             86,400              43,200            $  354,240
Fund Ltd.
XXXXX
XXXXX
Att'n:  XXX
Facsimile: XXX
</TABLE>
<PAGE>
SCHEDULE 1 (CONT'D)

<TABLE>
<CAPTION>
                                                             Shares of
                                                             Common Stock
                                                             Acquirable
                                          Shares of          under Series        Total
Name and Address of Purchaser             Common Stock       2003-1 Warrants     Purchase Price
-----------------------------             ------------       ---------------     --------------
<S>                                       <C>                <C>                 <C>
Omnicron Capital, LP                        122,000              61,000            $  500,200
XXXXXXX
XXXXXXX
Attn:  XXXXXXX
Facsimile: XXXXXXX

Hetal Patel                                  25,000              12,500            $  102,500
XXXXXXX
XXXXXXX
Facsimile: XXXXXXX

Paul Scharfer                                36,500              18,250            $  149,600
XXXXXXX
XXXXXXX
Facsimile: XXXXXXX
                                            -------             -------            ----------
      Total                                 737,040             368,520            $3,021,864
                                            =======             =======            ==========
</TABLE>Senior Secured Convertible Note

      THIS NOTE AND ANY SECURITIES INTO WHICH THIS NOTE MAY BE CONVERTED
      (COLLECTIVELY, THE "SECURITIES") HAVE BEEN ACQUIRED FOR INVESTMENT AND
      HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
      "ACT"), OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION. THE SECURITIES
      MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
      REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE SECURITIES ACT AND OTHER
      APPLICABLE SECURITIES LAWS.

                                   COSI, INC.

                         SENIOR SECURED CONVERTIBLE NOTE

$151,957.50                  Due December 31, 2004            New York, New York
                                                                  August 6, 2003

            Unless converted pursuant to Section 5 hereof, Cosi, Inc., a
Delaware corporation (the "Borrower"), hereby unconditionally promises to pay to
the order of Charles G. Phillips ("Lender"), (Lender, its successors or assigns,
as applicable, "Holder"), in lawful money of the United States of America and in
immediately available funds, the principal amount of one hundred fifty-one
thousand, nine hundred and fifty-seven dollars ($151,957.5 0) (the "Loan") on
December 31, 2004 (the "Maturity Date"); and to pay interest at the time, in the
form and at the rate set forth herein on the unpaid principal amount hereof, for
the period commencing August 6, 2003 until such principal amount shall be paid
in full. This Senior Secured Convertible Note (as amended, supplemented,
extended, restated, renewed, refunded, replaced, refinanced, increased in amount
or otherwise modified, in each case from time to time and whether in whole or in
part, this "Note") evidences the unpaid principal amount of the Loan together
with all accrued and unpaid interest thereon (collectively, and together with
all other amounts payable under this Note, the "Obligations").

            This Note is issued to Holder in accordance with and subject to the
following terms and conditions:

      1.    Interest.

            (a)   The outstanding principal amount of the Loan shall accrue
interest from the date hereof until all payments hereunder have been irrevocably
paid in full or this Note has been converted as provided in Section 5 hereof at
a per annum rate equal at all times to the lesser of (i) the maximum lawful rate
of interest in effect at such time under "applicable law" (as defined below),
and (ii) the rate of interest publicly announced from time to time by Bank of
America or any successor thereto, as its prime rate or reference rate (provided,
that if such financial institution publicly announces more than one prime rate
or reference rate, then the higher or highest of such rates) (such rate, the
"Index") plus three-quarters (0.75) percentage points per annum (provided, that
such rate shall be adjusted concurrently with, and such adjustments shall be
effective on the same date as, adjustments announced in such prime rate),
compounded monthly; provided, however, that from and after either (i) the
occurrence of an Event of Default (as defined below) (whether or not the Holder
has elected to accelerate unpaid principal and interest under this Note as a
result of such Event of Default); or (ii) the maturity of this Note (whether the
stated maturity date of this Note or the maturity date resulting from the
Holder's acceleration of unpaid principal and interest), then in

<PAGE>

either of such circumstances, interest on the unpaid principal balance of this
Note shall accrue at a rate equal to eight percent (8%) per annum above the
otherwise applicable rate stated above. Interest shall be calculated on the
basis of a year of 360 days and shall accrue on the outstanding principal amount
of this Note and, to the extent permitted by law, on any accrued but unpaid
interest thereon that has been compounded until all payments hereunder have been
irrevocably paid in full or the Note has been converted as provided in Section
5. Borrower acknowledges and agrees that the calculation of interest on the
basis described in the immediately preceding sentence may result in the accrual
and payment of interest in amounts greater than those which would be payable if
interest were calculated on the basis of a three hundred sixty-five (365) day
year. Except as otherwise provided herein, accrued and unpaid interest hereunder
shall be due and payable monthly on the seventh (7th) day of the month, with the
first such payment being payable on September 7, 2003.

            (b)   If the Index ceases to be made available, the Holder shall
select an alternate index as a substitute for the Index (the "Substituted
Index") which, in the Holder's good faith judgment, is comparable to the Index
and which is not likely to result in the interest rate being substantially
different than if such prior Index had continued to be made available. In such
event, the Holder shall adjust the percentage point spread set forth above (the
"Spread") based on the value of the Substituted Index as of the last preceding
date on which the interest rate was adjusted or, if no such adjustment has yet
occurred, as of the date of this Note, such that the sum of the Substituted
Index and the adjusted Spread equals the sum of the prior Index plus the prior
Spread. Borrower acknowledges and agrees that the Index represents an index
which is quoted, published or announced from time to time by the financial
institution identified above as an index for variable interest rates. If either
(i) First Republic Bank holds the note, in the amount of $3,000,000, dated March
31, 2003, of the Company (the "First Republic Note") and consents if and to the
extent required or (ii) the First Republic Note has been retired or has been
transferred pursuant to the put and call arrangements to which the First
Republic Note is subject, this Note is secured by a security agreement
substantially in the form as attached as Exhibit A executed in favor of the
Holder, as secured party ("Security Agreement"), provided, however, that the
Company agrees that it shall not grant any other Person security in any of the
property of the Company (other than with respect to equipment pledged to secure
the Company's equipment loan credit facility) and that it shall execute the
Security Agreement as soon as the conditions in either (i) or (ii) are
satisfied.

            (c)   It is expressly stipulated and agreed to be the intent of the
Holder and the Borrower to, at all times, conform to and contract in strict
compliance with applicable usury laws from time to time in effect. All
agreements between the Holder and the Borrower, including, without limitation,
this Note, are hereby limited by the provisions of this Section 1(c) which shall
override and control all such agreements, whether now existing or hereafter
arising and whether written or oral. In no way, nor in any event or contingency
(including, but not limited to, prepayment, default, demand for payment or
acceleration of maturity), shall the interest taken, reserved, contracted for,
charged, chargeable, received or collected under this Note exceed the maximum
nonusurious amount permitted by applicable law (the "Maximum Amount"). If, from
any possible construction of any agreement, document or instrument (including,
without limitation, this Note), interest would otherwise be payable in excess
of, or is adjudicated to be payable in excess of, the Maximum Amount, any such
construction shall be subject to the provisions of this Section 1(c), and, ipso
facto, such agreement, document or instrument shall be reformed and the interest
payable shall be reduced to the Maximum Amount, without the necessity of
execution of any amendment or new document. If the Holder shall ever receive
anything of value that is characterized as interest under applicable law and
that would apart from this provision be in excess of the Maximum Amount, an
amount equal to the amount that would have been excessive interest shall,
without penalty, be applied first to the reduction of the outstanding principal
amount of this Note, and second to the reduction of any other amounts due and
payable under this Note, and not to the payment of interest, or promptly
refunded to the Borrower or the other payor thereof if and to the extent such
amount that would have been excessive exceeds such unpaid principal amount and
such other amounts. The right to accelerate maturity of this Note or any other
indebtedness does not include the right to accelerate any interest that has not
otherwise accrued on the date of such acceleration, and the Holder does not
intend to take, reserve, contract for, charge, receive or collect any unearned
interest in the event of acceleration. All interest paid or agreed to be paid to
the Holder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full stated term (including any
renewal or extension) of the indebtedness to

                                       2

<PAGE>

which it relates so that the amount of interest thereon does not exceed the
Maximum Amount. As used in this Section 1(c), the term "applicable law" shall
mean the laws of the State of New York or the federal laws of the United States,
whichever laws allow the greater interest, applicable to commercial loans as
such laws now exist or may be changed or amended or come into effect in the
future.

      2.    Payments.

            (a)   All payments of principal and interest with respect to this
Note shall be made on the due date thereof no later than 3:00 p.m., New York,
New York time, in immediately available funds in lawful money of the United
States of America (without any counterclaim, offset or deduction whatsoever and
free and clear of, and without withholding or deduction for or on account of,
any present or future taxes, levies, imposts, duties, charges or fees of any
nature), to the Holder by wire transfer (and pursuant to specific instructions
to be supplied by the Holder prior to the date of the first such payment). All
payments (including all prepayments) hereunder received by the Holder shall be
applied first to the payment of accrued and unpaid interest hereunder and only
thereafter to the outstanding principal balance of this Note. Any payment
received by the Holder after 3:00 p.m., New York, New York time, on any day,
will be deemed to have been received on the next following "Business Day."
"Business Day" means any day on which banks are not authorized to be closed for
business in New York, New York.

            (b)   The Holder and any person (including any natural person,
partnership, joint venture, corporation, limited liability company, association,
company, trust, any other entity, unincorporated organization and government and
any department, political subdivision or agency thereof, "Person") to which the
Holder sells, assigns, grants a participation in, or otherwise transfers, part
or all of its interest in this Note agree that on the date the Holder or Person
becomes a party to this Note, and from time to time thereafter if requested by
the Borrower or required because, as a result of a change in law or a change in
circumstances or otherwise, a previously delivered form or statement becomes
incomplete or incorrect in any material respect, it will deliver complete,
accurate and duly executed forms or other statements prescribed by the Internal
Revenue Service of the United States certifying the Holder's or such Person's
exemption from United States withholding taxes (including backup withholding
taxes) with respect to all payments to be made to such Holder or Person under
this Note, provided that any such Holder or Person shall not be required to
deliver such forms or statements because such exemption is not available to such
Holder or Person as the result of a change in law or interpretation taking
effect after the later of the date hereof, or the date on which such Person
acquired an interest in the Note.

            (c)   Voluntary prepayment of the entire amount of the outstanding
principal (but not a portion that is less than the entire amount) of this Note
and any accrued and unpaid interest hereunder (the "Voluntary Prepayment") shall
be permitted prior to the Maturity Date, at the option of the Borrower, without
premium or penalty, provided, however, that the Borrower shall not be permitted
to make any Voluntary Prepayment if, within five (5) Business Days of receiving
notice from the Borrower of its intention to make the Voluntary Prepayment, the
Holder provides notice to the Borrower of its intention to exercise any or all
of the Holder's rights pursuant to Section 5 hereof.

            (d)   The Borrower agrees that to the extent the Borrower makes a
payment or payments hereunder which payment or payments, or any part thereof,
are subsequently invalidated, declared to be fraudulent or preferential, set
aside and/or required to be repaid to the Borrower, its successors or assigns
under any bankruptcy law, state or federal law, common law or equitable cause,
then, to the extent of such payment or repayment, the obligations, or part
thereof, under this Note that have been paid, reduced or satisfied by such
amount shall be reinstated and continued in full force and effect as of the time
immediately preceding such initial payment, reduction or satisfaction.

      3.    Representations and Warranties. Borrower hereby represents, warrants
and covenants to the Holder that (i) all of the following provisions of this
Section 3 are true and correct at and as of the date of this Note and (ii) all
of the following provisions of this Section 3 are, and shall be, true and
correct at and as of each such date during which this Note is outstanding (with
the same effect as though made at and as of each such date during which this
Note is outstanding). Borrower's representations and warranties

                                       3

<PAGE>

shall survive the execution of this Note, notwithstanding any investigation at
any time made by or on behalf of any party.

            (a)   Organization. Each of the Borrower and its Subsidiaries (as
defined below) (i) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, (ii) has all corporate
power and authority to own, lease and operate its property and to carry on its
business as now being conducted or as its business is contemplated to be
conducted and to consummate the transactions contemplated by this Note and (iii)
is duly qualified or licensed to do business and is in good standing as a
foreign corporation under the laws of each jurisdiction where the nature of the
property owned or leased by it or the nature of the business conducted by it
makes such qualification or license necessary, except where the failure to be so
qualified or licensed (1) would not reasonably be expected to either prevent or
delay its ability to perform its obligations under this Note and (2) could not
reasonably be expected, individually or in the aggregate, to result in a
Material Adverse Effect (as defined below). For purposes of this Agreement, a
"Subsidiary" of any Person shall mean any corporation, partnership, joint
venture or other legal entity of which such Person (either alone or through or
together with any other Subsidiary), owns, directly or indirectly, more than 50%
of the stock or other equity interests, the holders of which are generally
entitled to vote for the election of the board of directors or other governing
body of such corporation, partnership, joint venture or other legal entity.

            (b)   Due Authorization. The Borrower has all requisite corporate
power and authority to enter into, execute and deliver this Note and to perform
its respective obligations hereunder, and has taken all necessary corporate
action required for the due authorization, execution, delivery and performance
by it of this Note.

            (c)   Due Execution; Enforceability. This Note has been duly and
validly executed and delivered by the Borrower and constitutes the valid and
binding obligation of the Borrower enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity).

            (d)   Consents. Neither the execution, delivery or performance of
this Note by the Borrower, nor the consummation by the Borrower of its
respective obligations and the transactions contemplated by this Note, requires
any consent or approval of, authorization by, exemption from, filing or
registration with, or notice to any United States (Federal, state or local) or
foreign government, or governmental, regulatory, judicial or administrative
authority, agency or commission ("Governmental Entity") or other Person except
(i) with regard to the Stockholder Approval (as defined in Section 5 hereof),
and (ii) where the failure to obtain such consent, approval, authorization or
exemption or to make such filing or registration or to provide such notice (1)
would not reasonably be expected to either prevent or delay the Borrower's
ability to perform its obligations under this Note and (2) could not reasonably
be expected, individually or in the aggregate, to result in a Material Adverse
Effect.

            (e)   No Conflicts. The execution, delivery and performance of this
Note does not, and the consummation of the transactions contemplated hereby will
not, (i) conflict with, or result in any violation or breach of any provision of
the certificate of incorporation or bylaws of the Borrower or any of its
Subsidiaries, (ii) conflict with, result in any violation or breach of, or
constitute (with or without notice or lapse of time, or both) a default under or
conflict with (or give rise to any right of termination, amendment, cancellation
or acceleration of any right or obligation or loss of any benefit under) any of
the terms, conditions or provisions of any note, bond, mortgage, license,
indenture, lease, contract or other agreement, instrument or obligation to which
the Borrower or any of its Subsidiaries is a party or by which any of them or
any of their properties or assets may be bound or affected, (iii) conflict with
or violate any permit, concession, franchise, license, judgment, injunction,
order, decree, statute, law, ruling, ordinance, rule or regulation (including,
without limitation, federal and state securities laws and regulations)
(collectively, "Laws") applicable to the Borrower or any of its Subsidiaries or
by which any of their properties or assets are bound or affected or (iv) result
in the creation or imposition of any pledge, claim,

                                       4

<PAGE>

lien, charge, encumbrance or security interest of any kind or nature whatsoever
(any of the foregoing, an "Encumbrance") against any of the properties or assets
of the Borrower or any of its Subsidiaries, except for the Security Agreement,
and except in the case of clauses (ii) or (iii) above, where such conflicts or
violations could neither prevent or delay the Borrower's ability to consummate
the transactions contemplated by this Note nor reasonably be expected,
individually or in the aggregate, to result in a Material Adverse Effect.

            (f)   SEC Filings. Except as disclosed in the Company SEC Reports
(as defined below) and in the registration statements filed by the Borrower with
the United States Securities and Exchange Commission ("SEC"), the Borrower has
filed all reports and registration statements required to be filed by it with
the SEC. As of its filing date, and giving effect to any amendments thereof,
each report filed by the Borrower with the SEC (collectively, the "Company SEC
Reports") and each registration statement filed by the Borrower with the SEC
complied as to form in all material respects with the applicable requirements of
the Securities Act of 1933, as amended, including the rules and regulations
promulgated thereunder (the "Securities Act") and the Securities Exchange Act of
1934, as amended, including the rules and regulations promulgated thereunder
(the "Exchange Act"), as the case may be. As of its filing date, and giving
effect to any amendments thereof, each Company SEC Report filed pursuant to the
Exchange Act did not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
The Borrower's draft registration statement on Form S-1 dated August 4, 2003
provided to the Lender prior to the date hereof, and any such amended or
supplemented version of such registration statement filed with the SEC, if
applicable, and each other registration statement filed by the Borrower with the
SEC after the date hereof pursuant to the Securities Act , as amended or
supplemented, if applicable (as of the date of any such registration statement
and when any amendment becomes effective) complies and will comply as to form in
all material respects with the applicable requirements of the Securities Act and
does not and will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading.

            (g)   Financial Statements. Each of the consolidated financial
statements (including, in each case, any related notes thereto) contained in the
Company SEC Reports and each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in the
registration statements filed by the Borrower with the SEC (collectively, the
"Financial Statements") complied as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, had been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited financial statements contained therein (the "Interim
Financial Statements"), as permitted by Form 10-Q or the Exchange Act
regulations promulgated by the SEC), and each fairly presented the consolidated
financial position of the Borrower and its consolidated Subsidiaries in all
material respects as at the respective dates thereof and the consolidated
results of its operations and cash flows for the periods indicated in accordance
with GAAP (subject, in the case of the Interim Financial Statements, to normal
audit adjustments which were not and are not expected, individually or in the
aggregate, to be material in amount).

            (h)   Absence of Certain Changes. Since December 30, 2002, except as
disclosed in the Company SEC Reports prior to the date of this Note, the
Borrower and its Subsidiaries have conducted their businesses in the ordinary
course, in a manner consistent with past practice, and there has not been any
event, occurrence or development of a state of circumstances or facts which,
individually or in the aggregate, has had or could reasonably be expected to
have a Material Adverse Effect or could prevent or delay the Borrower's ability
to consummate the transactions contemplated by this Note. For purposes of this
Note, a "Material Adverse Effect" means any fact, event, change, circumstance,
condition or effect which is or could reasonably be expected to be materially
adverse to the business, condition (financial or otherwise), results of
operations, prospects, properties, assets or liabilities of the Borrower and its
Subsidiaries, taken as a whole.

            (i)   Litigation. Except as set forth in the Borrower's Annual
Report on Form 10-K/A filed on April 1, 2003 or the Borrower's Quarterly Report
on Form 10-Q filed on May 9, 2003, there is no

                                       5

<PAGE>

judgment, ruling, decree, injunction, rule or order of any Governmental Entity,
arbitrator or other Person outstanding against the Borrower or any of its
Subsidiaries. Since December 30, 2002, except as set forth in the Borrower's
Annual Report on Form 10-K/A filed on April 1, 2003 or the Borrower's Quarterly
Report on Form 10-Q filed on May 9, 2003, there have been no claims, actions,
suits, proceedings or investigations, or any amendment of any prior claim,
action, suit, proceeding or investigation, initiated against or, to the
knowledge of the Borrower, threatened against or affecting the Borrower or any
of its Subsidiaries (or any of their respective properties or assets) at law or
in equity or before or by any Governmental Entity, arbitrator or other Person
which (i) in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the transactions contemplated by this Note or (ii) if resolved
adversely to the Borrower or a Subsidiary could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.

            (j)   No Preemptive Rights. No preemptive rights, participation
rights, rights of first offer or first refusal, tag-along or drag-along rights
or other approval rights (collectively, "Preemptive Rights") will apply or
become applicable in connection with or as a result of the transactions
contemplated by this Note.

            (k)   Due Issuance and Authorization of Securities. All of the
outstanding shares of capital stock of the Borrower have been, or upon issuance
will be, validly issued, fully paid and non-assessable. No securities of the
Borrower are subject to Preemptive Rights or other similar rights of any or all
of the stockholders of the Borrower. This Note is, and any securities issuable
to the Holder upon conversion, exchange or exercise of this Note will be, upon
issuance, duly authorized, validly issued, fully paid and non-assessable, each
vesting in the Holder legal and valid title to such securities, free and clear
of all Encumbrances and are and will not be subject to Preemptive Rights or
other similar rights of any or all of the stockholders of the Borrower.

      4.    Events of Default.

            If any of the following events shall occur and be continuing (each
such event, an "Event of Default"):

            (i) the Borrower fails to repay the principal amount of this Note
when due, or fails to pay any interest thereon when due and such failure to pay
interest continues for five (5) days;

            (ii) any representation or warranty made by the Borrower in this
Note shall be false in any material respect;

            (iii) the Borrower fails to convert the outstanding principal amount
of this Note and any accrued and unpaid interest hereunder into shares of common
stock in accordance with the terms of Section 5 and such failure continues for
five (5) days;

            (iv) the Borrower violates any material covenant, agreement or
condition contained in this Note, which violation shall not have been cured for
a period of forty-five (45) days following notice to the Borrower from the
Holder;

            (v) this Note, or any part thereof, shall (other than resulting from
payment or by consent of the applicable parties thereto), at any time after its
execution and delivery and for any reason, cease to be in full force and effect
or shall be declared to be null and void or the validity or enforceability
thereof shall be contested by the Borrower or the Borrower shall deny that the
Borrower has any or further liability or obligation thereunder;

            (vi) any default or breach occurs under any other agreement,
document or instrument to which Borrower or any of its Subsidiaries is a party
that is not cured within any applicable grace period therefor, and such default
or breach involves the failure to make any payment when due in respect of any
principal of or interest on indebtedness or guaranteed indebtedness for borrowed
money (other than the

                                       6

<PAGE>

Obligations) of Borrower or any of its Subsidiaries in excess of $250,000 in the
aggregate (including amounts owing to all creditors under any combined or
syndicated credit arrangements) and such failure causes, or permits any holder
of such indebtedness or guaranteed indebtedness or a trustee to cause, such
indebtedness or guaranteed indebtedness or a portion thereof in excess of
$250,000 in the aggregate to become due prior to its stated maturity or prior to
its regularly scheduled dates of payment, in each case, regardless of whether
such right is exercised, by such holder or trustee;

            (vii) Borrower fails to pay any of its indebtedness or to perform
any of its obligations when due under any document between Borrower and any
other Person who holds a lien on the collateral securing all or any part of the
Obligations ("Collateral") that is senior to the lien held by the Holder in the
Collateral and fails to cure such breach within any applicable cure period under
such document (provided, that nothing contained in this Section constitutes or
shall be construed as the Holder's consent to any lien being placed on the
Collateral, other than liens on equipment pledged to secure the Company's
equipment loan credit facility);

            (viii) the Borrower shall be liquidated, dissolved, adjudicated
insolvent, or shall fail to pay, or shall admit in writing its inability to pay
its debts as they mature, or shall make a general assignment for the benefit of
creditors; or the Borrower shall apply for or consent to the appointment of any
receiver, custodian, trustee or similar officer for it or for all or any
substantial part of its property, or such receiver, custodian, trustee or
similar officer shall be appointed without the application or consent of the
Borrower; or the Borrower shall institute (by petition, application, answer,
consent or otherwise), or take any action to authorize the institution of, any
bankruptcy, insolvency, reorganization, dissolution, liquidation or similar
proceeding relating to the Borrower under the Laws of any jurisdiction; or any
such proceeding shall be instituted (by petition, application or otherwise)
against the Borrower and such proceeding shall not be dismissed within thirty
(30) days after being instituted;

            (ix) any final, non-appealable money judgment, writ or warrant of
attachment, or similar process involving in any individual case or in the
aggregate at any time an amount in excess of $250,000 shall be entered into or
filed against the Borrower or any of its Subsidiaries or any of their respective
properties or assets;

            (x) a court order is entered against Borrower enjoining the conduct
of all or a material part of its business, and Borrower fails to cause such
injunction to be fully stayed, dissolved or removed within sixty (60) days after
such order is entered;

            (xi) the Borrower has, without the Holder's prior written consent,
(1) changed its jurisdiction of incorporation; (2) succeeded to all or any
substantial part of the liabilities of any other Person; (3) directly or
indirectly, consolidated with or merged into any other Person or permitted any
other Person to consolidate with or merge into it or engaged in any other
corporate reorganization; (4) sold, leased, conveyed, abandoned or otherwise
disposed of all or substantially all or any substantial part of its assets in
one transaction or a series of transactions; (5) engaged in a transaction or
series of transactions in which more than twenty percent (20%) of the voting
power of the Borrower directly or indirectly may be issued, transferred or
disposed of (including by exercise, exchange or conversion of derivative
securities) to a Person other than ZAM Holdings, L.P.; (6) incurred, assumed or
guaranteed any indebtedness for borrowed money or incurred Encumbrances (other
than pursuant to (A) Borrower's senior secured promissory note, dated as of
March 31, 2003, for the benefit of First Republic Bank (the "Prior Note"), (B)
an Investment Agreement among Borrower, ZAM Holdings, L.P. ("ZAM"), Eric J.
Gleacher ("Gleacher"), Charles G. Phillips and LJCB Nominees Pty. Ltd. pursuant
to which Borrower issues to such other parties senior secured convertible notes
of Borrower (such agreement, the "Investment Agreement"); provided, that such
Investment Agreement expressly provides that such senior secured convertible
notes are exempt pursuant to this Section 4(xi)(6) and (C) senior secured
convertible notes, issued as of the date hereof, by Borrower to ZAM and Gleacher
in the principal amounts of $969,240.50 and $378,802.00, respectively) in excess
of $3 million; or (7) agreed or committed to do any of the foregoing;

                                       7

<PAGE>

            (xii) (1) the validity or priority of the Holder's security interest
in the Collateral is impaired in any material respect for any reason; or (2) the
value of the Collateral has deteriorated, declined or depreciated as a result of
any intentional act or omission by Borrower; or

            (xiii) an "Event of Default" shall occur under the Security
Agreement; then, (A) upon the occurrence of any Event of Default described in
clause (viii) of this Section 4, the Obligations shall automatically become
immediately due and payable without presentment, demand, protest, notice of
intent to accelerate, notice of acceleration or further notice of any kind, all
of which are hereby expressly waived by the Borrower, and (B) upon the
occurrence of any other Event of Default, the Holder may, at its option, by
written notice to the Borrower declare the Obligations to be forthwith due and
payable, whereupon such Obligations shall become and be forthwith due and
payable, without presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or further notice of any kind, all of which are hereby
expressly waived by the Borrower.

            Other than as provided in this Section 4, the Note shall be
satisfied only by Conversion pursuant to Section 5 or by payment in full of all
amounts due hereunder.

      5.    Conversion.

            (a)   Conversion Right. Subject to and upon compliance with the
provisions hereof, and subject to the approval of the stockholders of Borrower
with respect to the conversion feature of this Note, but (provided that Borrower
shall not have presented at a meeting of its stockholders the conversion feature
of this Note for approval by such stockholders) only if required under
applicable Law, (the "Stockholder Approval"), the Holder shall have the right,
at any time or from time to time, to convert all or any portion of the Total
Convertible Amount into as many shares of common stock, par value $.01 per
share, of Borrower ("Common Stock") as the portion of the Total Convertible
Amount so converted is a multiple of the Initial Conversion Price or, in case an
adjustment of such price has taken place pursuant to the provisions of this
Section 5, then at the price as last adjusted and in effect at the date this
Note or portion thereof is surrendered for conversion (such price or such price
as last adjusted, as the case may be, the "Conversion Price"). Notwithstanding
the preceding sentence, if, pursuant to Article I, Section 1.1(b) of the
Investment Agreement, the stockholders of the Borrower collectively subscribe
for a number of Rights Shares that equals at least $2,000,000, then the Holder
shall elect to convert the Total Convertible Amount in its entirety into shares
of Common Stock of the Borrower pursuant to this Section 5. For the purposes of
this Note, the term "Total Convertible Amount" shall mean, on any date, the sum
of the unpaid principal amount of this Note and the accrued and unpaid interest
thereon on such date. For the purposes of this Note, the term "Initial
Conversion Price" shall mean the lesser of (i) $1.50 and (ii) 85% of the
weighted average price per share of Borrower's Common Stock as reported on the
Nasdaq National Market for the fifteen trading day period ending three trading
days before the conversion date (provided, that (1) if the shares of such Common
Stock then are not traded on the Nasdaq National Market, the average of the
highest reported bid and lowest reported asked price for each of such fifteen
days as reported by NASDAQ shall be used; (2) if the shares of such Common Stock
then are not listed and traded on the NASDAQ, the average closing prices for
such fifteen days as reported by the principal national securities exchange on
which the shares are listed and traded shall be used; or (3) if the shares of
such Common Stock are not then listed or traded on NASDAQ or a national
securities exchange, the fair market value as determined jointly in good faith
by the Holder and the Borrower shall be used).

            (b)   Manner of Conversion. This Note may be converted on any
Business Day prior to the Maturity Date (any such date of conversion, a
"Conversion Date"). In order to exercise such conversion privilege, the Holder
shall surrender this Note to the Borrower accompanied by a written statement
(the "Conversion Notice") designating the portion of the Total Convertible
Amount to be converted. If the Holder elects to convert this Note, or a portion
thereof, such conversion (a "Conversion") shall be deemed to have taken place
immediately prior to the close of business on the Conversion Date, and at such
time the rights of the Holder as Holder of this Note shall cease to the extent
of the portion of the Total Convertible Amount so converted and the Holder shall
be treated for all purposes (with respect to such portion) as the record holder
of the Common Stock issuable upon Conversion at such time.

                                       8

<PAGE>

            (c)   Delivery of Stock Certificates, Etc. The Borrower, at its
expense (including the payment by it of any documentary stamp or similar issue
or transfer taxes, other than any taxes which may then be payable in respect of
the transfer of any such shares of Common Stock in a name other than that of the
Holder), will issue and deliver to the Holder as promptly as practicable on or
after a Conversion Date a certificate or certificates for the number of shares
of Common Stock of the Borrower issuable upon the Conversion. If this Note shall
be converted only in part, the Borrower shall, upon such Conversion, execute and
deliver to the Holder, at the expense of the Borrower, a new Note in principal
amount equal to the unconverted portion of the Total Convertible Amount (dated
as of the Conversion Date).

            (d)   Adjustments on Conversion. The Borrower shall pay all interest
on the portion of this Note surrendered for conversion accrued through the last
full business day immediately preceding the date that the Conversion Notice
shall have been received by the Borrower, provided that no such payment shall be
made if the interest so accrued is converted pursuant to this Section 5. No
fractional shares of common stock shall be issued upon conversion of this Note,
but, if the conversion results in a fraction, an amount equal to such fraction
multiplied by the Per Share Market Price of the Common Stock on the last
Business Day prior to the Conversion Date shall be paid in cash to the Holder.
"Per Share Market Price" means, for any date of determination thereof, the
average daily Market Price per share for the 15 trading days immediately
preceding such date. The term "Market Price" shall mean the last reported sale
price per share regular way of Borrower's Common Stock as reported on the Nasdaq
National Market (provided, that (1) if the shares of such Common Stock then are
not traded on the Nasdaq National Market, the average of the highest reported
bid and lowest reported asked price for such day as reported by NASDAQ shall be
used; (2) if the shares of such Common Stock then are not listed and traded on
the NASDAQ, the closing price for such day as reported by the principal national
securities exchange on which the shares are listed and traded shall be used; or
(3) if the shares of such Common Stock are not then listed or traded on NASDAQ
or a national securities exchange, the fair market value as determined jointly
in good faith by the Holder and the Borrower shall be used).

            (e)   Adjustments to Conversion Price.

                  (i) Adjustments for Recapitalization. In case the Borrower at
      any time on or after the date hereof shall:

                  (A)   pay a dividend or make a distribution in shares of
                        Common Stock to holders of its capital stock of any
                        class,

                  (B)   subdivide its outstanding shares of Common Stock into a
                        larger number of shares,

                  (C)   combine its outstanding shares of Common Stock into a
                        smaller number of shares,

                  (D)   pay a dividend or make a distribution to holders of its
                        Common Stock in (1) shares of its capital stock other
                        than Common Stock, (2) assets (including, without
                        limitation, securities of other Persons), evidences of
                        indebtedness or rights, or (3) options or warrants to
                        subscribe for or purchase any of its securities
                        (collectively, "Other Securities or Assets"),

      then the Conversion Price shall be adjusted to that price determined by
      multiplying the Conversion Price in effect immediately prior to such event
      by a fraction (x) the numerator of which shall be the total number of
      outstanding shares of Common Stock of the Borrower immediately prior to
      such event, and (y) the denominator of which shall be the total number of
      outstanding shares of Common Stock of the Borrower immediately after such
      event; provided that if the Borrower shall pay a dividend or make a
      distribution on its Common Stock in Other Securities or Assets, the
      Conversion Price shall be adjusted to the price obtained by multiplying
      the price then subject to adjustment by a fraction (x) the numerator of
      which shall be the Per Share Market Price of the Common Stock on the
      record date for such dividend or distribution, less the fair market value
      (on a per share of Common

                                       9

<PAGE>

      Stock basis) as determined jointly in good faith by the Holder and the
      Borrower of the Other Securities or Assets so distributed, and (y) the
      denominator of which shall be the Per Share Market Price of the Common
      Stock on the record date for such dividend or distribution. Any adjustment
      made pursuant to this paragraph shall become effective immediately after
      the record date in the case of a dividend or distribution and shall become
      effective immediately after the effective date in the case of subdivision
      or combination. The provisions of this Section 5(e) shall apply to the
      Conversion Price determined (directly or indirectly) by reference to the
      Initial Conversion Price of $1.50 and to any transactions described in (A)
      through (D) above occurring during or after a fifteen trading day period
      referred to in Section 5(a) but ending on the Conversion Date; provided,
      that if any such transaction described in (A) through (D) above occurs
      during a fifteen trading day period referred to in Section 5(a), the
      calculation of the Conversion Price shall be equitably adjusted to provide
      for a consistent basis of calculation during such period.

                  (ii) De Minimis Adjustments. Except as hereinafter provided,
      no adjustment of the Conversion Price hereunder shall be made if such
      adjustment results in a change of less than 1% in the Conversion Price
      then in effect. Any adjustment of less than 1% in the Conversion Price
      then in effect shall be carried forward and shall be made at the time of
      and together with any subsequent adjustment which, together with
      adjustment or adjustments so carried forward, amounts to 1% or more of the
      Conversion Price then in existence.

            (f)   Adjustments for Reorganization. If the Borrower shall be
reorganized or shall be merged into or consolidate with any another Person or
shall sell all or substantially all of its assets or another Person shall be
merged into Borrower and in connection therewith Common Stock of the Borrower
shall be changed or converted into Successor Assets (as hereinafter defined), or
if the Borrower shall issue by reclassification of its shares of Common Stock
any shares of capital stock of the Borrower (each such event, an "Organic
Change"), then, as a condition of such Organic Change, lawful and adequate
provision shall be made whereby the Holder shall thereafter have the right to
receive upon the basis and upon the terms and conditions specified herein and in
lieu of the shares of Common Stock immediately theretofore receivable upon
conversion of this Note, such shares of stock, securities, assets or cash
(collectively, the "Successor Assets") as may (by virtue of such Organic Change)
be issued or payable with respect to or in exchange for a number of outstanding
shares of Common Stock equal to the number of shares of Common Stock immediately
theretofore so receivable by the Holder hereunder had such Organic Change not
taken place. In any such case, appropriate provisions shall be made with respect
to the rights and interests of the Holder to the end that the provisions of this
Section 5 (including, without limitation, provisions for adjustment of the
Conversion Price) shall thereafter be applicable as nearly as may be, in
relation to any Successor Assets thereafter deliverable upon conversion of this
Note.

            (g)   Dissolution or Liquidation. In the event of any proposed
distribution of the assets of the Borrower in dissolution or liquidation (except
under circumstances when Section 5(f) shall be applicable), the Borrower shall
mail notice thereof to the Holder of this Note and shall make no distribution to
stockholders until the expiration of 30 days from the date of mailing of such
notice and, in any such case, the Holder may exercise the conversion rights with
respect to this Note within 30 days from the date of mailing such notice and all
rights herein granted not so exercised within such 30-day period shall
thereafter become null and void.

            (h)   Certain Events. If any event occurs of the type contemplated
by Sections 5(e), 5(f), or 5(g) but not expressly provided for by such
provisions which adversely affect the rights of the Holder in a manner different
than the holders of Common Stock, then the Borrower's board of directors shall
make an appropriate adjustment in the number of shares of Common Stock
obtainable upon conversion of this Note pursuant to Section 5(a) so as to
protect the rights of the Holder.

            (i)   Notices. The Borrower shall provide notice to the Holder, in
accordance with Section 11 of this Note, at least ten (10) Business Days prior
to the record date (or, if there is no record date, the date of such dividend,
distribution or event) for (i) any dividend, distribution or event that would
trigger adjustment hereunder and (ii) any dividend or distribution to all
holders of Common Stock outside the ordinary course of business, describing the
material terms thereof. Upon any adjustment or other

                                       10

<PAGE>

change relating to the shares of Common Stock or other property issuable upon
the Conversion pursuant to Section 5(a), then and in each such case the Borrower
shall give written notice thereof to Holder, in accordance with Section 11 of
this Note, which notice shall state the increase or decrease, if any, in the
number or other denomination of the shares of Common Stock issuable upon the
Conversion pursuant to Section 5(a), and the amount of other property receivable
upon the Conversion, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.

            (j)   Adequate Shares. The Borrower will at all times reserve and
keep available out of its authorized but unissued capital stock 303,915 shares
of Common Stock for the purpose of effecting the Conversion pursuant to Section
5(a). All shares of stock which may be issuable upon the Conversion pursuant to
Section 5(a) will, upon issuance, be validly issued, fully paid and
non-assessable and free from all taxes (other than any taxes which may then be
payable in respect of the transfer of any such shares), liens and charges with
respect to the issuance thereof. The shares of stock issuable upon the
Conversion pursuant to Section 5(a) shall be issued without charge to the Holder
thereof for any issuance tax in respect thereof or other cost incurred by the
Borrower in connection with the Conversion and the related issuance of such
shares. The Borrower shall not close its books against the transfer of shares of
stock issued or issuable upon the Conversion pursuant to Section 5(a) in any
manner which interferes with the timely conversion of this Note. The Borrower
shall provide reasonable assistance and cooperate with any Holder of this Note
as required to make any governmental filings or obtain any licenses, permits,
certificates, consents, orders, approvals or other authorizations from
governmental authorities (collectively, "Governmental Approvals") prior to or in
connection with the conversion of this Note (including, without limitation,
making any filings required to be made by the Borrower). The Borrower shall take
all such reasonable actions as may be necessary to assure that all stock which
may be issuable upon the Conversion pursuant to this Section 5 may be issued
without violation of any applicable Law or governmental regulation. The Borrower
shall, as promptly as practicable, duly call, give notice of, convene and hold a
meeting of its stockholders in accordance with applicable Law and its
organizational documents for the purpose of obtaining the Stockholder Approval
and the approval of the stockholders of Borrower with respect to the conversion
feature of the Prior Note ("Prior Note Approval"). The Borrower, consistent with
the board of directors' fiduciary duties, shall use its best efforts to obtain
the Stockholder Approval and Prior Note Approval in accordance with applicable
Law.

            (k)   Listing Obligation. As long as Borrower has securities listed
on NASDAQ or any other stock exchange, Borrower will take all reasonable steps
necessary, and pay all reasonable fees required, to list all of the shares of
Common Stock issued or issuable upon conversion, exchange or exercise of, or
otherwise in connection with, this Note on NASDAQ or such other stock exchanges
in the United States of America on which the Common Stock then is listed.
Following the initial listing of such shares, the Borrower, consistent with the
board of directors' fiduciary duties, will use its commercially reasonable best
efforts to maintain the listing of such shares whenever the Common Stock is
listed on any such exchange.

      6.    Covenants of Borrower While Note Is Outstanding. The Borrower agrees
that, so long as there is any unpaid principal or interest outstanding or other
amount due to the Holder under this Note:

            (i)   Payment of Obligations. The Borrower will pay and discharge,
                  and will cause each Subsidiary to pay and discharge, at or
                  before maturity, all their respective obligations and
                  liabilities, including, without limitation, tax liabilities,
                  except where such tax liabilities may be contested in good
                  faith by appropriate proceedings, and will maintain, and will
                  cause each Subsidiary to maintain, in accordance with
                  generally accepted accounting principles, appropriate reserves
                  for the accrual of any of the same, and except where such
                  failures to pay and discharge, individually or in the
                  aggregate, would not reasonably be expected to have a Material
                  Adverse Effect;

            (ii)  Maintenance of Property; Insurance. The Borrower will keep,
                  and will cause each Subsidiary to keep, all material property
                  useful and necessary in its

                                       11

<PAGE>

                  business in good working order and condition; and will
                  maintain, and will cause each Subsidiary to maintain (either
                  in the name of the Borrower or in such Subsidiary's own name)
                  with financially sound and reputable insurance companies,
                  insurance on all their property in at least such amounts and
                  against at least such risks as are usually insured against in
                  the same general area by companies of established repute
                  engaged in the same or a similar business. The Borrower will
                  furnish to the Holder, upon written request, full information
                  as to the insurance carried;

            (iii) Conduct of Business and Maintenance of Existence. The Borrower
                  will continue, and will cause each Subsidiary to continue, to
                  engage in business of the same general type as now conducted
                  by the Borrower and its Subsidiaries, and will preserve, renew
                  and keep in full force and effect, and will cause each
                  Subsidiary to preserve, renew and keep in full force and
                  effect their respective corporate existence and their
                  respective rights, privileges and franchises necessary or
                  desirable in the normal conduct of business, except for such
                  failures to continue and failures to preserve, renew and keep
                  that, individually or in the aggregate, would not reasonably
                  be expected to have a Material Adverse Effect; provided that
                  nothing in this Section shall prohibit the abandonment or
                  termination of the corporate existence, rights, privileges or
                  franchises of any Subsidiary when deemed by the Borrower in
                  good faith to be in the best interest of its overall business;

            (iv)  Compliance with Laws. Each of Borrower and its Subsidiaries
                  shall comply with all federal, state, local and foreign Laws
                  and regulations applicable to it, except to the extent that
                  the failure to comply, individually or in the aggregate, could
                  not reasonably be expected to have a Material Adverse Effect;

            (v)   Books and Records; Inspections by Holder. Borrower shall keep
                  and maintain complete and accurate books and records relating
                  to its business at its principal place of business. The Holder
                  shall have access to such books and records at all reasonable
                  times upon not less than two (2) Business Days prior written
                  notice to Borrower for the purposes of examination,
                  inspection, verification, copying and for any other reasonable
                  purpose. Borrower authorizes the Holder, at its option but
                  without any obligation of any kind to do so, to discuss the
                  affairs, finances and accounts of Borrower with any of
                  Borrower's officers and directors and, at the Holder's
                  expense, with Borrower's independent accountants and auditors,
                  and Borrower irrevocably authorizes all accountants and
                  auditors employed or retained by Borrower to respond to and
                  answer all requests from the Holder for financial and other
                  information regarding Borrower. Borrower waives the benefit of
                  any accountant-client privilege or other evidentiary privilege
                  precluding or limiting the disclosure or delivery of any of
                  its books and records to the Holder (except that Borrower does
                  not waive any attorney-client privilege).

            (vi)  Notice of Material Adverse Changes. Borrower shall immediately
                  notify the Holder in writing of (a) any Material Adverse
                  Effect; (b) any material adverse change in the Collateral; (c)
                  any claim, action, suit, proceeding or investigation, or any
                  amendment of any prior claim, action, suit, proceeding or
                  investigation, initiated against or threatened against or
                  affecting the Borrower or any of its Subsidiaries (or any of
                  their respective properties or assets) which, individually or
                  in the aggregate, may cause or result in a Material Adverse
                  Effect or any material impairment in the ability of Borrower
                  to carry on its business in substantially the same manner as
                  it is now being conducted; and (d) any occurrence which could
                  form the basis of an Event of Default.

                                       12

<PAGE>

            (vii) Licenses. Borrower shall maintain all Governmental Approvals
                  necessary for the ownership of its properties and the conduct
                  of its businesses, except for Governmental Approvals the
                  failure of which to maintain would not reasonably be expected
                  to have a Material Adverse Effect.

            (viii) Further Assurances. Upon the Holder's request, Borrower shall
                  execute and deliver to the Holder such further documents and
                  agreements, in form and substance satisfactory to the Holder,
                  as the Holder may reasonably require to effectuate the terms
                  of this Agreement and the Security Agreement, including,
                  without limitation, executing, and causing the other necessary
                  parties to execute, a registration rights agreement covering
                  the shares of Common Stock issuable upon conversion of this
                  Note on terms acceptable to Holder.

            (ix)  Negative Covenants. Other than pursuant to the Investment
                  Agreement, the Borrower shall not, nor shall it permit any of
                  its Subsidiaries to, without the prior written consent of the
                  Holder:

                  (i) directly or indirectly, by operation of Law or otherwise,
      merge or consolidate with or into any Person;

                  (ii) (a) create, incur, assume or permit to exist any
      long-term Indebtedness (as defined below); (b) except in the ordinary
      course of business, consistent with past practice and in an aggregate
      amount not to exceed $250,000 for any consecutive twelve (12) month
      period, create, incur, assume or permit to exist short-term Indebtedness;
      (c) pay, repay, discharge, purchase, repurchase or satisfy any
      Indebtedness issued or guaranteed by the Borrower or any Borrower
      Subsidiary, except as required by the terms thereof; (d) modify the terms
      of any Indebtedness or other liability, other than modifications of short
      term debt in the ordinary and usual course of business and consistent with
      past practice or (e) assume, guarantee, endorse or otherwise become liable
      or responsible (whether directly, contingently or otherwise) for the
      obligations of any other Person;

                  (iii) other than liens on equipment pledged to secure the
      Company's equipment loan credit facility, create, incur, assume or permit
      to exist any mortgage or deed of trust, pledge, hypothecation, assignment,
      deposit arrangement, lien, charge, claim, security interest, easement or
      Encumbrance, or preference, priority or other security agreement or
      preferential arrangement of any kind or nature whatsoever (including,
      without limitation, any lease or title retention agreement, any financing
      lease having substantially the same economic effect as any of the
      foregoing, and the filing of, or agreement to give, any financing
      statement perfecting a security interest under the Uniform Commercial Code
      or comparable Law of any jurisdiction); or

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

      For purposes of this Note, "Indebtedness" means (i) all indebtedness for
borrowed money or for the deferred purchase price of property or services (other
than current trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices), (ii) any other indebtedness
that is evidenced by a note, bond, debenture or similar instrument, (iii) all
obligations under financing leases, (iv) all obligations in respect of
acceptances issued or created, (v) all liabilities secured by any lien on any
property and (vi) all guarantee obligations.

            (x)   Stockholders Meeting. The Company shall, as promptly as
practicable, duly call, give notice of, convene and hold a meeting of its
stockholders in accordance with applicable law and its organizational documents
for the purpose of obtaining the Stockholder Approval.

                                       13

<PAGE>

      7.    Investment Intent. The Holder hereby represents and warrants to the
Borrower that it is an "accredited investor" within the meaning of Rule 501(a)
promulgated under the Securities Act.

      8.    Security. Payment of the Obligations is secured pursuant to the
Security Agreement.

      9.    Business Days. If any payment is due, or any time period for giving
notice or taking action expires, on a day which is not a Business Day, the
payment shall be due and payable on, and the time period shall automatically be
extended to, the immediately succeeding Business Day, and interest shall
continue to accrue at the required rate hereunder until any such payment is
made.

      10.   Governing Law; Consent to Jurisdiction. THIS NOTE SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW YORK, AND SHALL BIND AND
INURE TO THE BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND
ASSIGNS.

            THE BORROWER HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE
COURTS OF NEW YORK AND THE UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN NEW
YORK COUNTY (THE "SELECTED COURTS") FOR ANY PROCEEDING ARISING OUT OF OR
RELATING TO THIS NOTE (AND AGREES NOT TO COMMENCE ANY PROCEEDING RELATING
THERETO EXCEPT IN SUCH COURTS) AND WAIVES ANY OBJECTION TO VENUE BEING LAID IN
ANY OF THE SELECTED COURTS WHETHER BASED ON THE GROUNDS OF FORUM NON CONVENIENS
OR OTHERWISE. THE BORROWER HEREBY AGREES THAT SERVICE OF ANY PROCESS, SUMMONS,
NOTICE OR DOCUMENT BY U.S. REGISTERED MAIL TO ITS ADDRESS SET FORTH ABOVE SHALL
BE EFFECTIVE SERVICE OF PROCESS FOR ANY ACTION, SUIT OR PROCEEDING IN NEW YORK
WITH RESPECT TO ANY MATTERS TO WHICH IT HAS SUBMITTED TO JURISDICTION IN THIS
SECTION.

      11.   Notices. All notices provided for herein shall be delivered (a) if
to the Borrower, to it at Cosi, Inc., 242 West 36th Street, New York, NY 10018,
Attn: William D. Forrest, and (b) if to the Holder, at Charles G. Phillips, 775
Park Avenue, New York, NY 10021. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by telecopy,
nationally recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth in this Section 11 or such other address as may hereafter be
designated in writing by such party to the other party.

12.   Miscellaneous.

            (a)   Amendment; Waiver. No failure or delay on the part of the
Holder in exercising any power or right hereunder, and no course of dealing
between the Borrower and the Holder of this Note, shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Note nor
consent to any departure by the Borrower therefrom shall in any event be
effective unless the same shall be in writing and executed by the Holder, and
then such modification, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No notice to or
demand on the Borrower in any case shall entitle the Borrower to any other or
further notice or demand in similar or other circumstances. No amendment to, or
modification of, any provision of this Note shall in any event be effective
unless the same shall be in writing and executed and delivered by the Borrower
and the Holder. No waiver of, or consent with respect to, any provision of this
Note shall in any event be effective unless the same shall be in writing and
executed and delivered by the party from whom such waiver or consent is sought.

            (b)   Successors and Assigns. Subject to the terms and conditions of
this Note, this Note shall inure to the benefit of the Holder of this Note and
the Borrower and their respective successors

                                       14

<PAGE>

and assigns and be binding upon the Holder of this Note and the Borrower and
their respective successors and assigns.

            (c)   Entire Agreement. This Note and the Security Agreement, and
the agreements, documents and instruments executed in connection herewith and
therewith, constitute the entire understanding between the Borrower and the
Holder with respect to the subject matter hereof and supersede any prior
agreements, written or oral, with respect thereto. The rights and remedies
provided pursuant to this Note are cumulative and are not exclusive of any
rights or remedies which any party otherwise may have at law or in equity.

            (d)   Lost, Stolen, Destroyed or Mutilated Note. If this Note is
lost, stolen or destroyed, upon Borrower's receipt of a reasonably satisfactory
indemnification agreement executed by the Holder, or if this Note is mutilated,
upon the Holder's surrender of the mutilated Note to Borrower, Borrower shall
execute and deliver to the Holder a new promissory note which is identical in
form and content to this Note to replace the lost, stolen, destroyed or
mutilated Note. Such a replacement note shall be deemed a "Note" for all
purposes hereunder.

            (e)   Attorneys' Fees and Costs and Other Expenses. Upon the
Holder's demand, Borrower shall reimburse the Holder for all costs and expenses,
including reasonable attorneys' fees and costs, incurred by the Holder in
connection with the exercise of any or all of the Holder 's rights and remedies
under this Note or the Security Agreement, the enforcement of any or all
Obligations, whether or not any legal proceedings are instituted by the Holder,
or the defense of any action or proceeding by Borrower or any other Person
relating to the Loan. Without limiting the generality of the immediately
preceding sentence, such costs and expenses shall include all reasonable
attorneys' fees and costs incurred by the Holder in connection with any federal
or state bankruptcy, insolvency, reorganization, or other similar proceeding by
or against Borrower which in any way affects the Holder's exercise of its rights
and remedies under the Note or the Security Agreement. Borrower's obligation to
reimburse the Holder under this Section shall include payment of interest on all
amounts expended by the Holder from the date of expenditure at the rate of
interest applicable to principal under the Note. Wherever any of the terms of
this Note or the Security Agreement provide for the payment or recovery of
costs, fees, or other expenses (including attorneys' fees and costs), such term
shall be deemed to provide for the payment or recovery of reasonable costs,
fees, expenses, and reasonable attorneys' fees and costs.

            (f)   Time of the Essence. Time is of the essence in the performance
by Borrower of each provision of this Note and the Security Agreement.

            (g)   Interpretation. This Note 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 Note. The definitions used in this Note are applicable to the singular
as well as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Note shall refer to
this Note as a whole and not to any particular provision of this Note. Any
statute defined or referred to herein or in any agreement or instrument that is
referred to herein means such statute as from time to time amended, modified or
supplemented, including by succession of comparable successor statutes.

      13.   Descriptive Headings. The headings appearing in this Note have been
inserted for convenience of reference only and shall be given no substantive
meaning or significance whatsoever in construing the terms and provisions of
this Note.

      14.   Severability. Should any provision of this Note be judicially
declared to be invalid, unenforceable or void, such decision will not have the
effect of invalidating or voiding the remainder of this Note, and the parties
hereto agree that the provision of this Note so held to be invalid,
unenforceable or void will be deemed to have been stricken herefrom and the
remainder will have the same force and effectiveness as if such provision had
never been included herein, provided, however the parties hereto shall use their
best efforts replace the provision so deemed to have been stricken herefrom with
a provision

                                       15

<PAGE>

that the parties reasonably believe to be valid and enforceable and which has a
substantially identical economic and legal effect as the provision so deemed to
have been stricken herefrom.

      15.   Prior Agreements. Borrower and Holder agree that the Loan
constitutes "other funding support" for purposes of the funding letter, dated as
of March 31, 2003 from Lender to Borrower.

                                       16

<PAGE>

            IN WITNESS WHEREOF, the Borrower has duly executed and delivered
this Note as of the date first written above.

                                          Cosi, Inc.

                                          By: /s/ William D. Forrest
                                              ----------------------
                                               Name: William D. Forrest
                                               Title:  Executive Chairman

                                       17

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