Document:

FORM OF SECURITIES PURCHASE AGREEMENT

    Exhibit
      10.1

     

    SECURITIES
      PURCHASE AGREEMENT

     

    This
      Securities Purchase Agreement (this “Agreement”)
      is
      dated as of October 25, 2006 among Oxis International, Inc., a Delaware
      corporation (the “Company”),
      and
      each purchaser identified on the signature pages hereto (each, including its
      successors and assigns, a “Purchaser”
and
      collectively the “Purchasers”).

     

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

     

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

     

     

    ARTICLE
      I. 

    DEFINITIONS

     

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

     

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

     

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

     

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

     

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

     

    “Closing
      Date”
means
      the Trading Day when all of the Transaction Documents have been executed and
      delivered by the applicable parties thereto, and all conditions

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    precedent
      to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the
      Company’s obligations to deliver the Securities have been satisfied or
      waived.

     

    “Commission”
means
      the Securities and Exchange Commission.

     

    “Common
      Stock”
means
      the common stock of the Company, par value $.001 per share, and any other class
      of securities into which such securities may hereafter be reclassified or
      changed into.

     

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

     

    “Company
      Counsel”
means
      Richardson & Patel LLP, with offices located at 10900 Wilshire Blvd. Suite
      500, Los Angeles, CA 90024.

     

    “Conversion
      Price”
shall
      have the meaning ascribed to such term in the Debentures.

     

    “Debentures”
means,
      the Original Issue Discount Secured Convertible Debentures due, subject to
      the
      terms therein, 2 years from their date of issuance, issued by the Company to
      the
      Purchasers hereunder, in the form of Exhibit
      A
      attached
      hereto.

     

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

     

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

     

    “Escrow
      Agent”
shall
      have the meaning ascribed to such term in the Escrow Agreement.

     

    “Escrow
      Agreement”
shall
      mean the Escrow Agreement of event date herewith among the Company, the
      Purchasers and the Escrow Agent.

     

    “Evaluation
      Date”
shall
      have the meaning ascribed to such term in Section 3.1(r). 

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended, and the rules and regulations
      promulgated thereunder.

    

    “Exempt
      Issuance”
means
      the issuance of (a) shares of Common Stock or options to employees, officers
      or
      directors of the Company pursuant to any stock or option plan duly adopted
      by a
      majority of the non-employee members of the Board of Directors of the Company
      or
      a majority of the members of a committee of non-employee directors

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    established
      for such purpose, (b) securities upon the exercise or exchange of or conversion
      of any Securities issued hereunder and/or other securities exercisable or
      exchangeable for or convertible into shares of Common Stock issued and
      outstanding on the date of this Agreement, provided that such securities have
      not been amended since the date of this Agreement to increase the number of
      such
      securities or to decrease the exercise, exchange or conversion price of such
      securities, (c) securities issued pursuant to acquisitions or strategic
      transactions approved by a majority of the disinterested directors of the
      Company, provided any such issuance shall only be to a Person which is, itself
      or through its subsidiaries, an operating company in a business synergistic
      with
      the business of the Company and in which the Company receives benefits in
      addition to the investment of funds, but shall not include a transaction in
      which the Company is issuing securities primarily for the purpose of raising
      capital or to an entity whose primary business is investing in securities,
      and
      (d) up to 3,500,000 shares of Common Stock and Common Stock Equivalents (subject
      to adjustment for forward and reverse stock splits, stock dividends and the
      like), in the aggregate, issuable in lieu of cash compensation to executive
      officers and key employees and management, consistent with past business
      practice, provided, however, the Company shall provide each Purchaser with
      prior
      written notice of any such proposed issuance to executive officers and key
      employees and management.

     

    “FWS”
means
      Feldman Weinstein & Smith LLP with offices located at 420 Lexington Avenue,
      Suite 2620, New York, New York 10170-0002.

     

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

     

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

     

    “Intellectual
      Property Rights”
shall
      have the meaning ascribed to such term in Section 3.1(o).

     

    “Legend
      Removal Date”
shall
      have the meaning ascribed to such term in Section 4.1(c). 

     

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

     

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

     

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

     

    “Maximum
      Rate”
shall
      have the meaning ascribed to such term in Section 5.17.

     

    “Participation
      Maximum”
shall
      have the meaning ascribed to such term in Section 4.13. 

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

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

     

    “Pre-Notice”
shall
      have the meaning ascribed to such term in Section 4.13. 

     

    “Principal
      Amount”
shall
      mean, as to each Purchaser, the amounts set forth below such Purchaser’s
      signature block on the signature pages hereto and next to the heading “Principal
      Amount”, in United States Dollars, which shall equal such Purchaser’s
      Subscription Amount multiplied by 1.255.

     

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

     

    “Purchaser
      Party”
shall
      have the meaning ascribed to such term in Section 4.11.

     

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

     

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

     

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

     

    “Required
      Minimum”
means,
      as of any date, the maximum aggregate number of shares of Common Stock then
      issued or potentially issuable in the future pursuant to the Transaction
      Documents, including any Underlying Shares issuable upon exercise or conversion
      in full of all Warrants and Debentures, ignoring any conversion or exercise
      limits set forth therein, and assuming that the Conversion Price is at all
      times
      on and after the date of determination 50% of the then Conversion Price on
      the
      Trading Day immediately prior to the date of determination.

     

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

     

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

     

    “Securities”
means
      the Debentures, the Warrants, the Warrant Shares and the Underlying
      Shares.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    “Securities
      Act”
means
      the Securities Act of 1933, as amended, and the rules and regulations
      promulgated hereunder.

     

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

    

    “Security
      Documents”
shall
      mean the Security Agreement, the Subsidiary Guarantees and any other documents
      and filing required thereunder in order to grant the Purchasers a first priority
      security interest in the assets of the Company and the Subsidiaries as provided
      in the Security Agreement, including all UCC-1 filing receipts. 

     

    “Short
      Sales”
means
      all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
      Act (but shall not be deemed to include the location and/or reservation of
      borrowable shares of Common Stock). 

     

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

     

    “Subsequent
      Financing”
shall
      have the meaning ascribed to such term in Section 4.13.

     

    “Subsequent
      Financing Notice”
shall
      have the meaning ascribed to such term in Section 4.13. 

     

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

     

    “Subsidiary
      Guarantee”
means
      the Subsidiary Guarantee, dated the date hereof, by each Subsidiary in favor
      of
      the Purchasers, in the form of Exhibit
      F
      attached
      hereto.

     

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

     

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

     

    “Transaction
      Documents”
means
      this Agreement, the Debentures, the Warrants, the Registration Rights Agreement,
      the Escrow Agreement, the Security Agreement, the Subsidiary Guarantee, all
      schedules and exhibits hereto and thereto and any other documents or agreements
      executed in connection with the transactions contemplated
      hereunder.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    “Transfer
      Agent”
means
      Computershare,
      with
      a
      mailing address of
      250
      Royall St. Canton, MA  02021,312 588-4990,
      and any
      successor transfer agent of the Company.

     

    “Underlying
      Shares”
means
      the shares of Common Stock issued and issuable upon conversion or redemption
      of
      the Debentures and upon exercise of the Warrants and issued and issuable in
      lieu
      of the cash payment of principal on the Debentures in accordance with the terms
      of the Debentures.

     

    “Variable
      Rate Transaction”
      shall
      have the meaning ascribed to such term in Section 4.14(b).

     

    “VWAP”
means,
      for any date, the price determined by the first of the following clauses that
      applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
      the daily volume weighted average price of the Common Stock for such date (or
      the nearest preceding date) on the Trading Market on which the Common Stock
      is
      then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day
      from
      9:30 a.m. New York City time to 4:02 p.m. New York City time); (b)  if the
      OTC Bulletin Board is not a Trading Market, the volume weighted average price
      of
      the Common Stock for such date (or the nearest preceding date) on the OTC
      Bulletin Board; (c) if the Common Stock is not then listed or quoted on the
      OTC
      Bulletin Board and if prices for the Common Stock are then reported in the
“Pink
      Sheets” published by Pink Sheets, LLC (or a similar organization or agency
      succeeding to its functions of reporting prices), the most recent bid price
      per
      share of the Common Stock so reported; or (d) in all other cases, the fair
      market value of a share of Common Stock as determined by an independent
      appraiser selected in good faith by the Holder and reasonably acceptable to
      the
      Company, the fees and expenses of which shall be paid by the
      Company.

     

    “Warrants”
means
      collectively the Common Stock purchase warrants delivered to the Purchasers
      at
      the Closing in accordance with Section 2.2(a) hereof, which Warrants shall
      be in
      the form of Exhibit C
      attached
      hereto.

     

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

     

     

    ARTICLE
      II. 

    PURCHASE
      AND SALE

     

    2.1  Closing.
      On the
      Closing Date, upon the terms and subject to the conditions set forth herein,
      substantially concurrent with the execution and delivery of this Agreement
      by
      the parties hereto, the Company agrees to sell, and each Purchaser agrees to
      purchase in the aggregate, severally and not jointly, up to $1,694,250 in
      principal amount of the Debentures. Each Purchaser shall deliver to the Escrow
      Agent, via wire transfer or a certified check, immediately available funds
      equal
      to its Subscription Amount and the Company shall deliver to each Purchaser
      its
      respective Debenture and a Warrant, as determined pursuant to Section 2.2(a),
      and the Company and each Purchaser shall deliver the other items set forth
      in
      Section 2.2 deliverable at the Closing. Upon satisfaction of the conditions
      set
      forth in Sections 2.2 and 2.3,

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    

      the
        Closing shall occur at the offices of FWS or such other location as the parties
        shall mutually agree.

      

        2.2  Deliveries

         

        (a) On
          the
          Closing Date, the Company shall deliver or cause to be delivered to the
          Escrow
          Agent with respect to each Purchaser the following:

         

        
          	 	
                  (i)

                	
                  this
                    Agreement duly executed by the
                    Company;

                

        

         

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

         

        (iii)     a
          Debenture with a Principal Amount equal to such Purchaser’s Subscription Amount
          multiplied by 1.255, registered in the name of such Purchaser;

         

        (iv)     a
          Warrant
          (the “Series
          A Warrant”)
          registered in the name of such Purchaser to purchase up to a number of
          shares of
          Common Stock equal to 50% of the Principal Amount of the Debenture issuable
          to
          such Purchaser divided by $0.35, with an exercise price equal to $0.35,
          subject
          to adjustment therein, which Warrants shall be exercisable immediately,
          and
          shall have a term of exercise equal to five years;

         

        (v)     a
          Warrant
          (the “Series
          B Warrant”)
          registered in the name of such Purchaser to purchase up to a number of
          shares of
          Common Stock equal to 50% of the Principal Amount of the Debenture issuable
          to
          such Purchaser divided by $0.35, with an exercise price equal to $0.385,
          subject
          to adjustment therein, which Warrants shall be exercisable immediately,
          and
          shall have a term of exercise equal to one year;

         

        (vi)     a
          Warrant
          (the “Series
          C Warrant”)
          registered in the name of such Purchaser to purchase up to a number of
          shares of
          Common Stock equal to 100% of the Principal Amount of the Debenture issuable
          to
          such Purchaser divided by $0.35, with an exercise price equal to $0.35,
          subject
          to adjustment therein, which Warrants shall be exercisable immediately,
          and have
          a term of exercise equal to the earlier of the one year anniversary of
          the
          Effective Date and two years from their issuance;

         

        (vii)     a
          Warrant
          (the “Series
          D Warrant”)
          registered in the name of such Purchaser to purchase up to a number of
          shares of
          Common Stock equal to 50% of the Principal Amount of the Debenture issuable
          to
          such Purchaser divided by $0.35, with an exercise price equal to $0.35,
          subject
          to adjustment therein, which Warrants shall be exercisable (on a pro-rata
          basis)
          upon the exercise of the Series C Warrants and have a term of exercise
          equal to
          the earlier of five years following the date such warrants are exercisable
          or
          six years following their issuance;

         

        
          
            
            

          

          
            7

            
              

            

          

          
            
            

          

        

         

        (viii)   a
          Warrant
          (the “Series
          E Warrant”)
          registered in the name of such Purchaser to purchase up to a number of
          shares of
          Common Stock equal to 50% of the Principal Amount of the Debenture issuable
          to
          such Purchaser divided by $0.35, with an exercise price equal to $0.385,
          subject
          to adjustment therein, which Warrants shall be exercisable (on a pro-rata
          basis)
          upon the exercise of the Series C Warrants and have a term of exercise
          equal to
          the earlier of five years following the date such warrants are exercisable
          or
          six years following their issuance;

         

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

         

        (x)     the
          Security Agreement, duly executed by the Company and each Subsidiary, along
          with
          all of the Security Documents, including the Subsidiary Guarantee, duly
          executed
          by the parties thereto (provided, however, OXIS Health Products, Inc.,
          a
          Delaware corporation, OXIS International S.A., a French company, OXIS
          Acquisition Corporation, a Delaware corporation and OXIS Instruments, Inc.,
          a
          Pennsylvania, all of which do not own any assets that are material to the
          value
          or operation of the Company, and BioCheck, Inc., a California corporation
          that
          the Company owns a 51% equity interest in, shall not be required to execute
          the
          Security Agreement or Subsidiary Guarantee at Closing);

         

        (xi)    a
          lock-up
          agreement, in the form attached hereto as Exhibit
          G,
          duly
          executed by all officers, directors and 10% stockholders of the Company,
          other
          than Axonyx, Inc., a Nevada corporation and Mr. Guillen; 

         

        (xii)    a
          certification, in the form attached hereto as Exhibit
          H,
          duly
          executed by all officers and directors of the Company other than Mr. Guillen;
          and

         

        (xiii)   the
          Registration Rights Agreement duly executed by the Company.

         

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

         

                        (i)       this
          Agreement duly executied
          by such Purchaser;

         

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

         

        (iii)   
the
          Security Agreement duly executed by such Purchaser; 

         

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

         

        (v)   
the
          Registration Rights Agreement duly executed by such Purchaser.

         

        2.3     Closing
          Conditions. 

        
          
            
              
              

            

            
              8

              
                

              

            

            
              
              

            

          

        

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

         

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

         

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

         

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

         

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

         

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

         

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

         

        (iii)    the
          delivery of a payoff and release letter from Fagan Capital, Inc. with respect
          to
          that certain Renewal
          and Modification Promissory Note of the Company in the principal amount
          of
          $405,600 dated June 2, 2006 (the “Fagan
          Note”),
          in form
          and substance satisfactory to the Purchasers;

         

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

         

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

         

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

        
          
            
            

          

          
            9

            
              

            

          

          
            
            

          

        

        ARTICLE
          III.

        REPRESENTATIONS
          AND WARRANTIES

         

        3.1     Representations
          and Warranties of the Company.
          Except
          as set forth under the corresponding section of the disclosure schedules
          delivered to the Purchasers concurrently herewith (the “Disclosure
          Schedules”),
          which
          Disclosure Schedules shall be deemed a part hereof and to qualify any
          representation or warranty otherwise made herein to the extent of such
          disclosure, the Company hereby makes the following representations and
          warranties to each Purchaser:

         

        (a)     Subsidiaries.
          All of
          the direct and indirect subsidiaries of the Company are set forth on
Schedule
          3.1(a).
          The
          Company owns, directly or indirectly, all of the capital stock or other
          equity
          interests of each Subsidiary free and clear of any Liens, and all of the
          issued
          and outstanding shares of capital stock of each Subsidiary are validly
          issued
          and are fully paid, non-assessable and free of preemptive and similar rights
          to
          subscribe for or purchase securities. If the Company has no subsidiaries,
          all
          other references to the Subsidiaries or any of them in the Transaction
          Documents
          shall be disregarded. As used herein and all other Transaction Documents,
          the
          term “Subsidiaries” shall not include BioCheck, Inc., a California corporation
          (“Biocheck”)
          that
          the Company owns a 51% equity interest in, other than as to representations,
          warranties and covenants of the Company as to its ownership of Biocheck
          and
          pledge of its interest in Biocheck to the Purchasers as contemplated by
          the
          Security Agreement. The following Subsidiaries of the Company are inactive
          and
          do not conduct any operations or own any assets that are material to the
          value
          or operation of the Company (on a consolidated basis): OXIS Health Products,
          Inc., a Delaware corporation, OXIS International S.A., a French company,
          OXIS
          Acquisition Corporation, a Delaware corporation and OXIS Instruments, Inc.,
          a
          Pennsylvania corporation. 

         

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

         

        
          
            
            

          

          
            10

            
              

            

          

          
            
            

          

        

        been
          instituted in any such jurisdiction revoking, limiting or curtailing or
          seeking
          to revoke, limit or curtail such power and authority or
          qualification.

         

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

         

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

         

        (e)    Filings,
          Consents and Approvals.
          The
          Company is not required to obtain any consent, waiver, authorization or
          order
          of, give any notice to, or make any filing or registration with, any court
          or
          other federal, state, local or other governmental authority or other Person
          in
          connection with the execution, delivery and performance by the Company
          of the
          Transaction Documents, other than (i) filings required pursuant to 

         

        
          
            
            

          

          
            11

            
              

            

          

          
            
            

          

          Section
            4.6, (ii) the filing with the Commission of the Registration Statement,
            (iii)
            the notice and/or application(s) to each applicable Trading Market for
            the
            issuance and sale of the Securities and the listing of the Underlying
            Shares for
            trading thereon in the time and manner required thereby and (iv) the
            filing of
            Form D with the Commission and such filings as are required to be made
            under
            applicable state securities laws (collectively, the “Required
            Approvals”).

        

         

        (f)     Issuance
          of the Securities.
          The
          Securities are duly authorized and, when issued and paid for in accordance
          with
          the applicable Transaction Documents, will be duly and validly issued,
          fully
          paid and nonassessable, free and clear of all Liens imposed by the Company
          other
          than restrictions on transfer provided for in the Transaction Documents.
          The
          Underlying Shares, when issued in accordance with the terms of the Transaction
          Documents, will be validly issued, fully paid and nonassessable, free and
          clear
          of all Liens imposed by the Company. The Company has reserved from its
          duly
          authorized capital stock a number of shares of Common Stock for issuance
          of the
          Underlying Shares at least equal to the Required Minimum on the date hereof.
          

         

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

         

        
          
            
            

          

          
            12

            
              

            

          

          
            
            

          

        

        (h)     SEC
          Reports; Financial Statements.
          The
          Company has filed all reports, schedules, forms, statements and other documents
          required to be filed by the Company under the Securities Act and the Exchange
          Act, including pursuant to Section 13(a) or 15(d) thereof, for the two
          years
          preceding the date hereof (or such shorter period as the Company was required
          by
          law or regulation to file such material) (the foregoing materials, including
          the
          exhibits thereto and documents incorporated by reference therein, being
          collectively referred to herein as the “SEC
          Reports”)
          on a
          timely basis or has received a valid extension of such time of filing and
          has
          filed any such SEC Reports prior to the expiration of any such extension.
          As of
          their respective dates, the SEC Reports complied in all material respects
          with
          the requirements of the Securities Act and the Exchange Act, as applicable,
          and
          none of the SEC Reports, when filed, contained any untrue statement of
          a
          material fact or omitted to state a material fact required to be stated
          therein
          or necessary in order to make the statements therein, in the light of the
          circumstances under which they were made, not misleading. The financial
          statements of the Company included in the SEC Reports comply in all material
          respects with applicable accounting requirements and the rules and regulations
          of the Commission with respect thereto as in effect at the time of filing.
          Such
          financial statements have been prepared in accordance with United States
          generally accepted accounting principles applied on a consistent basis
          during
          the periods involved (“GAAP”),
          except as may be otherwise specified in such financial statements or the
          notes
          thereto and except that unaudited financial statements may not contain
          all
          footnotes required by GAAP, and fairly present in all material respects
          the
          financial position of the Company and its consolidated Subsidiaries as
          of and
          for the dates thereof and the results of operations and cash flows for
          the
          periods then ended, subject, in the case of unaudited statements, to normal,
          immaterial, year-end audit adjustments.

         

        (i)     Material
          Changes.
          Since
          the date of the latest audited financial statements included within the
          SEC
          Reports, except as specifically disclosed in a subsequent SEC Report filed
          prior
          to the date hereof, (i) there has been no event, occurrence or development
          that
          has had or that could reasonably be expected to result in a Material Adverse
          Effect, (ii) the Company has not incurred any liabilities (contingent or
          otherwise) other than (A) trade payables and accrued expenses incurred
          in the
          ordinary course of business consistent with past practice and (B) liabilities
          not required to be reflected in the Company’s financial statements pursuant to
          GAAP or disclosed in filings made with the Commission, (iii) the Company
          has not
          altered its method of accounting, (iv) the Company has not declared or
          made any
          dividend or distribution of cash or other property to its stockholders
          or
          purchased, redeemed or made any agreements to purchase or redeem any shares
          of
          its capital stock and (v) the Company has not issued any equity securities
          to
          any officer, director or Affiliate, except pursuant to existing Company
          stock
          option plans. The Company does not have pending before the Commission any
          request for
          confidential treatment of information. Except for the issuance of the Securities
          contemplated by this Agreement or as set forth on Schedule
          3.1(i),
          no
          event, liability or development has occurred or exists with respect to
          the
          Company or its Subsidiaries or their respective business, properties, operations
          or financial condition, that would be required to be disclosed by the Company
          under applicable securities laws at the time this

         

        
          
            
            

          

          
            13

            
              

            

          

          
            
            

          

        

        representation
          is made that has not been publicly disclosed at least one Trading Day prior
          to
          the date that this representation is made.

         

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

         

        (k)     Labor
          Relations.
          No
          material labor dispute exists or, to the knowledge of the Company, is imminent
          with respect to any of the employees of the Company which could reasonably
          be
          expected to result in a Material Adverse Effect. None of the Company’s or its
          Subsidiaries’ employees is a member of a union that relates to such employee’s
          relationship with the Company, and neither the Company or any of its
          Subsidiaries is a party to a collective bargaining agreement, and the Company
          and its Subsidiaries believe that their relationships with their employees
          are
          good. No executive officer, to the knowledge of the Company, is, or is
          now
          expected to be, in violation of any material term of any employment contract,
          confidentiality, disclosure or proprietary information agreement or
          non-competition agreement, or any other contract or agreement or any restrictive
          covenant, and the continued employment of each such executive officer does
          not
          subject the Company or any of its Subsidiaries to any liability with respect
          to
          any of the foregoing matters. The Company and its Subsidiaries are in compliance
          with all U.S. federal, state, local and foreign laws and regulations relating
          to
          employment and employment practices, terms and conditions of employment
          and
          wages and hours, except where the failure to be in compliance could not,
          individually or in the aggregate, reasonably be expected to have a Material
          Adverse Effect.

         

        (l)     Compliance.
          Neither
          the Company nor any Subsidiary (i) is in default under or in violation
          of (and
          no event has occurred that has not been waived that, with notice or lapse
          of
          time or both, would result in a default by the Company or any Subsidiary
          under), nor has the Company or any Subsidiary received notice of a claim
          that it
          is in default under or that it is in violation of, any indenture, loan
          or credit
          agreement or any other agreement or instrument to which it is a party or
          by
          which it or any of its properties is bound (whether or not such default
          or
          violation has been waived), (ii) is in violation of any order of any court,
          arbitrator or governmental body, or (iii) is or has been

        
          
            
            

          

          
            14

            
              

            

          

          
            
            
in
            violation of any statute, rule or regulation of any governmental authority,
            including without limitation all foreign, federal, state and local laws
            applicable to its business and all such laws that affect the environment,
            except
            in each case as could not have or reasonably be expected to result in
            a Material
            Adverse Effect.

        

         

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

         

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

         

        (o)     Patents
          and Trademarks.
          The
          Company and the Subsidiaries have, or have rights to use, all patents,
          patent
          applications, trademarks, trademark applications, service marks, trade
          names,
          trade secrets, inventions, copyrights, licenses and other intellectual
          property
          rights and similar rights necessary or material for use in connection with
          their
          respective businesses as described in the SEC Reports and which the failure
          to
          so have could have a Material Adverse Effect (collectively, the “Intellectual
          Property Rights”).
          Neither the Company nor any Subsidiary has received a notice (written or
          otherwise) that the Intellectual Property Rights used by the Company or
          any
          Subsidiary violates or infringes upon the rights of any Person. To the
          knowledge
          of the Company, all such Intellectual Property Rights are enforceable and
          there
          is no existing infringement by another Person of any of the Intellectual
          Property Rights. The Company and its Subsidiaries have taken reasonable
          security
          measures to protect the secrecy, confidentiality and value of all of their
          intellectual properties, except where failure to do so could not, individually
          or in the aggregate, reasonably be expect to have a Material Adverse
          Effect.

         

        (p)    Insurance.
          The
          Company and the Subsidiaries are insured by insurers of recognized financial
          responsibility against such losses and risks and in such amounts as are
          prudent
          and customary in the businesses in which the Company and the Subsidiaries
          are
          engaged, including, but not limited to, directors and officers insurance
          coverage at least equal to the aggregate Subscription Amount. Neither the
          Company nor any

         

        
          
            
            

          

          
            15

            
              

            

          

          
            
            

          

        

        Subsidiary
          has any reason to believe that it will not be able to renew its existing
          insurance coverage as and when such coverage expires or to obtain similar
          coverage from similar insurers as may be necessary to continue its business
          without a significant increase in cost.

         

        (q)     Transactions
          With Affiliates and Employees.
          Except
          as set forth in the SEC Reports, none of the officers or directors of the
          Company and, to the knowledge of the Company, none of the employees of
          the
          Company is presently a party to any transaction with the Company or any
          Subsidiary (other than for services as employees, officers and directors),
          including any contract, agreement or other arrangement providing for the
          furnishing of services to or by, providing for rental of real or personal
          property to or from, or otherwise requiring payments to or from any officer,
          director or such employee or, to the knowledge of the Company, any entity
          in
          which any officer, director, or any such employee has a substantial interest
          or
          is an officer, director, trustee or partner, in each case in excess of
          $60,000
          other than (i) for payment of salary or consulting fees for services rendered,
          (ii) reimbursement for expenses incurred on behalf of the Company and (iii)
          for
          other employee benefits, including stock option agreements under any stock
          option plan of the Company.

         

        (r)     Sarbanes-Oxley;
          Internal Accounting Controls.
          The
          Company is in material compliance with all provisions of the Sarbanes-Oxley
          Act
          of 2002 which are applicable to it as of the Closing Date. The
          Company and the Subsidiaries maintain a system of internal accounting controls
          sufficient to provide reasonable assurance that (i) transactions are executed
          in
          accordance with management’s general or specific authorizations, (ii)
          transactions are recorded as necessary to permit preparation of financial
          statements in conformity with GAAP and to maintain asset accountability,
          (iii)
          access to assets is permitted only in accordance with management’s general or
          specific authorization, and (iv) the recorded accountability for assets
          is
          compared with the existing assets at reasonable intervals and appropriate
          action
          is taken with respect to any differences. The Company has established disclosure
          controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
          15d-15(e)) for the Company and designed such disclosure controls and procedures
          to ensure that information required to be disclosed by the Company in the
          reports it files or submits under the Exchange Act is recorded, processed,
          summarized and reported, within the time periods specified in the Commission’s
          rules and forms. The Company’s certifying officers have evaluated the
          effectiveness of the Company’s disclosure controls and procedures as of the end
          of the period covered by the Company’s most recently filed periodic report under
          the Exchange Act (such date, the “Evaluation
          Date”).
          The
          Company presented in its most recently filed periodic report under the
          Exchange
          Act the conclusions of the certifying officers about the effectiveness
          of the
          disclosure controls and procedures based on their evaluations as of the
          Evaluation Date. Since the Evaluation Date, there have been no changes
          in the
Company’s
          internal control over financial reporting (as such term is defined in the
          Exchange Act) that has materially affected, or is reasonably likely to
          materially affect, the Company’s internal control over financial
          reporting.

         

        
          
            
            

          

          
            16

            
              

            

          

          
            
            

          

        

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

         

        (t)     Private
          Placement.
          Assuming the accuracy of the Purchasers’ representations and warranties set
          forth in Section 3.2, no registration under the Securities Act is required
          for
          the offer and sale of the Securities by the Company to the Purchasers as
          contemplated hereby. The issuance and sale of the Securities hereunder
          does not
          contravene the rules and regulations of the Trading Market.

         

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

         

        (v)     Registration
          Rights.
          Other
          than each of the Purchasers, no Person has any right to cause the Company
          to
          effect the registration under the Securities Act of any securities of the
          Company.

         

        (w)     Listing
          and Maintenance Requirements.
          The
          Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the
          Exchange Act, and the Company has taken no action designed to, or which
          to its
          knowledge is likely to have the effect of, terminating the registration
          of the
          Common Stock under the Exchange Act nor has the Company received any
          notification that the Commission is contemplating terminating such registration.
          The Company has not, in the 12 months preceding the date hereof, received
          notice
          from any Trading Market on which the Common Stock is or has been listed
          or
          quoted to the effect that the Company is not in compliance with the listing
          or
          maintenance requirements of such Trading Market. The Company is, and has
          no
          reason to believe that it will not in the foreseeable future continue to
          be, in
          compliance with all such listing and maintenance requirements.

         

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

         

        
          
            
            

          

          
            17

            
              

            

          

          
            
            

          

        

        (y)     Disclosure.
          Except
          with respect to the material terms and conditions of the transactions
          contemplated by the Transaction Documents, the Company confirms that neither
          it
          nor any other Person acting on its behalf has provided any of the Purchasers
          or
          their agents or counsel with any information that it believes constitutes
          or
          might constitute material, nonpublic information. The Company understands
          and
          confirms that the Purchasers will rely on the foregoing representation
          in
          effecting transactions in securities of the Company. All disclosure furnished
          by
          or on behalf of the Company to the Purchasers regarding the Company, its
          business and the transactions contemplated hereby, including the Disclosure
          Schedules to this Agreement, is true and correct and does not contain any
          untrue
          statement of a material fact or omit to state any material fact necessary
          in
          order to make the statements made therein, in light of the circumstances
          under
          which they were made, not misleading. The press releases disseminated by
          the
          Company during the twelve months preceding the date of this Agreement taken
          as a
          whole do not 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, in light of the circumstances under which they were made and
          when
          made, not misleading. The Company acknowledges and agrees that no Purchaser
          makes or has made any representations or warranties with respect to the
          transactions contemplated hereby other than those specifically set forth
          in
          Section 3.2 hereof.

         

        (z)     No
          Integrated Offering.
          Assuming
          the accuracy of the Purchasers’ representations and warranties set forth in
          Section 3.2, neither the Company, nor any of its Affiliates, nor any Person
          acting on its or their behalf has, directly or indirectly, made any offers
          or
          sales of any security or solicited any offers to buy any security, under
          circumstances that would cause this offering of the Securities to be integrated
          with prior offerings by the Company for purposes of the Securities Act
          or any
          applicable shareholder approval provision of any Trading Market on which
          any of
          the securities of the Company are listed or designated.

         

        (aa)     Solvency.
          Based
          on the financial condition of the Company as of the Closing Date after
          giving
          effect to the receipt by the Company of the proceeds from the sale of the
          Securities hereunder, (i) the fair saleable value of the Company’s assets
          exceeds the amount that will be required to be paid on or in respect of
          the
          Company’s existing debts and other liabilities (including known contingent
          liabilities) as they mature; (ii) the Company’s assets do not constitute
          unreasonably small capital to carry on its business as now conducted and
          as
          proposed to be conducted including its capital needs taking into account
          the
          particular capital requirements of the business conducted by the Company,
          and
          projected capital requirements and capital availability thereof; and (iii)
          the
          current cash flow of the Company, together with the proceeds the Company
          would
          receive, were it to liquidate all of its assets, after taking into account
          all
          anticipated uses of the cash, would be sufficient to pay all amounts on
          or in
          respect of its liabilities when such amounts are required to be paid. The
          Company does not intend to incur debts beyond
          its ability to pay such debts as they mature (taking into account the timing
          and
          amounts of cash to be payable on or in respect of its debt). The Company
          has no
          knowledge of any facts or circumstances which lead it to believe that it
          will
          file for reorganization or liquidation under the bankruptcy or reorganization
          laws of any 

         

        
          
            
            

          

          
            18

            
              

            

          

          
            
            

          

        

        jurisdiction
          within one year from the Closing Date. Schedule
          3.1(aa)
          sets
          forth as of the dates thereof all outstanding secured and unsecured Indebtedness
          of the Company or any Subsidiary, or for which the Company or any Subsidiary
          has
          commitments. For the purposes of this Agreement, “Indebtedness”
shall
          mean (a) any liabilities for borrowed money or amounts owed in excess of
          $50,000
          (other than trade accounts payable incurred in the ordinary course of business),
          (b) all guaranties, endorsements and other contingent obligations in respect
          of
          Indebtedness of others, whether or not the same are or should be reflected
          in
          the Company’s balance sheet (or the notes thereto), except guaranties by
          endorsement of negotiable instruments for deposit or collection or similar
          transactions in the ordinary course of business; and (c) the present value
          of
          any lease payments
          in excess of $50,000 due under leases required to be capitalized in accordance
          with GAAP. Neither
          the Company nor any Subsidiary is in default with respect to any
          Indebtedness.

         

        (bb)     Tax
          Status.
           
          Except
          for matters that would not, individually or in the aggregate, have or reasonably
          be expected to result in a Material Adverse Effect, the Company and each
          Subsidiary has filed all necessary federal, state and foreign income and
          franchise tax returns and has paid or accrued all taxes shown as due thereon,
          and the Company has no knowledge of a tax deficiency which has been asserted
          or
          threatened against the Company or any Subsidiary.

         

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

         

        (dd)     Foreign
          Corrupt Practices.
          Neither
          the Company, nor to the knowledge of the Company, any agent or other person
          acting on behalf of the Company, has (i) directly or indirectly, used any
          funds
          for unlawful contributions, gifts, entertainment or other unlawful expenses
          related to foreign or domestic political activity, (ii) made any unlawful
          payment to foreign or domestic government officials or employees or to
          any
          foreign or domestic political parties or campaigns from corporate funds,
          (iii)
          failed to disclose fully any contribution made by the Company (or made
          by any
          person acting on its behalf of which the Company is aware) which is in
          violation
          of law, or (iv) violated in any material respect any provision of the Foreign
          Corrupt Practices Act of 1977, as amended.

         

        (ee)     Accountants.
          The
          Company’s accountants are set forth on Schedule
          3.1(ee)
          of the
          Disclosure Schedule. To the knowledge of the Company, such accountants,
          who the
          Company expects will express their opinion with respect to the financial
          statements to be included in the Company’s Annual Report on Form 10-KSB for the
          year ended December 31, 2006, are a registered public accounting firm as
          required by the Exchange Act.

        
 

        (ff)    Seniority.
          As of
          the Closing Date, no Indebtedness or other claim against the Company is
          senior
          to the Debentures in right of payment, whether with respect to interest
          or upon
          liquidation or dissolution, or otherwise, other than indebtedness
          secured

        
          
            
            

          

          
            19

            
              

            

          

          
            
            

          

        

        by
          purchase money security interests (which is senior only as to underlying
          assets
          covered thereby) and capital lease obligations (which is senior only as
          to the
          property covered thereby).

         

        (gg)     No
          Disagreements with Accountants and Lawyers.
          There
          are no disagreements of any kind presently existing, or reasonably anticipated
          by the Company to arise, between the Company and the accountants and lawyers
          formerly or presently employed by the Company and the Company is current
          with
          respect to any fees owed to its accountants and lawyers.

         

        (hh)     Acknowledgment
          Regarding Purchasers’ Purchase of Securities.
          The
          Company acknowledges and agrees that each of the Purchasers is acting solely
          in
          the capacity of an arm’s length purchaser with respect to the Transaction
          Documents and the transactions contemplated thereby. The Company further
          acknowledges that no Purchaser is acting as a financial advisor or fiduciary
          of
          the Company (or in any similar capacity) with respect to the Transaction
          Documents and the transactions contemplated thereby and any advice given
          by any
          Purchaser or any of their respective representatives or agents in connection
          with the Transaction Documents and the transactions contemplated thereby
          is
          merely incidental to the Purchasers’ purchase of the Securities. The Company
          further represents to each Purchaser that the Company’s decision to enter into
          this Agreement and the other Transaction Documents has been based solely
          on the
          independent evaluation of the transactions contemplated hereby by the Company
          and its representatives.

         

        (ii) Acknowledgment
          Regarding Purchasers Trading Activity.
          Anything in this Agreement or elsewhere herein to the contrary notwithstanding
          (except for Sections 3.2(f) and 4.16 hereof), it is understood and acknowledged
          by the Company (i) that none of the Purchasers have been asked to agree,
          nor has
          any Purchaser agreed, to desist from purchasing or selling, long and/or
          short,
          securities of the Company, or “derivative” securities based on securities issued
          by the Company or to hold the Securities for any specified term; (ii) that
          past
          or future open market or other transactions by any Purchaser, including
          Short
          Sales, and specifically including, without limitation, Short Sales or
“derivative” transactions, before or after the closing of this or future private
          placement transactions, may negatively impact the market price of the Company’s
          publicly-traded securities; (iii) that any Purchaser, and counter-parties
          in
“derivative” transactions to which any such Purchaser is a party, directly or
          indirectly, presently may have a “short” position in the Common Stock, and (iv)
          that each Purchaser shall not be deemed to have any affiliation with or
          control
          over any arm’s length counter-party in any “derivative” transaction.
The
          Company further understands and acknowledges that (a) one or more Purchasers
          may
          engage in hedging activities at various times during the period that the
          Securities are outstanding, including, without limitation, during the periods
          that the value of the Underlying Shares deliverable with respect to Securities
          are being determined and (b) such hedging activities (if any) could reduce
          the
          value of the existing stockholders' equity
          interests in the Company at and after the time that the hedging activities
          are
          being conducted.  The Company acknowledges that such aforementioned hedging
          activities do not constitute a breach of any of the Transaction
          Documents.

         

        
          
            
            

          

          
            20

            
              

            

          

          
            
            

          

        

        (jj)     Regulation
          M Compliance. 
          The Company has not, and to its knowledge no one acting on its behalf has,
          (i)
          taken, directly or indirectly, any action designed to cause or to result
          in the
          stabilization or manipulation of the price of any security of the Company
          to
          facilitate the sale or resale of any of the Securities, (ii) sold, bid
          for,
          purchased, or paid any compensation for soliciting purchases of, any of
          the
          securities of the Company or (iii) paid or agreed to pay to any Person
          any
          compensation for soliciting another to purchase any other securities of
          the
          Company, other than, in the case of clauses (ii) and (iii), compensation
          paid to
          the Company’s placement agent in connection with the placement of the
          Securities

         

        (kk)     FDA.
          As to
          each product subject to the jurisdiction of the U.S. Food and Drug
          Administration (“FDA”)
          under
          the Federal Food, Drug and Cosmetic Act, as amended, and the regulations
          thereunder (“FDCA”)
          that
          is manufactured, packaged, labeled, tested, distributed, sold, and/or marketed
          by the Company or any of its Subsidiaries (each such product, a “Pharmaceutical
          Product”), such Pharmaceutical Product is being manufactured, packaged, labeled,
          tested, distributed, sold and/or marketed by the Company in compliance
          with all
          applicable requirements under FDCA and similar laws, rules and regulations
          relating to registration, investigational use, premarket clearance, licensure,
          or application approval, good manufacturing practices, good laboratory
          practices, good clinical practices, product listing, quotas, labeling,
          advertising, record keeping and filing of reports, except where the failure
          to
          be in compliance would not have a Material Adverse Effect. There is no
          pending,
          completed or, to the Company's knowledge, threatened, action (including
          any
          lawsuit, arbitration, or legal or administrative or regulatory proceeding,
          charge, complaint, or investigation) against the Company or any of its
          Subsidiaries, and none of the Company or any of its Subsidiaries has received
          any notice, warning letter or other communication from the FDA or any other
          governmental entity, which (i) contests the premarket clearance, licensure,
          registration, or approval of, the uses of, the distribution of, the
          manufacturing or packaging of, the testing of, the sale of, or the labeling
          and
          promotion of any Pharmaceutical Product, (ii) withdraws its approval of,
          requests the recall, suspension, or seizure of, or withdraws or orders
          the
          withdrawal of advertising or sales promotional materials relating to, any
          Pharmaceutical Product, (iii) imposes a clinical hold on any clinical
          investigation by the Company or any of its Subsidiaries, (iv) enjoins production
          at any facility of the Company or any of its Subsidiaries, (v) enters or
          proposes to enter into a consent decree of permanent injunction with the
          Company
          or any of its Subsidiaries, or (vi) otherwise alleges any violation of
          any laws,
          rules or regulations by the Company or any of its Subsidiaries, and which,
          either individually or in the aggregate, would have a Material Adverse
          Effect.
The
          properties, business and operations of the Company have been and are being
          conducted in all material respects in accordance with all applicable laws,
          rules
          and regulations of the FDA.  The Company has not been informed by the FDA
          that the FDA will prohibit the marketing, sale, license or use in the United
          States of any product proposed to be developed, produced or marketed by
          the
Company
          nor has the FDA expressed any concern as to approving or clearing for marketing
          any product being developed or proposed to be developed by the
          Company.

         

        
          
            
            

          

          
            21

            
              

            

          

          
            
            

          

        

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

         

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

         

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

         

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

         

        (d)     Experience
          of Such Purchaser.
          Such
          Purchaser, either alone or together with its representatives, has such
          knowledge, sophistication and experience in business and financial matters
          so as
          to be capable of evaluating the merits and risks of the prospective investment
          in the Securities, and has so evaluated the merits and risks of
          such

         

        
          
            
            

          

          
            22

            
              

            

          

          
            
            

          

        

        investment.
          Such Purchaser is able to bear the economic risk of an investment in the
          Securities and, at the present time, is able to afford a complete loss
          of such
          investment.

         

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

         

        (f)     Short
          Sales and Confidentiality Prior To The Date Hereof.
          Other
          than the transaction contemplated hereunder, such Purchaser has not directly
          or
          indirectly, nor has any Person acting on behalf of or pursuant to any
          understanding with such Purchaser, executed any transaction, including
          Short
          Sales, in the securities of the Company during the period commencing
          from
          the time
          that such Purchaser first received a term sheet (written or oral) from
          the
          Company or any other Person setting forth the material terms of the transactions
          contemplated hereunder until the date hereof (“Discussion
          Time”).
          Notwithstanding
          the foregoing, in the case of a Purchaser that is a multi-managed investment
          vehicle whereby separate portfolio managers manage separate portions of
          such
          Purchaser's assets and the portfolio managers have no direct knowledge
          of the
          investment decisions made by the portfolio managers managing other portions
          of
          such Purchaser's assets, the representation set forth above shall only
          apply
          with respect to the portion of assets managed by the portfolio manager
          that made
          the investment decision to purchase the Securities covered by this Agreement.
          Other than to other Persons party to this Agreement, such Purchaser has
          maintained the confidentiality of all disclosures made to it in connection
          with
          this transaction (including the existence and terms of this
          transaction).

         

         

        ARTICLE
          IV.

        OTHER
          AGREEMENTS OF THE PARTIES

         

        4.1     Transfer
          Restrictions.

         

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

         

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

        

          
            
              
              

            

            
              23

              
                

              

            

            
              
              

            

          

        

        [NEITHER]
          THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE]
          [CONVERTIBLE]] HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
          OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION
          FROM
          REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
          ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
          EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
          AN
          AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
          REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
          SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
          TO
          SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
          COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION]
          OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
          OR
          OTHER LOAN SECURED BY SUCH SECURITIES.

         

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

         

        (c)     Certificates
          evidencing the Underlying Shares shall not contain any legend (including
          the
          legend set forth in Section 4.1(b) hereof): (i) while a registration statement
          (including the Registration Statement) covering the resale of such security
          is
          effective under the Securities Act, or (ii) following any sale of such
          Underlying Shares pursuant to Rule
          144,
          or (iii) if such Underlying Shares are eligible for sale under Rule 144(k),
          or
          (iv) if such legend is not required under applicable requirements of the
          Securities Act (including judicial interpretations and pronouncements issued
          by
          the staff of the Commission). The Company shall cause its counsel to issue
          a
          legal opinion to the Transfer Agent promptly after the Effective Date if
          required by the Transfer Agent to effect the removal of the legend hereunder.
          If
          all or any portion of a Debenture or 

         

        
          
            
            

          

          
            24

            
              

            

          

          
            
            

          

        

        Warrant
          is converted or exercised (as applicable) at a time when there is an effective
          registration statement to cover the resale of the Underlying Shares, or
          if such
          Underlying Shares may be sold under Rule 144(k) or if such legend is not
          otherwise required under applicable requirements of the Securities Act
          (including judicial interpretations and pronouncements issued by the staff
          of
          the Commission) then such Underlying Shares shall be issued free of all
          legends.
          The Company agrees that following the Effective Date or at such time as
          such
          legend is no longer required under this Section 4.1(c), it will, no later
          than
          three Trading Days following the delivery by a Purchaser to the Company
          or the
          Transfer Agent of a certificate representing Underlying Shares, as applicable,
          issued with a restrictive legend (such third Trading Day, the “Legend
          Removal Date”),
          deliver or cause to be delivered to such Purchaser a certificate representing
          such shares that is free from all restrictive and other legends. The Company
          may
          not make any notation on its records or give instructions to the Transfer
          Agent
          that enlarge the restrictions on transfer set forth in this Section.
          Certificates for Underlying Shares subject to legend removal hereunder
          shall be
          transmitted by the Transfer Agent to the Purchasers by crediting the account
          of
          the Purchaser’s prime broker with the Depository Trust Company
          System.

        

        (d)     In
          addition to such Purchaser’s other available remedies, the Company shall pay to
          a Purchaser, in cash, as partial liquidated damages and not as a penalty,
          for
          each $1,000 of Underlying Shares (based on the VWAP of the Common Stock
          on the
          date such Securities are submitted to the Transfer Agent) delivered for
          removal
          of the restrictive legend and subject to Section 4.1(c), $10 per Trading
          Day
          (increasing to $20 per Trading Day 5 Trading Days after such damages have
          begun
          to accrue) for each Trading Day after the Legend Removal Date until such
          certificate is delivered without a legend. Nothing herein shall limit such
          Purchaser’s right to pursue actual damages for the Company’s failure to deliver
          certificates representing any Securities as required by the Transaction
          Documents, and such Purchaser shall have the right to pursue all remedies
          available to it at law or in equity including, without limitation, a decree
          of
          specific performance and/or injunctive relief.

         

        (e)     Each
          Purchaser, severally and not jointly with the other Purchasers, agrees
          that the
          removal of the restrictive legend from certificates representing Securities
          as
          set forth in this Section 4.1 is predicated upon the Company’s reliance that the
          Purchaser will sell any Securities pursuant to either the registration
          requirements of the Securities Act, including any applicable prospectus
          delivery
          requirements, or an exemption therefrom, and that if Securities are sold
          pursuant to a Registration Statement, they will be sold in compliance with
          the
          plan of distribution set forth therein.

        
 

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

         

        
          
            
            

          

          
            25

            
              

            

          

          
            
            

          

        

        4.3     Furnishing
          of Information.
          As long
          as any Purchaser owns Securities, the Company covenants to timely file
          (or
          obtain extensions in respect thereof and file within the applicable grace
          period) all reports required to be filed by the Company after the date
          hereof
          pursuant to the Exchange Act. As long as any Purchaser owns Securities,
          if the
          Company is not required to file reports pursuant to the Exchange Act, it
          will
          prepare and furnish to the Purchasers and make publicly available in accordance
          with Rule 144(c) such information as is required for the Purchasers to
          sell the
          Securities under Rule 144. The Company further covenants that it will take
          such
          further action as any holder of Securities may reasonably request, to the
          extent
          required from time to time to enable such Person to sell such Securities
          without
          registration under the Securities Act within the requirements of the exemption
          provided by Rule 144.

         

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

         

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

         

        4.6     Securities
          Laws Disclosure; Publicity.
          The
          Company shall, by 8:30 a.m. New York City time on the Trading Day following
          the
          date hereof, issue a Current Report on Form 8-K disclosing the material
          terms of
          the transactions contemplated hereby and attaching the Transaction Documents
          thereto. The Company and each Purchaser shall consult with each other in
          issuing
          any other press releases with respect to the transactions contemplated
          hereby,
          and neither the Company nor any Purchaser shall issue any such press release
          or
          otherwise make any such public statement without the prior consent of the
          Company, with respect to any press release of any Purchaser, or without
          the
          prior consent of each Purchaser, with respect to any press release of the
          Company, which consent shall not unreasonably be withheld or delayed, except
          if
          such disclosure is required by law, in which case the disclosing party
          shall
          promptly provide
          the other party with prior notice of such public statement or communication.
          Notwithstanding the foregoing, the Company shall not publicly disclose
          the name
          of any Purchaser, or include the name of any Purchaser in any filing with
          the
          Commission or any regulatory agency or Trading Market, without the prior
          written
          consent of such Purchaser, except (i) as required by federal securities
          law in
          connection with (A) any registration statement

        
          
            
            

          

          
            26

            
              

            

          

          
            
            

          

        

        contemplated
          by the Registration Rights Agreement and (B) the filing of final Transaction
          Documents (including signature pages thereto) with the Commission and (ii)
          to
          the extent such disclosure is required by law or Trading Market regulations,
          in
          which case the Company shall provide the Purchasers with prior notice of
          such
          disclosure permitted under this subclause (ii).

         

        4.7     Shareholder
          Rights Plan.
          No
          claim will be made or enforced by the Company or, with the consent of the
          Company, any other Person, that any Purchaser is an “Acquiring Person” under any
          control share acquisition, business combination, poison pill (including
          any
          distribution under a rights agreement) or similar anti-takeover plan or
          arrangement in effect or hereafter adopted by the Company, or that any
          Purchaser
          could be deemed to trigger the provisions of any such plan or arrangement,
          by
          virtue of receiving Securities under the Transaction Documents or under
          any
          other agreement between the Company and the Purchasers.

         

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

         

        4.9     Use
          of
          Proceeds.
          Except
          as set forth on Schedule
          4.9
          attached
          hereto, the Company shall use the net proceeds from the sale of the Securities
          hereunder for working capital purposes and not for the satisfaction of
          any
          portion of the Company’s debt (other than payment of trade payables in the
          ordinary course of the Company’s business and prior practices), to redeem any
          Common Stock or Common Stock Equivalents or to settle any outstanding
          litigation.

         

        4.10     Reimbursement.
          If any
          Purchaser becomes involved in any capacity in any Proceeding by or against
          any
          Person who is a stockholder of the Company (except as a result of sales,
          pledges, margin sales and similar transactions by such Purchaser to or
          with any
          other stockholder), solely as a result of such Purchaser’s acquisition of the
          Securities under this Agreement, the Company will reimburse such Purchaser
          for
          its reasonable legal and other expenses (including the cost of any investigation
          preparation and travel in connection therewith) incurred in connection
          therewith, as such expenses are incurred. The reimbursement obligations
          of the
          Company under this paragraph shall be in addition to any liability which
          the
          Company may otherwise have, shall extend upon the same terms and conditions
          to
          any Affiliates of the Purchasers who are actually named in such action,
          proceeding or investigation, and partners, directors, agents, employees
          and
          controlling persons (if any), as the case may be, of the Purchasers and
          any such
          Affiliate, and shall be binding upon and inure to the benefit of any successors,
          assigns, heirs and personal representatives of the Company, the Purchasers
          and
          any such
          Affiliate and any such Person. The Company also agrees that neither the
          Purchasers nor any such Affiliates, partners, directors, agents, employees
          or
          controlling persons shall have any liability to the Company or any Person
          asserting claims on behalf of or in right of the Company solely as a result
          of
          acquiring the Securities under this Agreement.

        
          
            
            

          

          
            27

            
              

            

          

          
            
            

          

        

        4.11     Indemnification
          of Purchasers.
          Subject
          to the provisions of this Section 4.11, the Company will indemnify and
          hold each
          Purchaser and its directors, officers, shareholders, members, partners,
          employees and agents (and any other Persons with a functionally equivalent
          role
          of a Person holding such titles notwithstanding a lack of such title or
          any
          other title), each Person who controls such Purchaser (within the meaning
          of
          Section 15 of the Securities Act and Section 20 of the Exchange Act), and
          the
          directors, officers, shareholders, agents, members, partners or employees
          (and
          any other Persons with a functionally equivalent role of a Person holding
          such
          titles notwithstanding a lack of such title or any other title) of such
          controlling person (each, a “Purchaser
          Party”)
          harmless from any and all losses, liabilities, obligations, claims,
          contingencies, damages, costs and expenses, including all judgments, amounts
          paid in settlements, court costs and reasonable attorneys’ fees and costs of
          investigation that any such Purchaser Party may suffer or incur as a result
          of
          or relating to (a) any breach of any of the representations, warranties,
          covenants or agreements made by the Company in this Agreement or in the
          other
          Transaction Documents or (b) any action instituted against a Purchaser,
          or any
          of them or their respective Affiliates, by any stockholder of the Company
          who is
          not an Affiliate of such Purchaser, with respect to any of the transactions
          contemplated by the Transaction Documents (unless such action is based
          upon a
          breach of such Purchaser’s representations, warranties or covenants under the
          Transaction Documents or any agreements or understandings such Purchaser
          may
          have with any such stockholder or any violations by the Purchaser of state
          or
          federal securities laws or any conduct by such Purchaser which constitutes
          fraud, gross negligence, willful misconduct or malfeasance). If any action
          shall
          be brought against any Purchaser Party in respect of which indemnity may
          be
          sought pursuant to this Agreement, such Purchaser Party shall promptly
          notify
          the Company in writing, and the Company shall have the right to assume
          the
          defense thereof with counsel of its own choosing reasonably acceptable
          to the
          Purchaser Party. Any Purchaser Party shall have the right to employ separate
          counsel in any such action and participate in the defense thereof, but
          the fees
          and expenses of such counsel shall be at the expense of such Purchaser
          Party
          except to the extent that (i) the employment thereof has been specifically
          authorized by the Company in writing, (ii) the Company has failed after
          a
          reasonable period of time to assume such defense and to employ counsel
          or (iii)
          in such action there is, in the reasonable opinion of such separate counsel,
          a
          material conflict on any material issue between the position of the Company
          and
          the position of such Purchaser Party, in which case the Company shall be
          responsible for the reasonable fees and expenses of no more than one such
          separate counsel. The Company will not be liable to any Purchaser Party
          under
          this Agreement (i) for any settlement by a Purchaser Party effected without
          the
          Company’s prior written consent, which shall not be unreasonably withheld or
          delayed; or (ii) to the extent, but only to the extent that a loss, claim,
          damage or liability is attributable to any Purchaser Party’s breach of any of
          the representations, warranties, covenants or agreements made by such Purchaser
          Party in this Agreement or in the other Transaction Documents.

         

        4.12     Reservation
          and Listing of Securities.

         

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

         

        
          
            
            

          

          
            28

            
              

            

          

          
            
            

          

        

                    (b)     If,
          on
          any date, the number of authorized but unissued (and otherwise unreserved)
          shares of Common Stock is less than the Required Minimum on such date,
          then the
          Board of Directors of the Company shall use commercially reasonable efforts
          to
          amend the Company’s certificate or articles of incorporation to increase the
          number of authorized but unissued shares of Common Stock to at least the
          Required Minimum at such time, as soon as possible and in any event not
          later
          than the 75th day after such date.

         

            (c)     The
          Company shall, if applicable: (i) in the time and manner required by the
          principal Trading Market, prepare and file with such Trading Market an
          additional shares listing application covering a number of shares of Common
          Stock at least equal to the Required Minimum on the date of such application,
          (ii) take all steps necessary to cause such shares of Common Stock to be
          approved for listing on such Trading Market as soon as possible thereafter,
          (iii) provide to the Purchasers evidence of such listing, and (iv) maintain
          the
          listing of such Common Stock on any date at least equal to the Required
          Minimum
          on such date on such Trading Market or another Trading Market. 

         

        4.13     Participation
          in Future Financing.
          

         

        (a)     From
          the date
          hereof until the date that is the later of (i) the date that the Debentures
          are
          no longer outstanding and (ii) the one year anniversary of the Effective
          Date,
          upon any issuance by the Company or any of its Subsidiaries of Common Stock
          or
          Common Stock Equivalents (a “Subsequent
          Financing”),
          each
          Purchaser shall have the right to participate in up to an amount of the
          Subsequent Financing equal to 100% of the Subsequent Financing (the
“Participation
          Maximum”)
          on the
          same terms, conditions and price provided for in the Subsequent
          Financing.

         

        (b)     At
          least
          5 Trading Days prior to the closing of the Subsequent Financing, the Company
          shall deliver to each Purchaser a written notice of its intention to effect
          a
          Subsequent Financing (“Pre-Notice”),
          which
          Pre-Notice shall ask such Purchaser if it wants to review the details of
          such
          financing (such additional notice, a “Subsequent
          Financing Notice”).
          Upon
          the request of a Purchaser, and only upon a request by such Purchaser,
          for a
          Subsequent Financing Notice, the Company shall promptly, but no later than
          1
          Trading Day after such request, deliver a Subsequent Financing Notice to
          such
          Purchaser. The Subsequent Financing Notice shall describe in reasonable
          detail
          the proposed terms of such Subsequent Financing, the amount of proceeds
          intended
          to be raised thereunder, the Person or Persons through or with whom such
          Subsequent Financing is proposed to be effected, and attached to which
          shall be
          a term sheet or similar document relating thereto. 

         

        (c)     Any
          Purchaser
          desiring to participate in such Subsequent Financing must provide written
          notice
          to the Company by not later than 5:30 p.m. (New York City time) on the
          5th
          Trading
          Day after all of the Purchasers have received the Pre-Notice that the Purchaser
          is willing to participate in the Subsequent Financing, the amount of the
          Purchaser’s
          participation, and that the Purchaser has such funds ready, willing, and
          available for investment on the terms set forth in the Subsequent Financing
          Notice. If the

         

        
          
            
            

          

          
            29

            
              

            

          

          
            
            

          

        

        Company
          receives no notice from a Purchaser as of such 5th
          Trading
          Day, such Purchaser shall be deemed to have notified the Company that it
          does
          not elect to participate. 

         

        (d)     If
          by
          5:30 p.m. (New York City time) on the 5th
          Trading
          Day after all of the Purchasers have received the Pre-Notice, notifications
          by
          the Purchasers of their willingness to participate in the Subsequent Financing
          (or to cause their designees to participate) is, in the aggregate, less
          than the
          total amount of the Subsequent Financing, then the Company may effect the
          remaining portion of such Subsequent Financing on the terms and with the
          Persons
          set forth in the Subsequent Financing Notice. 

         

        (e)     If
          by
          5:30 p.m. (New York City time) on the 5th
          Trading
          Day after all of the Purchasers have received the Pre-Notice, the Company
          receives responses to a Subsequent Financing Notice from Purchasers seeking
          to
          purchase more than the aggregate amount of the Participation Maximum, each
          such
          Purchaser shall have the right to purchase the greater of (a) their Pro
          Rata
          Portion (as defined below) of the Participation Maximum and (b) the difference
          between the Participation Maximum and the aggregate amount of participation
          by
          all other Purchasers.  “Pro
          Rata Portion”
is
          the
          ratio of (x) the Subscription Amount of Securities purchased on the Closing
          Date
          by a Purchaser participating under this Section 4.13 and (y) the sum of
          the
          aggregate Subscription Amounts of Securities purchased on the Closing Date
          by
          all Purchasers participating under this Section 4.13.

         

        (f)     The
          Company must provide the Purchasers with a second Subsequent Financing
          Notice,
          and the Purchasers will again have the right of participation set forth
          above in
          this Section 4.13, if the Subsequent Financing subject to the initial Subsequent
          Financing Notice is not consummated for any reason on the terms set forth
          in
          such Subsequent Financing Notice within 60 Trading Days after the date
          of the
          initial Subsequent Financing Notice. 

         

        (g)     Notwithstanding
          the foregoing, this Section 4.13 shall not apply in respect of (i) an Exempt
          Issuance or (ii) an underwritten public offering of Common Stock.

         

        4.14     Subsequent
          Equity Sales.
          

         

        (a)     From
          the
          date hereof until 90 days after the Effective Date, neither the Company
          nor any
          Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
          provided,
          however,
          the 90
          day period set forth in this Section 4.14 shall be extended for the number
          of
          Trading Days during such period in which (i) trading in the Common Stock
          is
          suspended by any Trading Market, or (ii) following the Effective Date,
          the
          Registration Statement is not effective or the prospectus included in the
          Registration Statement may not be used by the Purchasers for the resale
          of the
          Underlying Shares. 

         

        (b)     From
          the
          date hereof until such time as no Purchaser holds any of the Debentures,
          the
          Company shall be prohibited from effecting or entering into an agreement
          to
          effect any Subsequent Financing involving a “Variable Rate Transaction”. The
          term “Variable
          Rate Transaction”
shall
          mean a transaction in which the Company

         

        
          
            
            

          

          
            30

            
              

            

          

          
            
            

          

        

        issues
          or
          sells (i) any debt or equity securities that are convertible into, exchangeable
          or exercisable for, or include the right to receive additional shares of
          Common
          Stock either (A) at a conversion, exercise or exchange rate or other price
          that
          is based upon and/or varies with the trading prices of or quotations for
          the
          shares of Common Stock at any time after the initial issuance of such debt
          or
          equity securities, or (B) with a conversion, exercise or exchange price
          that is
          subject to being reset at some future date after the initial issuance of
          such
          debt or equity security or upon the occurrence of specified or contingent
          events
          directly or indirectly related to the business of the Company or the market
          for
          the Common Stock or (ii) enters into any agreement, including, but not
          limited
          to, an equity line of credit, whereby the Company may sell securities at
          a
          future determined price. 

         

        (c)     From
          the
          date hereof until such time as no Purchaser holds any of the Securities,
          in the
          event the Company issues or sells any shares of Common Stock or Common
          Stock
          Equivalents, if a Purchaser reasonably believes that any of the terms and
          conditions thereunder are more favorable to such investors as the terms
          and
          conditions granted hereunder, upon notice to the Company by such Purchaser
          the
          Company shall amend the terms of this transaction as to such Purchaser
          only so
          as to give such Purchaser the benefit of such more favorable terms or
          conditions. 

         

        (d)      Notwithstanding
          the
          foregoing, this Section 4.14 shall not apply in respect of (i) an Exempt
          Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance
          or (ii) an issuance of Common Stock occurring after the Effective Date
          but prior
          to the 90th
          calendar
          day following the Effective Date, provided that the VWAP for each of the
          20
          Trading Days immediately prior to any such issuance is in excess of $0.40,
          subject to adjustment for reverse and forward stock splits and the
          like. 

         

        4.15     Equal
          Treatment of Purchasers.
          No
          consideration shall be offered or paid to any Person to amend or consent
          to a
          waiver or modification of any provision of any of the Transaction Documents
          unless the same consideration is also offered to all of the parties to
          the
          Transaction Documents. Further, the Company shall not make any payment
          of
          principal or other amounts on the Debentures in amounts which are
          disproportionate to the respective principal amounts outstanding on the
          Debentures at any applicable time. For clarification purposes, this provision
          constitutes a separate right granted to each Purchaser by the Company and
          negotiated separately by each Purchaser, and is intended for the Company
          to
          treat the Purchasers as a class and shall not in any way be construed as
          the
          Purchasers acting in concert or as a group with respect to the purchase,
          disposition or voting of Securities or otherwise.

         

        4.16     Short
          Sales and Confidentiality After The Date Hereof.
          Each
          Purchaser severally and not jointly with the other Purchasers covenants
          that
          neither it nor any Affiliate acting on its behalf or pursuant to any
          understanding with it will execute any Short Sales during the period commencing
          at the Discussion Time and ending at the time that the transactions contemplated
          by this
          Agreement are first publicly announced as described in Section 4.6. Each
          Purchaser, severally and not jointly with the other Purchasers, covenants
          that
          until such time as the transactions contemplated by this Agreement are
          publicly
          disclosed by the Company as described in Section 4.6, such Purchaser will
          maintain the confidentiality of all disclosures made

        
          
            
            

          

          
            31

            
              

            

          

          
            
            

          

        

         to
          it in connection with this transaction (including the existence and terms
          of
          this transaction). Each Purchaser understands and acknowledges, severally
          and
          not jointly with any other Purchaser, that the Commission currently takes
          the
          position that coverage of short sales of shares of the Common Stock “against the
          box” prior to the Effective Date of the Registration Statement with the
          Securities is a violation of Section 5 of the Securities Act, as set forth
          in
          Item 65, Section A, of the Manual of Publicly Available Telephone
          Interpretations, dated July 1997, compiled by the Office of Chief Counsel,
          Division of Corporation Finance. Notwithstanding the foregoing, no Purchaser
          makes any representation, warranty or covenant hereby that it will not
          engage in
          Short Sales in
          the
          securities of the Company after the time that the transactions contemplated
          by
          this Agreement are first publicly announced as described in Section 4.6.
          Notwithstanding the foregoing, in the case of a Purchaser that is a
          multi-managed investment vehicle whereby separate portfolio managers manage
          separate portions of such Purchaser's assets and the portfolio managers
          have no
          direct knowledge of the investment decisions made by the portfolio managers
          managing other portions of such Purchaser's assets, the covenant set forth
          above
          shall only apply with respect to the portion of assets managed by the portfolio
          manager that made the investment decision to purchase the Securities covered
          by
          this Agreement.

         

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

         

        4.18     Capital
          Changes.
          Until
          the one year anniversary of the Effective Date, the Company shall not undertake
          a reverse or forward stock split or reclassification of the Common Stock
          without
          the prior written consent of the Purchasers holding a majority in principal
          amount outstanding of the Debentures.

         

        4.19     Certain
          Subsidiaries.
          Within
          60 calendar days following the date hereof, the Company shall take all
          action
          reasonably necessary to dissolve and wind up the operations of the following
          Subsidiaries: OXIS Health Products, Inc., a Delaware corporation, OXIS
          International S.A., a French company, OXIS Acquisition Corporation, a Delaware
          corporation and OXIS Instruments, Inc., a Pennsylvania (each, a “Dormant
          Subsidiary”),
          each
          of which is dormant and does not own any assets that are material to the
          value
          or operation of the Company. In the event that any Dormant Subsidiary commences
          or intends to commence operations of any nature (other than taking any
          action
          necessary in connection with the winding up of its affairs), the Company
          shall
          immediately cause such Dormant Subsidiary to execute and deliver each Purchaser
          the Subsidiary Guarantee (in addition to complying with the requirements
          of the
          Security Agreement). In addition, the Company shall cause each of its
          Subsidiaries formed or acquired on
          or
          subsequent to the date hereof, in addition to complying with the requirements
          under the Security Agreement, to execute and deliver each Purchaser the
          Subsidiary Guarantee.

        

        
          
            
            

          

          
            32

            
              

            

          

          
            
            

          

        

        ARTICLE
          V.

        MISCELLANEOUS

         

        5.1     Termination. 
          This Agreement may be terminated by any Purchaser, as to such Purchaser’s
          obligations hereunder only and without any effect whatsoever on the obligations
          between the Company and the other Purchasers, by written notice to the
          other
          parties, if the Closing has not been consummated on or before October 27,
          2006;
provided,
          however,
          that
          such termination will not affect the right of any party to sue for any
          breach by
          the other party (or parties).

         

        5.2     Fees
          and Expenses.
          At the
          Closing, the Company has agreed to reimburse Bristol Investment Fund, Ltd.
          (“Bristol”)
          the
          non-accountable sum of $20,000, for its actual, reasonable, out-of-pocket
          legal
          fees and expenses, $5,000 of which shall have been paid prior to the Closing.
          Except as expressly set forth in the Transaction Documents to the contrary,
          each
          party shall pay the fees and expenses of its advisers, counsel, accountants
          and
          other experts, if any, and all other expenses incurred by such party incident
          to
          the negotiation, preparation, execution, delivery and performance of this
          Agreement. The Company shall pay all transfer agent fees, stamp taxes and
          other
          taxes and duties levied in connection with the delivery of any Securities
          to the
          Purchasers.

         

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

         

        5.4     Notices.
          Any and
          all notices or other communications or deliveries required or permitted
          to be
          provided hereunder shall be in writing and shall be deemed given and effective
          on the earliest of (a) the date of transmission, if such notice or communication
          is delivered via facsimile at the facsimile number set forth on the signature
          pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading
          Day,
          (b) the next Trading Day after the date of transmission, if such notice
          or
          communication is delivered via facsimile at the facsimile number set forth
          on
          the signature pages attached hereto on a day that is not a Trading Day
          or later
          than 5:30 p.m. (New York City time) on any Trading Day, (c) the 2nd
          Trading
          Day following the date of mailing, if sent by U.S. nationally recognized
          overnight courier service, or (d) upon actual receipt by the party to whom
          such
          notice is required to be given. The address for such notices and communications
          shall be as set forth on the signature pages attached hereto.

         

        5.5     Amendments;
          Waivers.
          No
          provision of this Agreement may be waived, modified, supplemented or amended
          except in a written instrument signed, in the case of an amendment, by
          the
          Company and each Purchaser or, in the case of a waiver, by the party against
          whom enforcement of any such waived provision is sought. No waiver of any
          default with respect to any provision, condition or requirement of this
          Agreement shall be deemed to be a continuing
          waiver in the future or a waiver of any subsequent default or a waiver
          of any
          other provision, condition or requirement hereof, nor shall any delay or
          omission of any party to exercise any right hereunder in any manner impair
          the
          exercise of any such right.

         

        
          
            
            

          

          
            33

            
              

            

          

          
            
            

          

        

        5.6     Headings.
          The
          headings herein are for convenience only, do not constitute a part of this
          Agreement and shall not be deemed to limit or affect any of the provisions
          hereof.

         

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

         

        5.8     No
          Third-Party Beneficiaries.
          This
          Agreement is intended for the benefit of the parties hereto and their respective
          successors and permitted assigns and is not for the benefit of, nor may
          any
          provision hereof be enforced by, any other Person, except as otherwise
          set forth
          in Section 4.11.

         

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

         

        5.10    Survival.
          The
          representations and warranties shall survive the Closing and the delivery
          of the
          Securities for the applicable statue of limitations.

         

        
          
            
            

          

          
            34

            
              

            

          

          
            
            

          

        

        5.11     Execution.
          This
          Agreement may be executed in two or more counterparts, all of which when
          taken
          together shall be considered one and the same agreement and shall become
          effective when counterparts have been signed by each party and delivered
          to the
          other party, it being understood that both parties need not sign the same
          counterpart. In the event that any signature is delivered by facsimile
          transmission or by e-mail delivery of a “.pdf” format data file, 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 or “.pdf” signature page were an original thereof.

         

        5.12     Severability.
          If any
          term, provision, covenant or restriction of this Agreement is held by a
          court of
          competent jurisdiction to be invalid, illegal, void or unenforceable, the
          remainder of the terms, provisions, covenants and restrictions set forth
          herein
          shall remain in full force and effect and shall in no way be affected,
          impaired
          or invalidated, and the parties hereto shall use their commercially reasonable
          efforts to find and employ an alternative means to achieve the same or
          substantially the same result as that contemplated by such term, provision,
          covenant or restriction. It is hereby stipulated and declared to be the
          intention of the parties that they would have executed the remaining terms,
          provisions, covenants and restrictions without including any of such that
          may be
          hereafter declared invalid, illegal, void or unenforceable.

         

        5.13     Rescission
          and Withdrawal Right.
          Notwithstanding anything to the contrary contained in (and without limiting
          any
          similar provisions of) any of the other Transaction Documents, whenever
          any
          Purchaser exercises a right, election, demand or option under a Transaction
          Document and the Company does not timely perform its related obligations
          within
          the periods therein provided, then such Purchaser may rescind or withdraw,
          in
          its sole discretion from time to time upon written notice to the Company,
          any
          relevant notice, demand or election in whole or in part without prejudice
          to its
          future actions and rights; provided,
          however,
          in the
          case of a rescission of a conversion of a Debenture or exercise of a Warrant,
          the Purchaser shall be required to return any shares of Common Stock delivered
          in connection with any such rescinded conversion or exercise
          notice.

         

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

         

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

        
          
            
            

          

          
            35

            
              

            

          

          
            
            

          

        

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

         

        5.17     Usury.
          To the
          extent it may lawfully do so, the Company hereby agrees not to insist upon
          or
          plead or in any manner whatsoever claim, and will resist any and all efforts
          to
          be compelled to take the benefit or advantage of, usury laws wherever enacted,
          now or at any time hereafter in force, in connection with any claim, action
          or
          proceeding that may be brought by any Purchaser in order to enforce any
          right or
          remedy under any Transaction Document. Notwithstanding any provision to
          the
          contrary contained in any Transaction Document, it is expressly agreed
          and
          provided that the total liability of the Company under the Transaction
          Documents
          for payments in the nature of interest shall not exceed the maximum lawful
          rate
          authorized under applicable law (the “Maximum
          Rate”),
          and,
          without limiting the foregoing, in no event shall any rate of interest
          or
          default interest, or both of them, when aggregated with any other sums
          in the
          nature of interest that the Company may be obligated to pay under the
          Transaction Documents exceed such Maximum Rate. It is agreed that if the
          maximum
          contract rate of interest allowed by law and applicable to the Transaction
          Documents is increased or decreased by statute or any official governmental
          action subsequent to the date hereof, the new maximum contract rate of
          interest
          allowed by law will be the Maximum Rate applicable to the Transaction Documents
          from the effective date forward, unless such application is precluded by
          applicable law. If under any circumstances whatsoever, interest in excess
          of the
          Maximum Rate is paid by the Company to any Purchaser with respect to
          indebtedness evidenced by the Transaction Documents, such excess shall
          be
          applied by such Purchaser to the unpaid principal balance of any such
          indebtedness or be refunded to the Company, the manner of handling such
          excess
          to be at such Purchaser’s election.

         

        5.18     Independent
          Nature of Purchasers’ Obligations and Rights.
          The
          obligations of each Purchaser under any Transaction Document are several
          and not
          joint with the obligations of any other Purchaser, and no Purchaser shall
          be
          responsible in any way for the performance or non-performance of the obligations
          of any other Purchaser under any Transaction Document. Nothing contained
          herein
          or in any other Transaction Document, and no action taken by any Purchaser
          pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
          an association, a joint venture or any other kind of entity, or create
          a
          presumption that the Purchasers are in any way acting in concert or as
          a group
          with respect to such obligations or the transactions contemplated by the
          Transaction Documents. Each Purchaser shall be entitled to independently
          protect and enforce its rights, including without limitation the rights
          arising
          out of this Agreement or out of the other Transaction Documents, and it
          shall
          not be necessary for any other Purchaser to be joined as an additional
          party in
          any proceeding for such purpose. Each Purchaser has been represented by
          its own
          separate legal counsel in their review and negotiation

         

        
          
            
            

          

          
            36

            
              

            

          

          
            
            

          

        

        of
          the
          Transaction Documents. For reasons of administrative convenience only,
          Purchasers and their respective counsel have chosen to communicate with
          the
          Company through FWS. FWS does not represent all of the Purchasers but only
          Bristol. The Company has elected to provide all Purchasers with the same
          terms
          and Transaction Documents for the convenience of the Company and not because
          it
          was required or requested to do so by the Purchasers.

         

        5.19     Liquidated
          Damages.
          The
          Company’s obligations to pay any partial liquidated damages or other amounts
          owing under the Transaction Documents is a continuing obligation of the
          Company
          and shall not terminate until all unpaid partial liquidated damages and
          other
          amounts have been paid notwithstanding the fact that the instrument or
          security
          pursuant to which such partial liquidated damages or other amounts are
          due and
          payable shall have been canceled.

         

        5.20     Construction.
          The
          parties agree that each of them and/or their respective counsel has reviewed
          and
          had an opportunity to revise the Transaction Documents and, therefore,
          the
          normal rule of construction to the effect that any ambiguities are to be
          resolved against the drafting party shall not be employed in the interpretation
          of the Transaction Documents or any amendments hereto.

         

        (Signature
          Pages Follow)

         

        
          
            
            

          

          
            37

            
              

            

          

          
            
            

          

        

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

         

        
          	 OXIS
                  INTERNATIONAL, INC.   	
                   Address
                    for Notice:

                   

                
	
                  By:__________________________________________

                  Name:

                  Title:

                	
                  OXIS
                    International, Inc.

                  323
                    Vintage Park Drive,

                  Suite
                    B

                  Foster
                    City, California  94404

                  T: 650-212-2568

                  F: 650-212-2569

                  Attn: 
                    Marvin Hausman

                   

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

                   

                   

                	
                  Kevin
                    Leung, Esq.

                  Richardson
                    & Patel LLP

                  10900
                    Wilshire Boulevard

                  Suite
                    500

                  Los
                    Angeles, CA 90024

                  F:
                    (310) 208-1154

                

        

        

        [REMAINDER
          OF PAGE INTENTIONALLY LEFT BLANK

        SIGNATURE
          PAGE FOR PURCHASER FOLLOWS]

         

        
          
            
            

          

          
            38

            
              

            

          

          
            
            

          

        

        [PURCHASER
          SIGNATURE PAGES TO OXIS SECURITIES PURCHASE AGREEMENT]

        

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

         

        Name
          of
          Purchaser: ________________________________________________________

        Signature
          of Authorized Signatory of Purchaser:
          __________________________________

        Name
          of
          Authorized Signatory:
          ____________________________________________________

        Title
          of
          Authorized Signatory:
          _____________________________________________________

        Email
          Address of Purchaser:
          ________________________________________________

        Facsimile
          Number of Purchaser:
          ________________________________________________

        

        Address
          for Notice of Purchaser:

        

        

        

        

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

        

        

        

        Subscription
          Amount: _____________

        Principal
          Amount: (Subscription Amount multiplied by 1.255):                

        Series
          A
          Warrant Shares:                       

        Series
          B
          Warrant Shares:                     

        Series
          C
          Warrant Shares:                

        Series
          D
          Warrant Shares:                 

        Series
          E
          Warrant Shares:                 

        

        

        Purchasers
          that would like a 9.99% initial Beneficial Ownership Limitation in their
          Debentures and Warrants instead of a 4.99% limitation, please so indicate
          by
          checking here:  

        

        

        EIN
          Number: [PROVIDE
          THIS UNDER SEPARATE COVER]

        

        [SIGNATURE
          PAGES CONTINUE]

         

        39FORM OF SECURED CONVERTIBLE DEBENTURE

    Exhibit
      10.2

     

    EXHIBIT
      A

    

    NEITHER
      THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE
      BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
      COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
      THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
      MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
      STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
      OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
      SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
      EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
      SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY
      AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED
      IN
      CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
      SECURITIES.

    

    Original
      Issue Date: October
      25, 2006

    Original
      Conversion Price (subject to adjustment herein): $0.35

    

    $_______________

    

    

    SECURED
      CONVERTIBLE DEBENTURE

    DUE
      October 25, 2008

    

    THIS
      SECURED DEBENTURE is one of a series of duly authorized and validly issued
      Secured Convertible Debentures of Oxis International, Inc., a Delaware
      corporation, having its principal place of business at 323
      Vintage Park Drive, Suite B, Foster City, California 94404
      (the
“Company”),
      designated as its Secured Convertible Debenture due October 25, 2008 (this
      debenture, the “Debenture”
and,
      collectively with the other such series of debentures, the “Debentures”).

    

    FOR
      VALUE
      RECEIVED, the Company promises to pay to ________________________ or its
      registered assigns (the “Holder”),
      or
      shall have paid pursuant to the terms hereunder, the principal sum of
      $_______________ by October 25, 2008 (the “Maturity
      Date”)
      or
      such earlier date as this Debenture is required or permitted to be repaid as
      provided hereunder. This Debenture is subject to the following additional
      provisions:

    

    Section
      1. Definitions.
      For the
      purposes hereof, in addition to the terms defined elsewhere in this Debenture,
      (a) capitalized terms not otherwise defined herein shall have the meanings
      set
      forth in the Purchase Agreement and (b) the following terms shall have the
      following meanings:

    

    “Alternate
      Consideration”
shall
      have the meaning set forth in Section 5(e).

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    “Bankruptcy
      Event”
means
      any of the following events: (a) the Company or any Significant Subsidiary
      (as
      such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a
      case
      or other proceeding under any bankruptcy, reorganization, arrangement,
      adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
      or
      similar law of any jurisdiction relating to the Company or any Significant
      Subsidiary thereof; (b) there is commenced against the Company or any
      Significant Subsidiary thereof any such case or proceeding that is not dismissed
      within 60 days after commencement; (c) the Company or any Significant Subsidiary
      thereof is adjudicated insolvent or bankrupt or any order of relief or other
      order approving any such case or proceeding is entered; (d) the Company or
      any
      Significant Subsidiary thereof suffers any appointment of any custodian or
      the
      like for it or any substantial part of its property that is not discharged
      or
      stayed within 60 calendar days after such appointment; (e) the Company or any
      Significant Subsidiary thereof makes a general assignment for the benefit of
      creditors; (f) the Company or any Significant Subsidiary thereof calls a meeting
      of its creditors with a view to arranging a composition, adjustment or
      restructuring of its debts; or (g) the Company or any Significant Subsidiary
      thereof, by any act or failure to act, expressly indicates its consent to,
      approval of or acquiescence in any of the foregoing or takes any corporate
      or
      other action for the purpose of effecting any of the foregoing.

    

    “Base
      Conversion Price”
shall
      have the meaning set forth in Section 5(b).

    

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

    

    “Buy-In”
shall
      have the meaning set forth in Section 4(d)(v).

    

    “Change
      of Control Transaction”
means
      the occurrence after the date hereof of any of (i) an acquisition after the
      date
      hereof by an individual or legal entity or “group” (as described in Rule
      13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether
      through legal or beneficial ownership of capital stock of the Company, by
      contract or otherwise) of in excess of 33% of the voting securities of the
      Company (other than by means of conversion or exercise of the Debentures and
      the
      Securities issued together with the Debentures), or (ii) the Company merges
      into
      or consolidates with any other Person, or any Person merges into or consolidates
      with the Company and, after giving effect to such transaction, the stockholders
      of the Company immediately prior to such transaction own less than 66% of the
      aggregate voting power of the Company or the successor entity of such
      transaction, or (iii) the Company sells or transfers all or substantially all
      of
      its assets to another Person and the stockholders of the Company immediately
      prior to such transaction own less than 66% of the aggregate voting power of
      the
      acquiring entity immediately after the transaction, or (iv) a replacement at
      one
      time or within a three year period of more than one-half of the members of
      the
      Company’s board of directors which is not approved by a majority of

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    those
      individuals who are members of the board of directors on the date hereof (or
      by
      those individuals who are serving as members of the board of directors on any
      date whose nomination to the board of directors was approved by a majority
      of
      the members of the board of directors who are members on the date hereof),
      or
      (v) the execution by the Company of an agreement to which the Company is a
      party
      or by which it is bound, providing for any of the events set forth in clauses
      (i) through (iv) above.

    

    “Common
      Stock”
means
      the common stock, par value $.001 per share, of the Company and stock of any
      other class of securities into which such securities may hereafter be
      reclassified or changed into.

    

    “Conversion
      Date”
shall
      have the meaning set forth in Section 4(a).

    

    “Conversion
      Price”
shall
      have the meaning set forth in Section 4(b).

    

    “Conversion
      Shares”
means,
      collectively, the shares of Common Stock issuable upon conversion of this
      Debenture in accordance with the terms hereof.

    

    “Debenture
      Register”
shall
      have the meaning set forth in Section 2(c).

    

    “Dilutive
      Issuance”
shall
      have the meaning set forth in Section 5(b).

    

    “Dilutive
      Issuance Notice”
shall
      have the meaning set forth in Section 5(b).

    

    “Effectiveness
      Period”
shall
      have the meaning set forth in the Registration Rights Agreement. 

    

    “Equity
      Conditions”
shall
      mean, during the period in question, (i)
      the
      Company shall have duly honored all conversions and redemptions scheduled to
      occur or occurring by virtue of one or more Notices of Conversion of the Holder,
      if any, (ii) the Company shall have paid all liquidated damages and other
      amounts owing to the Holder in respect of this Debenture, (iii)
      there is an effective Registration Statement pursuant to which the Holder is
      permitted to utilize the prospectus thereunder to resell all of the shares
      issuable pursuant to the Transaction Documents (and the Company believes, in
      good faith, that such effectiveness will continue uninterrupted for the
      foreseeable future), (iv) the Common Stock is trading on a Trading Market and
      all of the shares issuable pursuant to the Transaction Documents are listed
      for
      trading on such Trading Market (and the Company believes, in good faith, that
      trading of the Common Stock on a Trading Market will continue uninterrupted
      for
      the foreseeable future), (v) there is a sufficient number of authorized but
      unissued and otherwise unreserved shares of Common Stock for the issuance of
      all
      of the shares issuable pursuant to the Transaction Documents, (vi) there is
      no
      existing Event of Default or no existing event which, with the passage of time
      or the giving of notice, would constitute an Event of Default, (vii) the
      issuance of the shares in question (or, in the case of a Monthly Redemption,
      the
      shares issuable upon conversion in full of the Monthly Redemption
      Amount) to
      the
      Holder would not violate the limitations set forth in Section 4(c) herein,
      (viii)
      there has been no public announcement of a pending 

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    or
      proposed Fundamental Transaction or Change of Control Transaction that has
      not
      been consummated, (ix) the Holder is not in possession of any information
      provided by the Company that constitutes, or may constitute, material non-public
      information and (x) for a period of 20 consecutive Trading Days prior to any
      applicable date in question beginning after the 6 month anniversary of the
      date
      of the Purchase Agreement, the daily trading volume for the Common Stock on
      the
      principal Trading Market exceeds 50,000 shares per Trading Day (subject to
      adjustment for forward and reverse stock splits and the like).

    

    “Event
      of Default”
shall
      have the meaning set forth in Section 8.

    

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended, and the rules and regulations
      promulgated thereunder.

    

    

    “Fundamental
      Transaction”
shall
      have the meaning set forth in Section 5(e).

     

    “Mandatory
      Default Amount”
means
      the sum of (i) the greater of (A) 130% of the outstanding principal amount
      of
      this Debenture or (B) the outstanding principal amount of this Debenture,
      divided by the Conversion Price on the date the Mandatory Default Amount is
      either (a) demanded (if demand or notice is required to create an Event of
      Default) or otherwise due or (b) paid in full, whichever has a lower Conversion
      Price, multiplied by the VWAP on the date the Mandatory Default Amount is either
      (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP,
      and (ii) all other amounts, costs, expenses and liquidated damages due in
      respect of this Debenture.

    

    “Monthly
      Conversion Period”
shall
      have the meaning set forth in Section 6(a) hereof.

     

    “Monthly
      Conversion Price”
shall
      have the meaning set forth in Section 6(a) hereof. 

     

    “Monthly
      Redemption”
means
      the redemption of this Debenture pursuant to Section 6(a) hereof. 

     

    “Monthly
      Redemption Amount”
means,
      as to a Monthly Redemption, $[_____,
      plus
      accrued but unpaid liquidated damages and any other amounts then owing to such
      Holder in respect of this Debenture.

    

    “Monthly
      Redemption Date”
means
      the 1st of each month, commencing immediately upon the earlier of (a) the first
      such date immediately following the Effective Date and (b) February 1, 2007,
      and
      terminating upon the full redemption of this Debenture. 

    
      
        

      
1   1/20th
      of the original principal amount

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    “Monthly
      Redemption Notice”
shall
      have the meaning set forth in Section 6(a) hereof. 

     

    “Monthly
      Redemption Share Amount”
shall
      have the meaning set forth in Section 6(a) hereof. 

    

    “New
      York Courts”
shall
      have the meaning set forth in Section 9(d).

    

    “Notice
      of Conversion”
shall
      have the meaning set forth in Section 4(a).

    

    “Optional
      Redemption”
shall
      have the meaning set forth in Section 6(b).

    

    “Optional
      Redemption Amount”
means
      the sum of (i) 100% of the principal amount of the Debenture then outstanding,
      (ii) accrued but unpaid interest and (iii) all liquidated damages and other
      amounts due in respect of the Debenture.

    

    “Optional
      Redemption Date”
shall
      have the meaning set forth in Section 6(b).

    

    “Optional
      Redemption Notice”
shall
      have the meaning set forth in Section 6(b).

    

    “Optional
      Redemption Notice Date”
shall
      have the meaning set forth in Section 6(b).

    “Original
      Issue Date”
means
      the date of the first issuance of the Debentures, regardless of any transfers
      of
      any Debenture and regardless of the number of instruments which may be issued
      to
      evidence such Debentures.

    

    “Permitted
      Indebtedness”
      means (a) the
      Indebtedness existing on the Original Issue Date and set forth on Schedule
      3.1(aa)
      attached
      to the Purchase Agreement, (b) lease obligations and purchase money indebtedness
      of up to $250,000, in the aggregate, incurred in connection with the acquisition
      of capital assets and lease obligations with respect to newly acquired or leased
      assets.

    

    “Permitted
      Lien”
means
      the individual and collective reference to the following: (a) Liens for taxes,
      assessments and other governmental charges or levies not yet due or Liens for
      taxes, assessments and other governmental charges or levies being contested
      in
      good faith and by appropriate proceedings for which adequate reserves (in the
      good faith judgment of the management of the Company) have been established
      in
      accordance with GAAP; (b) Liens imposed by law which were incurred in the
      ordinary course of the Company’s business, such as carriers’, warehousemen’s and
      mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in
      the ordinary course of the Company’s business, and which (x) do not individually
      or in the aggregate materially detract from the value of such property or assets
      or materially impair the use thereof in the operation of the business of the
      Company and its consolidated Subsidiaries or (y) are being contested in good
      faith by appropriate proceedings, which proceedings have the effect of
      preventing for the foreseeable future the forfeiture or sale of the property
      or
      asset subject to such Lien; and (c) Liens incurred in connection with Permitted
      Indebtedness under

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    clause
      (b) thereunder, provided that such Liens are not secured by assets of the
      Company or its Subsidiaries other than the assets so acquired or
      leased.

     

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

    

    “Pre-Redemption
      Conversion Shares”
shall
      have the meaning set forth in Section 6(a) hereof. 

    

    “Purchase
      Agreement”
means
      the Securities Purchase Agreement, dated as of October 25, 2006 among the
      Company and the original Holders, as amended, modified or supplemented from
      time
      to time in accordance with its terms.

    

    “Registration
      Rights Agreement”
means
      the Registration Rights Agreement, dated as of the date of the Purchase
      Agreement, among the Company and the original Holders, as amended, modified
      or
      supplemented from time to time in accordance with its terms.

    

    “Registration
      Statement”
means
      a
      registration statement that registers the resale of all Conversion Shares of
      the
      Holder, names such Holder as a “selling stockholder” therein, and meets the
      requirements of the Registration Rights Agreement.

    

    “Securities
      Act”
means
      the Securities Act of 1933, as amended, and the rules and regulations
      promulgated thereunder.

    

    “Share
      Delivery Date”
shall
      have the meaning set forth in Section 4(d).

    

    “Subsidiary”
shall
      have the meaning set forth in the Purchase Agreement.

    

    “Trading
      Day”
means
      a
      day on which the principal Trading Market is open for business.

    

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

    

    “Transaction
      Documents”
shall
      have the meaning set forth in the Purchase Agreement.

    

    “VWAP”
means,
      for any date, the price determined by the first of the following clauses that
      applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
      the daily volume weighted average price of the Common Stock for such date (or
      the nearest preceding date) on the Trading Market on which the Common Stock
      is
      then listed or quoted for trading as reported by Bloomberg L.P. (based on a
      Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
      time); (b)  if the OTC 

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    Bulletin
      Board is not a Trading Market, the volume weighted average price of the Common
      Stock for such date (or the nearest preceding date) on the OTC Bulletin Board;
      (c) if the Common Stock is not then quoted for trading on the OTC Bulletin
      Board
      and if prices for the Common Stock are then reported in the “Pink Sheets”
published by Pink Sheets, LLC (or a similar organization or agency succeeding
      to
      its functions of reporting prices), the most recent bid price per share of
      the
      Common Stock so reported; or (d) in all other cases, the fair market value
      of a share of Common Stock as determined by an independent appraiser selected
      in
      good faith by the Holder and reasonably acceptable to the Company.

    

    Section
      2. Interest
      and Prepayment.
      No
      regularly scheduled interest payments shall be made on this Debenture. Except
      as
      otherwise set forth in this Debenture, the Company may not prepay any portion
      of
      the principal amount of this Debenture without the prior written consent of
      the
      Holder.

    

    Section
      3.  Registration
      of Transfers and Exchanges.
      

     

    a) Different
      Denominations.
      This
      Debenture is exchangeable for an equal aggregate principal amount of Debentures
      of different authorized denominations, as requested by the Holder surrendering
      the same. No service charge will be payable for such registration of transfer
      or
      exchange.

     

    b) Investment
      Representations.
      This
      Debenture has been issued subject to certain investment representations of
      the
      original Holder set forth in the Purchase Agreement and may be transferred
      or
      exchanged only in compliance with the Purchase Agreement and applicable federal
      and state securities laws and regulations. 

    

    c) Reliance
      on Debenture Register.
      Prior
      to due presentment for transfer to the Company of this Debenture, the Company
      and any agent of the Company may treat the Person in whose name this Debenture
      is duly registered on the Debenture Register as the owner hereof for the purpose
      of receiving payment as herein provided and for all other purposes, whether
      or
      not this Debenture is overdue, and neither the Company nor any such agent shall
      be affected by notice to the contrary.

    

    Section
      4.  Conversion.

     

    a) Voluntary
      Conversion.
      At any
      time after the Original Issue Date until this Debenture is no longer
      outstanding, this Debenture shall be convertible, in whole or in part, into
      shares of Common Stock at the option of the Holder, at any time and from time
      to
      time (subject to the conversion limitations set forth in Section 4(c)
      hereof). The Holder shall effect conversions by delivering to the Company a
      Notice of Conversion, the form of which is attached hereto as Annex
      A
      (a
“Notice
      of Conversion”),
      specifying therein the principal amount of this Debenture to be converted and
      the date on which such conversion shall be effected (such date, the
“Conversion
      Date”).
      If no
      Conversion Date is specified in a Notice of Conversion, the Conversion Date
      shall be the date that such Notice of Conversion is deemed delivered hereunder.
      To effect conversions 

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    hereunder,
      the Holder shall not be required to physically surrender this Debenture to
      the
      Company unless the entire principal amount of this Debenture. Conversions
      hereunder shall have the effect of lowering the outstanding principal amount
      of
      this Debenture in an amount equal to the applicable conversion. The Holder
      and
      the Company shall maintain records showing the principal amount(s) converted
      and
      the date of such conversion(s). The Company may deliver an objection to any
      Notice of Conversion within 1 Business Day of delivery of such Notice of
      Conversion. In the event of any dispute or discrepancy, the records of the
      Holder shall be controlling and determinative in the absence of manifest error.
      The
      Holder, and any assignee by acceptance of this Debenture, acknowledge and agree
      that, by reason of the provisions of this paragraph, following conversion of
      a
      portion of this Debenture, the unpaid and unconverted principal amount of this
      Debenture may be less than the amount stated on the face
      hereof.

     

    b) Conversion
      Price.
      The
      conversion price in effect on any Conversion Date shall be equal to $0.35
      (subject
      to adjustment herein) (the “Conversion
      Price”).

    

    c) Holder’s
      Restriction on Conversion.
      [FOR
      HOLDERS THAT ELECT A 9.99% BENEFICIAL OWNERSHIP LIMITATION] [The Company shall
      not effect any conversion of this Debenture, and a Holder shall not have the
      right to convert any portion of this Debenture, to the extent that after giving
      effect to the conversion set forth on the applicable Notice of Conversion,
      such
      Holder (together with such Holder’s Affiliates, and any other person or entity
      acting as a group together with such Holder or any of such Holder’s Affiliates)
      would beneficially own in excess of the Beneficial Ownership Limitation (as
      defined below).  For purposes of the foregoing sentence, the number of
      shares of Common Stock beneficially owned by such Holder and its Affiliates
      shall include the number of shares of Common Stock issuable upon conversion
      of
      this Debenture with respect to which such determination is being made, but
      shall
      exclude the number of shares of Common Stock which are issuable upon (A)
      conversion of the remaining, unconverted principal amount of this Debenture
      beneficially owned by such Holder or any of its Affiliates and (B) exercise
      or
      conversion of the unexercised or unconverted portion of any other securities
      of
      the Company subject to a limitation on conversion or exercise analogous to
      the
      limitation contained herein (including, without limitation, any other Debentures
      or the Warrants) beneficially owned by such Holder or any of its
      Affiliates.  Except as set forth in the preceding sentence, for purposes of
      this Section 4(c), beneficial ownership shall be calculated in accordance with
      Section 13(d) of the Exchange Act and the rules and regulations promulgated
      thereunder. To the extent that the limitation contained in this Section 4(c)
      applies, the determination of whether this Debenture is convertible (in relation
      to other securities owned by such Holder together with any Affiliates) and
      of
      which principal amount of this Debenture is convertible shall be in the sole
      discretion of such Holder, and the submission of a Notice of Conversion shall
      be
      deemed to be such Holder’s determination of whether this Debenture may be
      converted (in relation to other securities owned by such Holder together with
      any Affiliates) and which principal amount of this Debenture is convertible,
      in
      each case subject to such aggregate percentage limitations. To ensure compliance
      with this restriction, each Holder will be deemed to represent to the Company
      each time it delivers 

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    a
      Notice
      of Conversion that such Notice of Conversion has not violated the restrictions
      set forth in this paragraph and the Company shall have no obligation to verify
      or confirm the accuracy of such determination. In
      addition, a determination as to any group status as contemplated above shall
      be
      determined in accordance with Section 13(d) of the Exchange Act and
      the
      rules and regulations promulgated thereunder. For
      purposes of this Section 4(c), in determining the number of outstanding shares
      of Common Stock, a Holder may rely on the number of outstanding shares of Common
      Stock as stated in the most recent of the following: (A) the Company’s most
      recent Form 10-QSB or Form 10-KSB, as the case may be; (B) a more recent public
      announcement by the Company; or (C) a more recent notice by the Company or
      the
      Company’s transfer agent setting forth the number of shares of Common Stock
      outstanding.  Upon the written or oral request of a Holder, the Company
      shall within two Trading Days confirm orally and in writing to such Holder
      the
      number of shares of Common Stock then outstanding.  In any case, the number
      of outstanding shares of Common Stock shall be determined after giving effect
      to
      the conversion or exercise of securities of the Company, including this
      Debenture, by such Holder or its Affiliates since the date as of which such
      number of outstanding shares of Common Stock was reported. The “Beneficial
      Ownership Limitation”
shall
      be 9.99% of the number of shares of the Common Stock outstanding immediately
      after giving effect to the issuance of shares of Common Stock issuable upon
      conversion of this Debenture held by the Holder. The provisions of this
      paragraph shall be construed and implemented in a manner otherwise than in
      strict conformity with the terms of this Section 4(c) to correct this paragraph
      (or any portion hereof) which may be defective or inconsistent with the intended
      Beneficial Ownership Limitation herein contained or to make changes or
      supplements necessary or desirable to properly give effect to such
      limitation.
      The
      limitations contained in this paragraph shall apply to a successor holder of
      this
      Debenture.]
      [FOR
      HOLDERS THAT ELECT A 4.99% LIMITATION][
      Holder’s Restriction on Conversion.
      The
      Company shall not effect any conversion of this Debenture, and a Holder shall
      not have the right to convert any portion of this Debenture, to the extent
      that
      after giving effect to the conversion set forth on the applicable Notice of
      Conversion, such Holder (together with such Holder’s Affiliates, and any other
      person or entity acting as a group together with such Holder or any of such
      Holder’s Affiliates) would beneficially own in excess of the Beneficial
      Ownership Limitation (as defined below).  For purposes of the foregoing
      sentence, the number of shares of Common Stock beneficially owned by such Holder
      and its Affiliates shall include the number of shares of Common Stock issuable
      upon conversion of this Debenture with respect to which such determination
      is
      being made, but shall exclude the number of shares of Common Stock which are
      issuable upon (A) conversion of the remaining, unconverted principal amount
      of
      this Debenture beneficially owned by such Holder or any of its Affiliates and
      (B) exercise or conversion of the unexercised or unconverted portion of any
      other securities of the Company subject to a limitation on conversion or
      exercise analogous to the limitation contained herein (including, without
      limitation, any other Debentures or the Warrants) beneficially owned by such
      Holder or any of its Affiliates.  Except as set forth in the preceding
      sentence, for purposes of this Section 4(c), beneficial ownership shall be
      calculated in accordance with Section 13(d) of the Exchange Act and the rules
      and regulations promulgated thereunder. To the extent that the limitation
      contained in this 

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    Section
      4(c) applies, the determination of whether this Debenture is convertible (in
      relation to other securities owned by such Holder together with any Affiliates)
      and of which principal amount of this Debenture is convertible shall be in
      the
      sole discretion of such Holder, and the submission of a Notice of Conversion
      shall be deemed to be such Holder’s determination of whether this Debenture may
      be converted (in relation to other securities owned by such Holder together
      with
      any Affiliates) and which principal amount of this Debenture is convertible,
      in
      each case subject to such aggregate percentage limitations. To ensure compliance
      with this restriction, each Holder will be deemed to represent to the Company
      each time it delivers a Notice of Conversion that such Notice of Conversion
      has
      not violated the restrictions set forth in this paragraph and the Company shall
      have no obligation to verify or confirm the accuracy of such determination.
      In
      addition, a determination as to any group status as contemplated above shall
      be
      determined in accordance with Section 13(d) of the Exchange Act and
      the
      rules and regulations promulgated thereunder.
      For
      purposes of this Section 4(c), in determining the number of outstanding shares
      of Common Stock, a Holder may rely on the number of outstanding shares of Common
      Stock as stated in the most recent of the following: (A) the Company’s most
      recent Form 10-QSB or Form 10-KSB, as the case may be; (B) a more recent public
      announcement by the Company; or (C) a more recent notice by the Company or
      the
      Company’s transfer agent setting forth the number of shares of Common Stock
      outstanding.  Upon the written or oral request of a Holder, the Company
      shall within two Trading Days confirm orally and in writing to such Holder
      the
      number of shares of Common Stock then outstanding.  In any case, the number
      of outstanding shares of Common Stock shall be determined after giving effect
      to
      the conversion or exercise of securities of the Company, including this
      Debenture, by such Holder or its Affiliates since the date as of which such
      number of outstanding shares of Common Stock was reported. The “Beneficial
      Ownership Limitation”
shall
      be 4.99% of the number of shares of the Common Stock outstanding immediately
      after giving effect to the issuance of shares of Common Stock issuable upon
      conversion of this Debenture held by the Holder. The Beneficial Ownership
      Limitation provisions of this Section 4(c) may be waived by such Holder, at
      the
      election of such Holder, upon not less than 61 days’ prior notice to the
      Company, to change the Beneficial Ownership Limitation to 9.99% of the number
      of
      shares of the Common Stock outstanding immediately after giving effect to the
      issuance of shares of Common Stock upon conversion of this Debenture held by
      the
      Holder and the provisions of this Section 4(c) shall continue to apply. Upon
      such a change by a Holder of the Beneficial Ownership Limitation from such
      4.99%
      limitation to such 9.99% limitation, the Beneficial Ownership Limitation may
      not
      be further waived by such Holder. The provisions of this paragraph shall be
      construed and implemented in a manner otherwise than in strict conformity with
      the terms of this Section 4(c) to correct this paragraph (or any portion hereof)
      which may be defective or inconsistent with the intended Beneficial Ownership
      Limitation herein contained or to make changes or supplements necessary or
      desirable to properly give effect to such limitation.
      The
      limitations contained in this paragraph shall apply to a successor holder of
      this
      Debenture.]

     

    d)     Mechanics
      of Conversion.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    i.     Conversion
      Shares Issuable Upon Conversion of Principal Amount.
      The
      number of shares of Common Stock issuable upon a conversion hereunder shall
      be
      determined by the quotient obtained by dividing (x) the outstanding principal
      amount of this Debenture to be converted by (y) the Conversion
      Price.

     

    ii.     Delivery
      of Certificate Upon Conversion.
      Not
      later than three Trading Days after each Conversion Date (the “Share
      Delivery Date”),
      the
      Company shall deliver, or cause to be delivered, to the Holder a certificate
      or
      certificates representing the Conversion Shares which, on or after the Effective
      Date, shall be free of restrictive legends and trading restrictions (other
      than
      those which may then be required by the Purchase Agreement) representing the
      number of shares of Common Stock being acquired upon the conversion of this
      Debenture. On or after the Effective Date, the Company shall use its best
      efforts to deliver any certificate or certificates required to be delivered
      by
      the Company under this Section 4 electronically through the Depository Trust
      Company or another established clearing corporation performing similar
      functions. 

     

    iii.    Failure
      to Deliver Certificates.
      If in
      the case of any Notice of Conversion such certificate or certificates are not
      delivered to or as directed by the applicable Holder by the third Trading Day
      after the Conversion Date, the Holder shall be entitled to elect by written
      notice to the Company at any time on or before its receipt of such certificate
      or certificates, to rescind such Conversion, in which event the Company shall
      promptly return to the Holder any original Debenture delivered to the Company
      and the Holder shall promptly return the Common Stock certificates representing
      the principal amount of this Debenture tendered for conversion to the Company.
      

     

    iv.    Obligation
      Absolute; Partial Liquidated Damages.
      The
      Company’s obligations to issue and deliver the Conversion Shares upon conversion
      of this Debenture in accordance with the terms hereof are absolute and
      unconditional, irrespective of any action or inaction by the Holder to enforce
      the same, any waiver or consent with respect to any provision hereof, the
      recovery of any judgment against any Person or any action to enforce the same,
      or any setoff, counterclaim, recoupment, limitation or termination, or any
      breach or alleged breach by the Holder or any other Person of any obligation
      to
      the Company or any violation or alleged violation of law by the Holder or any
      other Person, and irrespective of any other circumstance which might otherwise
      limit such obligation of the Company to the Holder in connection with the
      issuance of such Conversion Shares; provided,
      however,
      that
      such delivery shall not operate as a waiver by the Company of any such action
      the Company may have against the Holder. In the event the Holder of this
      Debenture shall elect to convert any or all of the outstanding principal amount
      hereof, the Company may not refuse conversion based on any claim that the Holder
      or anyone associated or affiliated with the Holder has been engaged in any
      violation of law, agreement or for any other reason, unless an injunction from
      a
      court, on notice to Holder, restraining 

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    and
      or
      enjoining conversion of all or part of this Debenture shall have been sought
      and
      obtained, and the Company posts a surety bond for the benefit of the Holder
      in
      the amount of 150% of the outstanding principal amount of this Debenture, which
      is subject to the injunction, which bond shall remain in effect until the
      completion of arbitration/litigation of the underlying dispute and the proceeds
      of which shall be payable to such Holder to the extent it obtains judgment.
      In
      the absence of such injunction, the Company shall issue Conversion Shares or,
      if
      applicable, cash, upon a properly noticed conversion. If the Company fails
      for
      any reason to deliver to the Holder such certificate or certificates pursuant
      to
      Section 4(d)(ii) by the third Trading Day after the Conversion Date, the Company
      shall pay to such Holder, in cash, as liquidated damages and not as a penalty,
      for each $1000 of principal amount being converted, $10 per Trading Day
      (increasing to $20 per Trading Day on the fifth Trading Day after such
      liquidated damages begin to accrue) for each Trading Day after such third
      Trading Day until such certificates are delivered. Nothing herein shall limit
      a
      Holder’s right to pursue actual damages or declare an Event of Default pursuant
      to Section 8 hereof for the Company’s failure to deliver Conversion Shares
      within the period specified herein and such Holder shall have the right to
      pursue all remedies available to it hereunder, at law or in equity including,
      without limitation, a decree of specific performance and/or injunctive relief.
      The exercise of any such rights shall not prohibit the Holder from seeking
      to
      enforce damages pursuant to any other Section hereof or under applicable
      law.

     

    v.     Compensation
      for Buy-In on Failure to Timely Deliver Certificates Upon
      Conversion.
      In
      addition to any other rights available to the Holder, if the Company fails
      for
      any reason to deliver to the Holder such certificate or certificates by the
      Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share
      Delivery Date the Holder is required by its brokerage firm to purchase (in
      an
      open market transaction or otherwise), or the Holder’s brokerage firm otherwise
      purchases, shares of Common Stock to deliver in satisfaction of a sale by such
      Holder of the Conversion Shares which the Holder was entitled to receive upon
      the conversion relating to such Share Delivery Date (a “Buy-In”),
      then
      the Company shall (A) pay in cash to the Holder (in addition to any other
      remedies available to or elected by the Holder) the amount by which (x) the
      Holder’s total purchase price (including any brokerage commissions) for the
      Common Stock so purchased exceeds (y) the product of (1) the aggregate number
      of
      shares of Common Stock that such Holder was entitled to receive from the
      conversion at issue multiplied by (2) the actual sale price at which the sell
      order giving rise to such purchase obligation was executed (including any
      brokerage commissions) and (B) at the option of the Holder, either reissue
      (if
      surrendered) this Debenture in a principal amount equal to the principal amount
      of the attempted conversion or deliver to the Holder the number of shares of
      Common Stock that would have been issued if the Company had timely complied
      with
      its delivery requirements under Section 4(d)(ii). For example, if the Holder
      purchases Common Stock having a total purchase price of $11,000 to cover a
      Buy-In with respect to an 

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    attempted
      conversion of this Debenture with respect to which the actual sale price of
      the
      Conversion Shares (including any brokerage commissions) giving rise to such
      purchase obligation was a total of $10,000 under clause (A) of the immediately
      preceding sentence, the Company shall be required to pay the Holder $1,000.
      The
      Holder shall provide the Company written notice indicating the amounts payable
      to the Holder in respect of the Buy-In and, upon request of the Company,
      evidence of the amount of such loss. Nothing herein shall limit a Holder’s right
      to pursue any other remedies available to it hereunder, at law or in equity
      including, without limitation, a decree of specific performance and/or
      injunctive relief with respect to the Company’s failure to timely deliver
      certificates representing shares of Common Stock upon conversion of this
      Debenture as required pursuant to the terms hereof.

     

    vi.    Reservation
      of Shares Issuable Upon Conversion.
      The
      Company covenants that it will at all times reserve and keep available out
      of
      its authorized and unissued shares of Common Stock for the sole purpose of
      issuance upon conversion of this Debenture and payment of principal on this
      Debenture, each as herein provided, free from preemptive rights or any other
      actual contingent purchase rights of Persons other than the Holder (and the
      other holders of the Debentures), not less than such aggregate number of shares
      of the Common Stock as shall (subject to the terms and conditions set forth
      in
      the Purchase Agreement) be issuable (taking into account the adjustments and
      restrictions of Section 5) upon the conversion of the outstanding principal
      amount of this Debenture and payment of principal hereunder. The Company
      covenants that all shares of Common Stock that shall be so issuable shall,
      upon
      issue, be duly authorized, validly issued, fully paid and nonassessable and,
      if
      the Registration Statement is then effective under the Securities Act, shall
      be
      registered for public sale in accordance with such Registration
      Statement.

    

    vii.     Fractional
      Shares.
      Upon a
      conversion hereunder the Company shall not be required to issue stock
      certificates representing fractions of shares of Common Stock, but may if
      otherwise permitted, make a cash payment in respect of any final fraction of
      a
      share based on the VWAP at such time. If the Company elects not, or is unable,
      to make such a cash payment, the Holder shall be entitled to receive, in lieu
      of
      the final fraction of a share, 1 whole share of Common Stock.

    

    viii.     Transfer
      Taxes.
      The
      issuance of certificates for shares of the Common Stock on conversion of this
      Debenture shall be made without charge to the Holder hereof for any documentary
      stamp or similar taxes that may be payable in respect of the issue or delivery
      of such certificates, provided that the Company shall not be required to pay
      any
      tax that may be payable in respect of any transfer involved in the issuance
      and
      delivery of any such certificate upon conversion in a name other than that
      of
      the Holder of this Debenture so converted and the Company shall not be required
      to issue or deliver such certificates unless or until the person or persons
      requesting the issuance thereof shall have paid to the 

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    Company
      the amount of such tax or shall have established to the satisfaction of the
      Company that such tax has been paid.

    

    Section
      5.       
      Certain
      Adjustments.

     

    a)     Stock
      Dividends and Stock Splits.
      If the
      Company, at any time while this Debenture is outstanding: (A) pays a stock
      dividend or otherwise makes a distribution or distributions payable in shares
      of
      Common Stock on shares of Common Stock or any Common Stock Equivalents (which,
      for avoidance of doubt, shall not include any shares of Common Stock issued
      by
      the Company upon conversion of this Debenture); (B) subdivides outstanding
      shares of Common Stock into a larger number of shares; (C) combines (including
      by way of a reverse stock split) outstanding shares of Common Stock into a
      smaller number of shares; or (D) issues, in the event of a reclassification
      of
      shares of the Common Stock, any shares of capital stock of the Company, then
      the
      Conversion Price shall be multiplied by a fraction of which the numerator shall
      be the number of shares of Common Stock (excluding any treasury shares of the
      Company) outstanding immediately before such event and of which the denominator
      shall be the number of shares of Common Stock outstanding immediately after
      such
      event. Any adjustment made pursuant to this Section shall become effective
      immediately after the record date for the determination of stockholders entitled
      to receive such dividend or distribution and shall become effective immediately
      after the effective date in the case of a subdivision, combination or
      re-classification.

     

    b)     Subsequent
      Equity Sales.
      If, at
      any time while this Debenture is outstanding, the Company or any Subsidiary,
      as
      applicable, sells or grants any option to purchase or sells or grants any right
      to reprice, or otherwise disposes of or issues (or announces any sale, grant
      or
      any option to purchase or other disposition), any Common Stock or Common Stock
      Equivalents entitling any Person to acquire shares of Common Stock at an
      effective price per share that is lower than the then Conversion Price (such
      lower price, the “Base
      Conversion Price”
and
      such issuances, collectively, a “Dilutive
      Issuance”)
      (if
      the holder of the Common Stock or Common Stock Equivalents so issued shall
      at
      any time, whether by operation of purchase price adjustments, reset provisions,
      floating conversion, exercise or exchange prices or otherwise, or due to
      warrants, options or rights per share which are issued in connection with such
      issuance, be entitled to receive shares of Common Stock at an effective price
      per share that is lower than the Conversion Price, such issuance shall be deemed
      to have occurred for less than the Conversion Price on such date of the Dilutive
      Issuance), then the Conversion Price shall be reduced to equal the Base
      Conversion Price. Such adjustment shall be made whenever such Common Stock
      or
      Common Stock Equivalents are issued. Notwithstanding
      the foregoing, no adjustment will be made under this Section 5(b) in respect
      of
      an Exempt Issuance.
      The
      Company shall notify the Holder in writing, no later than 1 Business Day
      following the issuance of any Common Stock or Common Stock Equivalents subject
      to this Section 5(b), indicating therein the applicable issuance price, or
      applicable reset price, exchange price, conversion price and other pricing
      terms
      (such notice, the “Dilutive
      Issuance Notice”).
      For
      purposes of clarification, whether or not the Company 

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    provides
      a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence
      of
      any Dilutive Issuance, the Holder is entitled to receive a number of Conversion
      Shares based upon the Base Conversion Price on or after the date of such
      Dilutive Issuance, regardless of whether the Holder accurately refers to the
      Base Conversion Price in the Notice of Conversion.

     

    c)     Subsequent
      Rights Offerings.
      If the
      Company, at any time while the Debenture is outstanding, shall issue rights,
      options or warrants to all holders of Common Stock (and not to Holders)
      entitling them to subscribe for or purchase shares of Common Stock at a price
      per share that is lower than the VWAP on the record date referenced below,
      then
      the Conversion Price shall be multiplied by a fraction of which the denominator
      shall be the number of shares of the Common Stock outstanding on the date of
      issuance of such rights or warrants plus the number of additional shares of
      Common Stock offered for subscription or purchase, and of which the numerator
      shall be the number of shares of the Common Stock outstanding on the date of
      issuance of such rights or warrants plus the number of shares which the
      aggregate offering price of the total number of shares so offered (assuming
      delivery to the Company in full of all consideration payable upon exercise
      of
      such rights, options or warrants) would purchase at such VWAP. Such adjustment
      shall be made whenever such rights or warrants are issued, and shall become
      effective immediately after the record date for the determination of
      stockholders entitled to receive such rights, options or warrants. 

     

    d)    Pro
      Rata Distributions.
      If the
      Company, at any time while this Debenture is outstanding, distributes to all
      holders of Common Stock (and not to the Holders) evidences of its indebtedness
      or assets (including cash and cash dividends) or rights or warrants to subscribe
      for or purchase any security (other than the Common Stock, which shall be
      subject to Section 5(b)), then in each such case the Conversion Price shall
      be
      adjusted by multiplying such Conversion Price in effect immediately prior to
      the
      record date fixed for determination of stockholders entitled to receive such
      distribution by a fraction of which the denominator shall be the VWAP determined
      as of the record date mentioned above, and of which the numerator shall be
      such
      VWAP on such record date less the then fair market value at such record date
      of
      the portion of such assets or evidence of indebtedness so distributed applicable
      to 1 outstanding share of the Common Stock as determined by the Board of
      Directors of the Company in good faith. In either case the adjustments shall
      be
      described in a statement delivered to the Holder describing the portion of
      assets or evidences of indebtedness so distributed or such subscription rights
      applicable to 1 share of Common Stock. Such adjustment shall be made whenever
      any such distribution is made and shall become effective immediately after
      the
      record date mentioned above.

     

    e)    Fundamental
      Transaction.
      If, at
      any time while this Debenture is outstanding, (A) the Company effects any merger
      or consolidation of the Company with or into another Person, (B) the Company
      effects any sale of all or substantially all of its assets in one transaction
      or
      a series of related transactions, (C) any tender offer or exchange offer
      (whether by the Company or another Person) is completed pursuant to

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    which
      holders of Common Stock are permitted to tender or exchange their shares for
      other securities, cash or property, or (D) the Company effects any
      reclassification of the Common Stock or any compulsory share exchange pursuant
      to which the Common Stock is effectively converted into or exchanged for other
      securities, cash or property (in any such case, a “Fundamental
      Transaction”),
      then,
      upon any subsequent conversion of this Debenture, the Holder shall have the
      right to receive, for each Conversion Share that would have been issuable upon
      such conversion immediately prior to the occurrence of such Fundamental
      Transaction, the same kind and amount of securities, cash or property as it
      would have been entitled to receive upon the occurrence of such Fundamental
      Transaction if it had been, immediately prior to such Fundamental Transaction,
      the holder of 1 share of Common Stock (the “Alternate
      Consideration”).
      For
      purposes of any such conversion, the determination of the Conversion Price
      shall
      be appropriately adjusted to apply to such Alternate Consideration based on
      the
      amount of Alternate Consideration issuable in respect of 1 share of Common
      Stock
      in such Fundamental Transaction, and the Company shall apportion the Conversion
      Price among the Alternate Consideration in a reasonable manner reflecting the
      relative value of any different components of the Alternate Consideration.
      If
      holders of Common Stock are given any choice as to the securities, cash or
      property to be received in a Fundamental Transaction, then the Holder shall
      be
      given the same choice as to the Alternate Consideration it receives upon any
      conversion of this Debenture following such Fundamental Transaction. To the
      extent necessary to effectuate the foregoing provisions, any successor to the
      Company or surviving entity in such Fundamental Transaction shall issue to
      the
      Holder a new debenture consistent with the foregoing provisions and evidencing
      the Holder’s right to convert such debenture into Alternate Consideration. The
      terms of any agreement pursuant to which a Fundamental Transaction is effected
      shall include terms requiring any such successor or surviving entity to comply
      with the provisions of this Section 5(e) and insuring that this Debenture (or
      any such replacement security) will be similarly adjusted upon any subsequent
      transaction analogous to a Fundamental Transaction.

     

    f)    Calculations.
      All
      calculations under this Section 5 shall be made to the nearest cent or the
      nearest 1/100th of a share, as the case may be. For purposes of this Section
      5,
      the number of shares of Common Stock deemed to be issued and outstanding as
      of a
      given date shall be the sum of the number of shares of Common Stock (excluding
      any treasury shares of the Company) issued and outstanding.

    

    g)    Notice
      to the Holder.

    

    i.    Adjustment
      to Conversion Price.
      Whenever the Conversion Price is adjusted pursuant to any provision of this
      Section 5, the Company shall promptly mail to each Holder a notice setting
      forth
      the Conversion Price after such adjustment and setting forth a brief statement
      of the facts requiring such adjustment. If the Company issues a variable rate
      security, despite the prohibition thereon in the Purchase Agreement, the Company
      shall be deemed to have issued Common Stock or Common Stock Equivalents at
      the
      lowest possible conversion 

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    or
      exercise price at which such securities may be converted or exercised in the
      case of a Variable Rate Transaction (as defined in the Purchase
      Agreement).

     

    ii.    Notice
      to Allow Conversion by Holder.
      If (A)
      the Company shall declare a dividend (or any other distribution in whatever
      form) on the Common Stock, (B) the Company shall declare a special nonrecurring
      cash dividend on or a redemption of the Common Stock, (C) the Company shall
      authorize the granting to all holders of the Common Stock of rights or warrants
      to subscribe for or purchase any shares of capital stock of any class or of
      any
      rights, (D) the approval of any stockholders of the Company shall be required
      in
      connection with any reclassification of the Common Stock, any consolidation
      or
      merger to which the Company is a party, any sale or transfer of all or
      substantially all of the assets of the Company, of any compulsory share exchange
      whereby the Common Stock is converted into other securities, cash or property
      or
      (E) the
      Company shall authorize the voluntary or involuntary dissolution, liquidation
      or
      winding up of the affairs of the Company, then, in each case, the Company shall
      cause to be filed at each office or agency maintained for the purpose of
      conversion of this Debenture, and shall cause to be delivered
      to the Holder at its last address as it shall appear upon the Debenture
      Register, at least 20 calendar days prior to the applicable record or effective
      date hereinafter specified, a notice stating (x)
      the
      date on which a record is to be taken for the purpose of such dividend,
      distribution, redemption, rights or warrants, or if a record is not to be taken,
      the date as of which the holders of the Common Stock of record to be entitled
      to
      such dividend, distributions, redemption, rights or warrants are to be
      determined or (y) the date on which such reclassification, consolidation,
      merger, sale, transfer or share exchange is expected to become effective or
      close, and the date as of which it is expected that holders of the Common Stock
      of record shall be entitled to exchange their shares of the Common Stock for
      securities, cash or other property deliverable upon such reclassification,
      consolidation, merger, sale, transfer or share exchange, provided that the
      failure to deliver such notice or any defect therein or in the delivery thereof
      shall not affect the validity of the corporate action required to be specified
      in such notice. The Holder is entitled to convert this Debenture during the
      20-day period commencing on the date of such notice through the effective date
      of the event triggering such notice.

    

    Section
      6.     Redemption.

    

    a)    Monthly
      Redemption.
      On each
      Monthly Redemption Date, the Company shall redeem the Monthly Redemption Amount
      (the “Monthly
      Redemption”).
      The
      Monthly Redemption Amount payable on each Monthly Redemption Date shall be
      paid
      in cash; provided,
      however,
      as to
      any Monthly Redemption and upon 20 Trading Days’ prior written irrevocable
      notice (the “Monthly
      Redemption Notice”),
      in
      lieu of a cash redemption payment the Company may elect to pay all or part
      of a
      Monthly Redemption Amount in Conversion Shares (such dollar amount to be paid
      on
      a Monthly Redemption Date in Conversion Shares, the “Monthly
      Redemption Share Amount”)
      based
      on a 

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    conversion
      price equal to the lesser of (i) the then Conversion Price and (ii) 85% of
      the
      average of the VWAPs for the 10 consecutive Trading Days ending on the Trading
      Day that is immediately prior to the applicable Monthly Redemption Date (subject
      to adjustment for any stock dividend, stock split, stock combination or other
      similar event affecting the Common Stock during such 10 Trading Day period)
      (the
      price calculated during the 10 Trading Day period immediately prior to the
      Monthly Redemption Date, the “Monthly
      Conversion Price”
and
      such 10 Trading Day period, the “Monthly
      Conversion Period”);
      provided,
      further,
      that
      the Company may not pay the Monthly Redemption Amount in Conversion Shares
      unless (y) from the date the Holder receives the duly delivered Monthly
      Redemption Notice through and until the date such Monthly Redemption is paid
      in
      full, the Equity Conditions have been satisfied, unless waived in writing by
      the
      Holder, and (z) as to such Monthly Redemption, prior to such Monthly Conversion
      Period (but not more than 5 Trading Days prior to the commencement of the
      Monthly Conversion Period), the Company shall have delivered to the Holder’s
      account with The Depository Trust Company a number of shares of Common Stock
      to
      be applied against such Monthly Redemption Share Amount equal to the quotient
      of
      (x) the applicable Monthly Redemption Share Amount divided by (y) the lesser
      of
      (1) the then Conversion Price and (2) 85% of the average of the VWAPs for the
      10
      consecutive Trading Days ending on the 5th
      Trading
      Day that is immediately prior to commencement of the applicable Monthly
      Conversion Period (the “Pre-Redemption
      Conversion Shares”)
      The
      Holder may convert, pursuant to Section 4(a), any principal amount of this
      Debenture subject to a Monthly Redemption at any time prior to the date that
      the
      Monthly Redemption Amount, plus accrued but unpaid liquidated damages and any
      other amounts then owing to the Holder are due and paid in full. Unless
      otherwise indicated by the Holder in the applicable Notice of Conversion, any
      principal amount of this Debenture converted during the applicable Monthly
      Conversion Period until the date the Monthly Redemption Amount is paid in full
      shall be first applied to the principal amount subject to the Monthly Redemption
      Amount payable in cash and then to the Monthly Redemption Share Amount. Any
      principal amount of this Debenture converted during the applicable Monthly
      Conversion Period in excess of the Monthly Redemption Amount shall be applied
      against the last principal amount of this Debenture scheduled to be redeemed
      hereunder, in reverse time order from the Maturity Date; provided,
      however,
      if any
      such conversion is applied against such Monthly Redemption Amount, the
      Pre-Redemption Conversion Shares, if any were issued in connection with such
      Monthly Redemption or were not already applied to such conversions, shall be
      first applied against such conversion. The Company covenants and agrees that
      it
      will honor all Notice of Conversions tendered up until such amounts are paid
      in
      full. The Company’s determination to pay a Monthly Redemption in cash, shares of
      Common Stock or a combination thereof shall be applied ratably to all of the
      holders of the then outstanding Debentures based on their (or their
      predecessor’s) initial purchases of Debentures pursuant to the Purchase
      Agreement, however, the eligibility of a holder to receive Conversion Shares
      in
      connection with a Monthly Redemption in compliance with clause (vii) of the
      definition of “Equity Conditions” as contemplated by clause (y) above shall be
      determined on a holder by holder basis. At any time the Company delivers a
      notice to the Holder of its election to pay the Monthly Redemption Amount in
      shares of Common 

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    Stock,
      the Company shall file a prospectus supplement pursuant to Rule 424 disclosing
      such election. Notwithstanding the foregoing, in the event the Company elects
      to
      pay a Holder a Monthly Redemption Amount in Conversion Shares, the Holder may,
      within five Trading Days following its receipt of such Monthly Redemption
      Notice, deliver a written notice to the Company of its intention to defer such
      payment in Conversion Shares and
      the
      delivery of Pre-Redemption Conversion Shares (a
      “Holder’s
      Deferment Notice”).
      Upon
      delivery of a Holder’s Deferment Notice, the Monthly Redemption Amount otherwise
      subject to such Monthly Redemption Notice shall thereafter be convertible into
      Common Stock, at the option of the Holder, in accordance with Section 4 hereof,
      except that the conversion price as to such Monthly Redemption Amount shall
      be
      equal to the lesser of (i) the Conversion Price then in effect and (ii) 85%
      of
      the average of the VWAPs for the 10 consecutive Trading Days ending on the
      Trading Day that is immediately prior to the applicable Trading Day the Holder
      elects to convert such Monthly Redemption Amount. 

    

    b)    Optional
      Redemption at Election of Company.
      Subject
      to the provisions of this Section 6, at any time after the Effective Date,
      the
      Company may deliver a notice to the Holder (an “Optional
      Redemption Notice”
and
      the
      date such notice is deemed delivered hereunder, the “Optional
      Redemption Notice Date”)
      of its
      irrevocable election to redeem all of the then outstanding principal amount
      of
      this Debenture for cash in an amount equal to the Optional Redemption Amount
      on
      the 10th
      Trading
      Day following the Optional Redemption Notice Date (such date, the “Optional
      Redemption Date”
and
      such redemption, the “Optional
      Redemption”).
      The
      Optional Redemption Amount is payable in full on the Optional Redemption Date.
      The Company may only effect an Optional Redemption if each of the Equity
      Conditions shall have been met on each Trading Day during the period commencing
      on the Optional Redemption Notice Date through to the Optional Redemption Date
      and
      through and including the date payment of the Optional Redemption Amount is
      actually made.
      If any
      of the Equity Conditions shall cease to be satisfied at any time during the
      10
      Trading Day period, then the Holder may elect to nullify the Optional Redemption
      Notice by notice to the Company within 3 Trading Days after the first day on
      which any such Equity Condition has not been met (provided that if, by a
      provision of the Transaction Documents, the Company is obligated to notify
      the
      Holder of the non-existence of an Equity Condition, such notice period shall
      be
      extended to the third Trading Day after proper notice from the Company) in
      which
      case the Optional Redemption Notice shall be null and void, ab initio.
      The
      Company covenants and agrees that it will honor all Notices of Conversion
      tendered from the time of delivery of the Optional Redemption Notice through
      the
      date all amounts owing thereon are due and paid in full.

    

    c)    Redemption
      Procedure.
      The
      payment of cash or issuance of Common Stock, as applicable, pursuant to an
      Optional or Monthly Redemption shall be payable on the Optional or Monthly
      Redemption Date. If any portion of the payment pursuant to an Optional or
      Monthly Redemption shall not be paid by the Company by the applicable due date,
      interest shall accrue thereon at an interest rate equal to the lesser of 18%
      per
      annum or the maximum rate permitted by applicable law until such amount is
      paid
      in full. 

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    Notwithstanding
      anything herein contained to the contrary, if any portion of the Optional or
      Monthly Redemption Amount remains unpaid after such date, the Holder may elect,
      by written notice to the Company given at any time thereafter,
      to invalidate such Optional or Monthly Redemption, ab initio,
      and,
      with respect to the Company’s failure to honor the Optional Redemption, the
      Company shall have no further right to exercise such Optional Redemption.
      Notwithstanding anything to the contrary in this Section 6, the Company’s
      determination to redeem in cash or its elections under Section 6 shall be
      applied ratably among the Holders of Debentures.
      The
      Holder may elect to convert the outstanding principal amount of the Debenture
      pursuant to Section 4 prior to actual payment in cash for any redemption under
      this Section 6 by the delivery of a Notice of Conversion to the
      Company.

    

    Section
      7.    Negative
      Covenants.
      As long
      as any portion of this Debenture remains outstanding, the Company shall not,
      and
      shall not permit any of its Subsidiaries to, directly or
      indirectly:

    a)    other
      than Permitted Indebtedness, enter into, create, incur, assume, guarantee or
      suffer to exist any indebtedness for borrowed money of any kind, including
      but
      not limited to, a guarantee, on or with respect to any of its property or assets
      now owned or hereafter acquired or any interest therein or any income or profits
      therefrom;

     

    b)    other
      than Permitted Liens, enter into, create, incur, assume or suffer to exist
      any
      Liens of any kind, on or with respect to any of its property or assets now
      owned
      or hereafter acquired or any interest therein or any income or profits
      therefrom;

    

    c)    amend
      its
      charter documents, including, without limitation, the certificate of
      incorporation and bylaws, in any manner that materially and adversely affects
      any rights of the Holder;

    

    d)    repay,
      repurchase or offer to repay, repurchase or otherwise acquire more than a
de minimis
      number
      of shares of its Common Stock or Common Stock Equivalents other than as to
      (a)
      the Conversion Shares or Warrant Shares as permitted or required under the
      Transaction Documents and (b) repurchases of Common Stock or Common Stock
      Equivalents of departing officers and directors of the Company, provided that
      such repurchases shall not exceed an aggregate of $100,000 for all officers
      and
      directors during the term of this Debenture); 

    

    e)    pay
      cash
      dividends or distributions on any equity securities of the Company;

    

    f)    enter
      into any transaction with any Affiliate of the Company which would be required
      to be disclosed in any public filing with the Commission, unless such
      transaction is made on an arm’s-length basis and expressly approved by a
      majority of the disinterested directors of the Company (even if less than a
      quorum otherwise required for board approval); 

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    (g)    sell
      or
      transfer any of its assets (other than the sale of inventory in the ordinary
      course of business consistent with past practice); 

    

    h)    sell
      or
      transfer any of its assets to a Dormant Subsidiary; or

    

    i)    enter
      into any agreement with respect to any of the foregoing.

     

    Section
      8.    Events
      of Default.
      

    

    a)    “Event
      of Default”
means,
      wherever used herein, any of the following events (whatever the reason for
      such
      event and whether such event shall be voluntary or involuntary or effected
      by
      operation of law or pursuant to any judgment, decree or order of any court,
      or
      any order, rule or regulation of any administrative or governmental
      body):

    

    i.    any
      default in the payment of (A) the principal amount of any Debenture or (B)
      liquidated damages and other amounts owing to a Holder on any Debenture, as
      and
      when the same shall become due and payable (whether on a Conversion Date or
      the
      Maturity Date or by acceleration or otherwise) which default, solely in the
      case
      of a default under clause (B) above, is not cured within 3 Trading
      Days;

     

    ii.    the
      Company shall fail to observe or perform any other covenant or agreement
      contained in the Debentures (other than a breach by the Company of its
      obligations to deliver shares of Common Stock to the Holder upon conversion,
      which breach is addressed in clause (xi) below) which failure is not cured,
      if
      possible to cure, within the earlier to occur
      of
(A)
      5
Trading
      Days after notice of such failure sent by the Holder or by any other
      Holder
      and (B)
      10 Trading Days after the Company has become or should have become aware of
      such
      failure;

    

    iii.    a
      breach,
      default or event of default (subject to any grace or cure period provided in
      the
      applicable agreement, document or instrument) shall occur under (A) any of
      the
      Transaction Documents or (B) any other material agreement, lease, document
      or
      instrument to which the Company or any Subsidiary is obligated (and not covered
      by clause (vi) below);

    

    iv.    any
      representation
      or warranty made in this Debenture, any other Transaction Documents, any written
      statement pursuant hereto or thereto or any other report, financial statement
      or
      certificate made or delivered to the Holder or any other Holder shall
      be
      untrue or incorrect in any material respect as of the date when made or deemed
      made;

    

    v.    the
      Company or any Significant Subsidiary shall be subject to a Bankruptcy
      Event;

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    vi.    the
      Company
      or any Subsidiary shall default on any of its obligations under any mortgage,
      credit agreement or other facility, indenture agreement, factoring agreement
      or
      other instrument under which there may be issued, or by which there may be
      secured or evidenced, any indebtedness for borrowed money or money due under
      any
      long term leasing or factoring arrangement that (a) involves an obligation
      greater than $150,000, whether such indebtedness now exists or shall hereafter
      be created, and (b) results in such indebtedness becoming or being declared
      due
      and payable prior to the date on which it would otherwise become due and
      payable; 

    

    vii.    the
      Common Stock shall not be eligible for listing or quotation for trading on
      a
      Trading Market and shall not be eligible to resume listing or quotation for
      trading thereon within five Trading Days;

    

    viii.    the
      Company shall be a party to any Change of Control Transaction or Fundamental
      Transaction or shall agree to sell or dispose of all or in excess of 33% of
      its
      assets in one transaction or a series of related transactions (whether or not
      such sale would constitute a Change of Control Transaction);

    

    ix.    a
      Registration Statement shall not have been declared effective by the Commission
      on or prior to the 180th calendar
      day after the Closing Date; 

    

    x.    if,
      during the Effectiveness Period (as defined in the Registration Rights
      Agreement), either (a) the effectiveness of the Registration Statement lapses
      for any reason or (b) the Holder shall not be permitted to resell Registrable
      Securities (as defined in the Registration Rights Agreement) under the
      Registration Statement for a period of more than 20 consecutive Trading Days
      or
      30 non-consecutive Trading Days during any 12 month period; provided,
      however,
      that if
      the Company
      is negotiating a merger, consolidation, acquisition or sale of all or
      substantially all of its assets or a similar transaction and, in the written
      opinion of counsel to the Company, the Registration Statement would be required
      to be amended to include information concerning such pending transaction(s)
      or
      the parties thereto which information is not available or may not be publicly
      disclosed at the time, the Company shall be permitted an additional 10
      consecutive Trading Days during any 12 month period pursuant to this Section
      8(a)(x);

    

    xi.    the
      Company shall fail for any reason to deliver certificates to a Holder prior
      to
      the fifth Trading Day after a Conversion Date pursuant to Section 4(d) or the
      Company shall provide at any time notice to the Holder, including by way of
      public announcement, of the Company’s intention to not honor requests for
      conversions of any Debentures in accordance with the terms hereof;

    

    xii.    any
      Person shall breach any agreement delivered to the initial Holders pursuant
      to
      Section 2.2(a) of the Purchase Agreement; or

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    xiii.    any
      monetary
      judgment, writ or similar final process shall be entered or filed against the
      Company, any Subsidiary or any of their respective property or other assets
      for
      more than $50,000, and such judgment, writ or similar final process shall remain
      unvacated, unbonded or unstayed for a period of 45 calendar days.

    

    b)    Remedies
      Upon Event of Default.
      If any
      Event of Default occurs, the outstanding principal amount of this Debenture,
      plus accrued but unpaid liquidated damages and other amounts owing in respect
      thereof through the date of acceleration, shall become, at the Holder’s
      election, immediately due and payable in cash at the Mandatory Default Amount.
      Commencing 5 days after the occurrence of any Event of Default that results
      in
      the eventual acceleration of this Debenture, the interest rate on this Debenture
      shall accrue at an interest rate equal to the lesser of 18% per annum or the
      maximum rate permitted under applicable law. Upon the payment in full of the
      Mandatory Default Amount, the Holder shall promptly surrender this Debenture
      to
      or as directed by the Company. In connection with such acceleration described
      herein, the Holder need not provide, and the Company hereby waives, any
      presentment, demand, protest or other notice of any kind, and the Holder may
      immediately and without expiration of any grace period enforce any and all
      of
      its rights and remedies hereunder and all other remedies available to it under
      applicable law. Such acceleration may be rescinded and annulled by Holder at
      any
      time prior to payment hereunder and the Holder shall have all rights as a holder
      of the Debenture until such time, if any, as the Holder receives full payment
      pursuant to this Section 8(b). No such rescission or annulment shall affect
      any
      subsequent Event of Default or impair any right consequent thereon.

     

    Section
      9.    Miscellaneous.
      

     

    a)    Notices.
      Any and
      all notices or other communications or deliveries to be provided by the Holder
      hereunder, including, without limitation, any Notice of Conversion, shall be
      in
      writing and delivered personally, by facsimile, or sent by a nationally
      recognized overnight courier service, addressed to the Company, at the address
      set forth above, facsimile number ______________,
      Attn: ______________________________________or
      such
      other facsimile number or address as the Company may specify for such purpose
      by
      notice to the Holder delivered in accordance with this Section 9. Any and all
      notices or other communications or deliveries to be provided by the Company
      hereunder shall be in writing and delivered personally, by facsimile, or sent
      by
      a nationally recognized overnight courier service addressed to each Holder
      at
      the facsimile number or address of such Holder appearing on the books of the
      Company, or if no such facsimile number or address appears, at the principal
      place of business of the Holder. Any notice or other communication or deliveries
      hereunder shall be deemed given and effective on the earliest of (i) the date
      of
      transmission, if such notice or communication is delivered via facsimile at
      the
      facsimile number specified in this Section 9 prior to 5:30 p.m. (New York City
      time), (ii) the date immediately following the date of transmission, if such
      notice or communication is 

    
      
         

        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    delivered
      via facsimile at the facsimile number specified in this Section 9 between 5:30
      p.m. (New York City time) and 11:59 p.m. (New York City time) on any date,
      (iii)
      the second Business Day following the date of mailing, if sent by nationally
      recognized overnight courier service, or (iv) upon actual receipt by the party
      to whom such notice is required to be given.

     

    b)    Absolute
      Obligation.
      Except
      as expressly provided herein, no provision of this Debenture shall alter or
      impair the obligation of the Company, which is absolute and unconditional,
      to
      pay the principal of, liquidated damages and accrued interest, as applicable,
      on
      this Debenture at the time, place, and rate, and in the coin or currency, herein
      prescribed. This Debenture is a direct debt obligation of the Company. This
      Debenture ranks pari passu
      with all
      other Debentures now or hereafter issued under the terms set forth
      herein.  

     

    c)    Lost
      or Mutilated Debenture.
      If this
      Debenture shall be mutilated, lost, stolen or destroyed, the Company shall
      execute and deliver, in exchange and substitution for and upon cancellation
      of a
      mutilated Debenture, or in lieu of or in substitution for a lost, stolen or
      destroyed Debenture, a new Debenture for the principal amount of this Debenture
      so mutilated, lost, stolen or destroyed, but only upon receipt of evidence
      of
      such loss, theft or destruction of such Debenture, and of the ownership hereof,
      reasonably satisfactory to the Company.

    

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

    
      
         

        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    in
      any
      legal proceeding arising out of or relating to this Debenture or the
      transactions contemplated hereby. If either party shall commence an action
      or
      proceeding to enforce any provisions of this Debenture, then the prevailing
      party in such action or proceeding shall be reimbursed by the other party for
      its attorneys fees and other costs and expenses incurred in the investigation,
      preparation and prosecution of such action or proceeding.

     

        e)    Waiver.
      Any
      waiver by the Company or the Holder of a breach of any provision of this
      Debenture shall not operate as or be construed to be a waiver of any other
      breach of such provision or of any breach of any other provision of this
      Debenture. The failure of the Company or the Holder to insist upon strict
      adherence to any term of this Debenture on one or more occasions shall not
      be
      considered a waiver or deprive that party of the right thereafter to insist
      upon
      strict adherence to that term or any other term of this Debenture. Any waiver
      by
      the Company or the Holder must be in writing.

     

        f)    Severability.
      If any
      provision of this Debenture is invalid, illegal or unenforceable, the balance
      of
      this Debenture shall remain in effect, and if any provision is inapplicable
      to
      any Person or circumstance, it shall nevertheless remain applicable to all
      other
      Persons and circumstances. If it shall be found that any interest or other
      amount deemed interest due hereunder violates the applicable law governing
      usury, the applicable rate of interest due hereunder shall automatically be
      lowered to equal the maximum rate of interest permitted under applicable law.
      The Company covenants (to the extent that it may lawfully do so) that it shall
      not at any time insist upon, plead, or in any manner whatsoever claim or take
      the benefit or advantage of, any stay, extension or usury law or other law
      which
      would prohibit or forgive the Company from paying all or any portion of the
      principal of or interest on this Debenture as contemplated herein, wherever
      enacted, now or at any time hereafter in force, or which may affect the
      covenants or the performance of this indenture, and the Company (to the extent
      it may lawfully do so) hereby expressly waives all benefits or advantage of
      any
      such law, and covenants that it will not, by resort to any such law, hinder,
      delay or impeded the execution of any power herein granted to the Holder, but
      will suffer and permit the execution of every such as though no such law has
      been enacted.

     

        g)    Next
      Business Day.
      Whenever any payment or other obligation hereunder shall be due on a day other
      than a Business Day, such payment shall be made on the next succeeding Business
      Day.

     

        h)     Headings.
      The
      headings contained herein are for convenience only, do not constitute a part
      of
      this Debenture and shall not be deemed to limit or affect any of the provisions
      hereof.

     

        i)     Assumption. 
      Any successor to the Company or any surviving entity in a Fundamental
      Transaction shall (i) assume, prior to such Fundamental Transaction, all of
      the
      obligations of the Company under this Debenture and the other Transaction
      Documents pursuant to written agreements in form and substance satisfactory
      to
      the Holder (such approval not to be unreasonably withheld or delayed) and (ii)
      issue to the Holder a new 

      
        
           

          
          

        

        
          25

          
            

          

        

        
          
          

        

      

    

    debenture
      of such successor entity evidenced by a written instrument substantially similar
      in form and substance to this Debenture, including, without limitation, having
      a
      principal amount and interest rate equal to the principal amount and the
      interest rate of this Debenture and having similar ranking to this Debenture,
      which shall be satisfactory to the Holder (any such approval not to be
      unreasonably withheld or delayed).  The provisions of this Section 9(i)
      shall apply similarly and equally to successive Fundamental Transactions and
      shall be applied without regard to any limitations of this
      Debenture.

    
 

    j)    Secured
      Obligation.
      The
      obligations of the Company under this Debenture are secured by all assets of
      the
      Company and each Subsidiary pursuant to the Security Agreement, dated as of
      October 25, 2006, between the Company, the Subsidiaries of the Company and
      the
      Secured Parties (as defined therein).

    

    *********************

    
      
        
           

        

        
        

      

      
        26

        
          

        

      

      
        
        

        
        

      

    

    IN
      WITNESS WHEREOF, the Company has caused this Debenture to be duly executed
      by a
      duly authorized officer as of the date first above indicated.

    

    
      	 	 	 
	 	OXIS
              INTERNATIONAL, INC.
	 
 	 
 	 
 
	Date: 	By:  	 
	 	
              

              Name:
	 	Title:

    

     

     

     

     

     

     

     

     

     

     

    
 

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

    ANNEX
      A

    NOTICE
      OF CONVERSION

     

    

    The
      undersigned hereby elects to convert principal under the Secured Convertible
      Debenture due October 25, 2008 of Oxis International, Inc., a Delaware
      corporation (the “Company”),
      into
      shares of common stock, par value $.001 per share (the “Common
      Stock”),
      of
      the Company according to the conditions hereof, as of the date written below.
      If
      shares of Common Stock are to be issued in the name of a person other than
      the
      undersigned, the undersigned will pay all transfer taxes payable with respect
      thereto and is delivering herewith such certificates and opinions as reasonably
      requested by the Company in accordance therewith. No fee will be charged to
      the
      holder for any conversion, except for such transfer taxes, if any.

    

    By
      the
      delivery of this Notice of Conversion the undersigned represents and warrants
      to
      the Company that its ownership of the Common Stock does not exceed the amounts
      specified under Section 4 of this Debenture, as determined in accordance with
      Section 13(d) of the Exchange Act.

    

    The
      undersigned agrees to comply with the prospectus delivery requirements under
      the
      applicable securities laws in connection with any transfer of the aforesaid
      shares of Common Stock. 

    

    Conversion
      calculations:   

    Date
      to
      Effect Conversion:

    

    Principal
      Amount of Debenture to be Converted:

    

    Number
      of
      shares of Common Stock to be issued:

    Signature:

    Name:

    Address:

    

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

    Schedule
      1

    CONVERSION
      SCHEDULE

    

    The
      Secured Convertible Debentures due on October 25, 2008 in the aggregate
      principal amount of $____________ issued by Oxis International, Inc. This
      Conversion Schedule reflects conversions made under Section 4 of the above
      referenced Debenture.

    

                    Dated:

    

    

    
      	
               

              Date
                of Conversion

              (or
                for first entry, Original Issue Date)

            	
               

              Amount
                of Conversion

            	
               

              Aggregate
                Principal Amount Remaining Subsequent to Conversion

              (or
                original Principal Amount)

            	
               

              Company
                Attest

            
	 	 	 	 
	 	 	 	 
	
               

            	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 

    

    

    

    
 

     

     

     

     

    29

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00111-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00111-of-00352.parquet"}]]