Document:

Exhibit
4.1

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH
THIS SECURITY IS EXERCISABLE 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.

	
  

  	
  August 2, 2007 

  	
  W-

  

 

COMMON
STOCK PURCHASE WARRANT

To Purchase          
Shares of Common Stock of

CALLISTO PHARMACEUTICALS, INC.

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”)
certifies that, for value received,                  
(the “Holder”), is entitled, upon the terms and subject to the
limitations on exercise and the conditions hereinafter set forth, at any time
on or after the date hereof (the “Initial Exercise Date”) and on or
prior to the close of business on the third anniversary of the Initial Exercise
Date (the “Termination Date”) but not thereafter, to subscribe for and
purchase from Callisto Pharmaceuticals, Inc., a Delaware corporation (the “Company”),
up to           shares (the “Warrant
Shares”) of Common Stock, par value $.0001 per share, of the Company (the “Common
Stock”).  The purchase price of one
share of Common Stock under this Warrant shall be equal to the Exercise Price,
as defined in Section 2(b).

Section 1.               Definitions.  Capitalized
terms used and not otherwise defined herein shall have the meanings set forth
in that certain Securities Purchase Agreement (the “Purchase Agreement”),
dated August 2, 2007, among the Company and the purchasers signatory thereto.

Section
2.               Exercise.

a)               Exercise
of Warrant.  Exercise of the purchase
rights represented by this Warrant may be made at any time or times on or after
the Initial Exercise Date and on or before the Termination Date by delivery to
the Company of a duly executed facsimile copy of the Notice of Exercise Form
annexed hereto (or such other office or agency of the Company as it may
designate by notice in writing to the registered Holder at the address of such
Holder appearing on the books of the Company); provided, however,
within 5 Trading Days of the date said Notice of Exercise is delivered to the
Company, the Holder shall have surrendered this Warrant to the Company and the
Company shall

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have received payment of the aggregate Exercise Price of the shares
thereby purchased by wire transfer or cashier’s check drawn on a United States
bank.

b)            Exercise Price.  The exercise price of the Common Stock under
this Warrant shall be $0.70, subject to adjustment hereunder (the “Exercise
Price”).

c)             Net
Exercise.  If at any time after one
year from the Original Issue Date there is no effective Registration Statement
registering, or no current prospectus available for, the resale of the Warrant
Shares by the Holder, then this Warrant may also be exercised at such time by
means of a “cashless exercise” in which the Holder shall be entitled to receive
a certificate for the number of Warrant Shares equal to the quotient obtained
by dividing [(A-B) (X)] by (A), where:

(A) = the volume weighted average trading price of the
Common Stock on the principal Trading Market over the twenty (20) consecutive
Trading Days immediately preceding the date of such election (“VWAP”);

(B) =  the
Exercise Price of this Warrant, as adjusted; and

(X) = the number of Warrant Shares issuable upon
exercise of this Warrant in accordance with the terms of this Warrant by means
of a cash exercise rather than a cashless exercise.

d)            Exercise
Limitations.

i.          Holder’s
Restrictions.  The Holder shall not
have the right to exercise any portion of this Warrant, pursuant to Section
2(c) or otherwise, to the extent that after giving effect to such issuance
after exercise, the Holder (together with the Holder’s affiliates), as set
forth on the applicable Notice of Exercise, would beneficially own in excess of
9.99% of the number of shares of the Common Stock outstanding immediately after
giving effect to such issuance.  For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by the Holder and its
affiliates shall include the number of shares of Common Stock issuable upon
exercise of this Warrant and any other security of the Company convertible into
Common Stock with respect to which the determination of such sentence is being
made.  Except as set forth in the preceding sentence, for purposes of this
Section 2(d), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Exchange Act, it being acknowledged by Holder that the
Company is not representing to Holder that such calculation is in compliance
with Section 13(d) of the Exchange Act and Holder is solely responsible for any
schedules required to be filed in accordance therewith.   To the extent that the limitation contained
in this Section 2(d) applies, the determination of whether this Warrant is
exercisable (in relation to other securities owned by the Holder) and of which
portion of this Warrant is exercisable shall be in the sole discretion of such
Holder, and the submission of a Notice of Exercise shall be

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deemed to be such Holder’s determination of whether this Warrant is
exercisable (in relation to other securities owned by such Holder) and of which
portion of this Warrant is exercisable, in each case subject to such aggregate
percentage limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. 
For purposes of this Section 2(d), in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the Company’s most recent
Form 10-Q or Form 10-K, as the case may be, (y) a more recent public
announcement by the Company or (z) any other 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 the Holder, the Company
shall within two Trading Days confirm orally and in writing to the 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 Warrant, by the Holder or its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported.  The provisions of this Section 2(d) may be
waived by the Holder upon, at the election of the Holder, not less than 61 days’
prior notice to the Company, and the provisions of this Section 2(d) shall
continue to apply until such 61st day (or such later date, as determined by the
Holder, as may be specified in such notice of waiver).

ii.       Trading
Market Restrictions.  If the Company
has not obtained Shareholder Approval (as defined below) if required, then the
Company may not issue upon exercise of this Warrant in the aggregate, in excess
of 19.999% of the Corporation’s outstanding Common Stock outstanding on the
Trading Day immediately preceding the Closing Date, less any shares of Common Stock issued upon conversion of the
Preferred Stock or upon prior exercise
of this or any other Warrant issued pursuant to the Purchase Agreement
(such number of shares, the “Issuable
Maximum”).  If on any
attempted exercise of this Warrant, the issuance of Warrant Shares would exceed
the Issuable Maximum and the Company shall not have previously obtained the
vote of shareholders (the “Shareholder
Approval”), if any, as may be required by The American Stock
Exchange at the time of exercise, regardless of whether or not the Company’s
securities are traded on The American Stock Exchange, to approve the issuance of
shares of Common Stock in excess of the Issuable Maximum pursuant to the terms
hereof, then the Company shall issue to the Holder requesting a Warrant
exercise such number of Warrant Shares as may be issued below the Issuable
Maximum and, with respect to the remainder of the aggregate number of Warrant
Shares, this Warrant shall not be exercisable until and unless Shareholder
Approval has been obtained.

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e)             Mechanics
of Exercise.

i.         Authorization
of Warrant Shares.  The Company
covenants that all Warrant Shares which may be issued upon the exercise of the
purchase rights represented by this Warrant will, upon exercise of the purchase
rights represented by this Warrant, be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges in respect of
the issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).  The
Company covenants that during the period the Warrant is outstanding, it will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Warrant Shares upon the exercise of
any purchase rights under this Warrant. 
The Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates
for the Warrant Shares upon the exercise of the purchase rights under this
Warrant.  The Company will take all such
reasonable action as may be necessary to assure that such Warrant Shares may be
issued as provided herein without violation of any applicable law or
regulation, or of any requirements of the Trading Market upon which the Common
Stock may be listed.

ii.        Delivery
of Certificates Upon Exercise. 
Certificates for shares purchased hereunder shall be transmitted by the
transfer agent of the Company to the Holder by crediting the account of the
Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal
Agent Commission (“DWAC”) system if the Company is a participant in such
system, and otherwise by physical delivery to the address specified by the
Holder in the Notice of Exercise within 3 Trading Days from the delivery to the
Company of the Notice of Exercise Form, surrender of this Warrant and payment
of the aggregate Exercise Price as set forth above (“Warrant Share Delivery
Date”).  This Warrant shall be deemed
to have been exercised on the date the Exercise Price is received by the
Company.  The Warrant Shares shall be
deemed to have been issued, and Holder or any other person so designated to be
named therein shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the Warrant has been exercised by payment to
the Company of the Exercise Price and all taxes required to be paid by the
Holder, if any, prior to the issuance of such shares, have been paid.

iii.       Delivery
of New Warrants Upon Exercise.  If
this Warrant shall have been exercised in part, the Company shall, at the time
of delivery of the certificate or certificates representing Warrant Shares,
deliver to Holder a new Warrant evidencing the rights of Holder to purchase the
unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant.

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iv.      No
Fractional Shares or Scrip.  No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant.  As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to such fraction multiplied by the Exercise Price.

v.       Charges,
Taxes and Expenses.  Issuance of
certificates for Warrant Shares shall be made without charge to the Holder for
any issue or transfer tax or other incidental expense in respect of the
issuance of such certificate, all of which taxes and expenses shall be paid by
the Company, and such certificates shall be issued in the name of the Holder or
in such name or names as may be directed by the Holder; provided, however,
that in the event certificates for Warrant Shares are to be issued in a name
other than the name of the Holder, this Warrant when surrendered for exercise
shall be accompanied by the Assignment Form attached hereto duly executed by
the Holder; and the Company may require, as a condition thereto, the payment of
a sum sufficient to reimburse it for any transfer tax incidental thereto.

vi.      Closing of
Books.  The Company will not close
its stockholder books or records in any manner which prevents the timely
exercise of this Warrant, pursuant to the terms hereof.

Section
3.               Certain Adjustments.

a)               Stock
Dividends and Splits. If the Company, at any time while this Warrant is
outstanding: (A) pays a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock (which, for avoidance of
doubt, shall not include any shares of Common Stock issued by the Company
pursuant to this Warrant), (B) subdivides outstanding shares of Common Stock
into a larger number of shares, (C) combines (including by way of reverse stock
split) outstanding shares of Common Stock into a smaller number of shares, or
(D) issues by reclassification of shares of the Common Stock any shares of
capital stock of the Company, then in each case the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock (excluding treasury shares, if any) outstanding before such
event and of which the denominator shall be the number of shares of Common
Stock outstanding after such event and the number of shares issuable upon exercise
of this Warrant shall be proportionately adjusted.  Any adjustment made pursuant to this Section
3(a) 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)               Redemption.  Beginning twelve (12) months after the
Initial Exercise Date, provided the Equity Conditions, defined below, are satisfied,
if the daily closing

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price of the Common Stock equals $1.40 or more (subject to adjustment
for stock splits, reclassifications, combinations and similar adjustments) per
share for the 20 consecutive Trading Days (such calculation to occur no earlier
than twelve (12) months after the Initial Exercise Date) immediately prior to
the Redemption Notice Date (as defined below), and average daily volume of the
Common Stock on a national securities exchange or Nasdaq is at least 0.5% of
the Warrant Shares that are being redeemed pursuant to this Section 3(b),
unless the Holder is prohibited from exercising the Warrants pursuant to
Section 1(d)(i) hereof, the Company shall have the right, on twenty (20)
business days’ notice to the Holder (an “Redemption Notice” and the date
such notice is received by the Holder, the “Redemption Notice Date”), to
redeem any portion of the Warrants then held by the Holder for $0.001 per
Warrant. To effect a Redemption hereunder, the Holder shall not be required to
physically surrender the Warrant certificate to the Company.  “Equity Conditions” shall mean, during
the period in question, (i) the Company shall have duly honored all Warrant
exercises scheduled to occur or occurring by virtue of one or more Notices of
Exercise, if any, (ii) 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), (iii) the Common Stock is trading on
the Trading Market and all of the shares issuable pursuant to the Transaction
Documents are listed for trading on a 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), (iv) 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, and (v) no public announcement of a pending or proposed
Fundamental Transaction, Change of Control Transaction or acquisition
transaction has occurred that has not been consummated.

c)             Subsequent
Equity Sales. Other than pursuant to an Exempt Issuance, for the twelve
(12) month period beginning on the effective date of the Registration Statement
registering the resale of the Warrant Shares by the Holder, if the Company
shall sell or grant any option to purchase or otherwise dispose of or issue any
Common Stock or Common Stock Equivalents entitling any Person to acquire shares
of Common Stock, at an effective price per share less than the then Exercise
Price (such lower price, the “Base Share Price” and such issuances
collectively, a “Dilutive Issuance”), as adjusted hereunder (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 is issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price
per share which is less than the Exercise Price, such issuance shall be deemed
to have occurred for less than the Exercise Price), then, the Exercise Price
shall be reduced then to an amount equal to the Base Share Price. Such
adjustment shall be made whenever such Common Stock or Common Stock Equivalents
are issued.  The Company shall notify the
Holder in writing, no later than the Trading Day following the issuance of any
Common Stock or Common Stock Equivalents subject to this section, indicating
therein the applicable issuance price, or of applicable reset price, exchange
price, conversion price and other pricing terms

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(such notice the “Dilutive Issuance Notice”).  For purposes of clarification, whether or not
the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b),
upon the occurrence of any Dilutive Issuance, after the date of such Dilutive
Issuance the Holder is entitled to receive a number of Warrant Shares based
upon the Base Share Price regardless of whether the Holder accurately refers to
the Base Share Price in the Notice of Exercise.

d)            Pro
Rata Distributions.  If the Company,
at any time prior to the Termination Date, shall distribute to all holders of
Common Stock (and not to Holders of the Warrants) evidences of its indebtedness
or assets or rights or warrants to subscribe for or purchase any security other
than the Common Stock, then in each such case the Exercise Price shall be
adjusted by multiplying the Exercise 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 per share fair market
value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith.  In either case the adjustments shall be described
in a statement provided to the Holders of the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to one 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)             Calculations.
All calculations under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. The number of shares of Common
Stock outstanding at any given time shall not includes shares of Common Stock
owned or held by or for the account of the Company, and the description of any
such shares of Common Stock shall be considered on issue or sale of Common
Stock.  For purposes of this Section 3,
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 treasury shares, if any) issued and outstanding.

f)             Notice
to Holders.

i.      Adjustment
to Exercise Price. Whenever the Exercise Price is adjusted pursuant to this
Section 3, the Company shall promptly mail to each Holder a notice setting
forth the Exercise Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.

ii.     Notice
to Allow Exercise by Holder. If (A) the Company shall declare a dividend
(or any other distribution) 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
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

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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; (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 mailed to the
Holder at its last addresses as it shall appear upon the Warrant Register of
the Company, at least 10 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
mail such notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified in such
notice.  The Holder is entitled to
exercise this Warrant during the 10-day period commencing the date of such
notice to the effective date of the event triggering such notice.

g)            Reorganizations, Etc.  In case,
at any time during the Exercise Period, of any capital reorganization, of any
reclassification of the stock of the Company (other than a change in par value
or from par value to no par value or from no par value to par value or as a
result of a stock dividend or subdivision, split-up or combination of shares),
or the consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the continuing
operation and which does not result in any change or reclassification in the
Warrant Shares) or of the sale of all or substantially all the properties and
assets of the Company as an entirety to any other corporation, the Company, at
its sole discretion, shall have the right and option to (A) provide 10 days
prior written notice of such event to the Holder and this Warrant shall
terminate and be of no further force and effect on and after the effective date
of such capital reorganization or reclassification or the consummation of such
consolidation, sale or merger; or (B) provide that this Warrant shall, after
such reorganization, reclassification, consolidation, merger or sale, be
exercisable for the kind and number of shares of stock or other securities or
property of the Company or of the corporation resulting from such consolidation
or surviving such merger or to which such properties and assets shall have been
sold to which such holder would have been entitled if he, she or it had held
the Warrant Shares issuable upon the exercise hereof immediately prior to such
reorganization, reclassification, consolidation, merger or sale.

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h)         Exempt
Issuance. Notwithstanding the foregoing, no adjustments, nor notices shall
be made, paid or issued under this Section 3 in respect of an Exempt Issuance.

i)          Voluntary
Adjustment By Company. The Company may at any time during the term of this
Warrant reduce the then current Exercise Price to any amount and for any period
of time deemed appropriate by the Board of Directors of the Company.

Section 4.           Transfer of Warrant.

a)             Transferability.  Subject to compliance with any applicable
securities laws and the conditions set forth in Sections 5(a) and 4(d) hereof
and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant
and all rights hereunder are transferable, in whole or in part, upon surrender
of this Warrant at the principal office of the Company, together with a written
assignment of this Warrant substantially in the form attached hereto duly
executed by the Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer.  Upon such surrender and, if required, such
payment, the Company shall execute and deliver a new Warrant or Warrants in the
name of the assignee or assignees and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled.  A
Warrant, if properly assigned, may be exercised by a new holder for the
purchase of Warrant Shares without having a new Warrant issued.

b)         New
Warrants. This Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued, signed by the Holder or its agent or attorney.  Subject to compliance with Section 4(a), as
to any transfer which may be involved in such division or combination, the
Company shall execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with such notice.

c)         Warrant
Register. The Company shall register this Warrant, upon records to be
maintained by the Company for that purpose (the “Warrant Register”), in
the name of the record Holder hereof from time to time.  The Company may deem and treat the registered
Holder of this Warrant as the absolute owner hereof for the purpose of any
exercise hereof or any distribution to the Holder, and for all other purposes,
absent actual notice to the contrary.

d)         Transfer
Restrictions. If, at the time of the surrender of this Warrant in connection
with any transfer of this Warrant, the transfer of this Warrant shall not be
registered pursuant to an effective registration statement under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such transfer (i) that the Holder or
transferee of this Warrant, as the case may be, furnish to the Company a
written opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect
that such transfer may be made without registration under the 

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Securities Act and under applicable state securities
or blue sky laws, (ii) that the holder or transferee execute and deliver to the
Company an investment letter in form and substance acceptable to the Company
and (iii) that the transferee be an “accredited investor” as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities
Act or a qualified institutional buyer as defined in Rule 144A(a) under the
Securities Act.

Section 5.           Miscellaneous.

a)             Title
to Warrant.  Prior to the Termination
Date and subject to compliance with applicable laws and Section 4 of this
Warrant, this Warrant and all rights hereunder are transferable, in whole or in
part, at the office or agency of the Company by the Holder in person or by duly
authorized attorney, upon surrender of this Warrant together with the
Assignment Form annexed hereto properly endorsed.  The transferee shall sign an investment
letter in form and substance reasonably satisfactory to the Company.

b)            No
Rights as Shareholder Until Exercise. 
This Warrant does not entitle the Holder to any voting rights or other
rights as a shareholder of the Company prior to the exercise hereof.  Upon the surrender of this Warrant and the
payment of the aggregate Exercise Price (or by means of a cashless exercise),
the Warrant Shares so purchased shall be and be deemed to be issued to such
Holder as the record owner of such shares as of the close of business on the
later of the date of such surrender or payment.

c)             Loss,
Theft, Destruction or Mutilation of Warrant. The Company covenants that
upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant or any stock certificate
relating to the Warrant Shares, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it (which, in the case of the
Warrant, shall not include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and
dated as of such cancellation, in lieu of such Warrant or stock certificate.

d)            Saturdays,
Sundays, Holidays, etc.  If the last
or appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday, Sunday or a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a Saturday, Sunday or legal holiday.

e)         Authorized
Shares.

The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its
issuance of this Warrant shall constitute full authority to its officers who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for the Warrant Shares upon the exercise of the
purchase rights under this Warrant.  The
Company will take all such 

 10
 

reasonable action as may be necessary to assure that
such Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Trading Market upon
which the Common Stock may be listed.

Except and to the
extent as waived or consented to by the Holder, the Company shall not by any
action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of
this Warrant, but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant
against impairment.  Without limiting the
generality of the foregoing, the Company will (a) not increase the par value of
any Warrant Shares above the amount payable therefor upon such exercise
immediately prior to such increase in par value, (b) take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares upon the exercise of
this Warrant, and (c) use commercially reasonable efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant.

Before taking any
action which would result in an adjustment in the number of Warrant Shares for
which this Warrant is exercisable or in the Exercise Price, the Company shall
obtain all such authorizations or exemptions thereof, or consents thereto, as
may be necessary from any public regulatory body or bodies having jurisdiction
thereof.

f)             Jurisdiction.
All questions concerning the construction, validity, enforcement and
interpretation of this Warrant shall be determined in accordance with the
provisions of the Purchase Agreement.

g)            Restrictions.  The Holder acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.

h)            Nonwaiver
and Expenses.  No course of dealing
or any delay or failure to exercise any right hereunder on the part of Holder
shall operate as a waiver of such right or otherwise prejudice Holder’s rights,
powers or remedies, notwithstanding the fact that all rights hereunder
terminate on the Termination Date.  If
the Company willfully and knowingly fails to comply with any provision of this
Warrant, which results in any material damages to the Holder, the Company shall
pay to Holder such amounts as shall be sufficient to cover any costs and
expenses including, but not limited to, reasonable attorneys’ fees, including
those of appellate proceedings, incurred by Holder in collecting any amounts
due pursuant hereto or in otherwise enforcing any of its rights, powers or
remedies hereunder.

 11
 

i)              Notices.  Any notice, request or other document
required or permitted to be given or delivered to the Holder by the Company
shall be delivered in accordance with the notice provisions of the Purchase
Agreement.

j)              Limitation
of Liability.  No provision hereof,
in the absence of any affirmative action by Holder to exercise this Warrant or
purchase Warrant Shares, and no enumeration herein of the rights or privileges
of Holder, shall give rise to any liability of Holder for the purchase price of
any Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.

k)             Remedies.  Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant.  The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Warrant and hereby agrees to waive the defense
in any action for specific performance that a remedy at law would be adequate.

l)              Successors
and Assigns.  Subject to applicable
securities laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors of the Company
and the successors and permitted assigns of Holder.  The provisions of this Warrant are intended
to be for the benefit of all Holders from time to time of this Warrant and
shall be enforceable by any such Holder or holder of Warrant Shares.

m)            Amendment.  This Warrant may be modified or amended or
the provisions hereof waived with the written consent of the Company and the
Holder.

n)            Severability.  Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.

o)            Headings.  The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.

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

 12
 

IN WITNESS WHEREOF, the
Company has caused this Warrant to be executed by its officer thereunto duly
authorized.

Dated:  August
1, 2007

	
  

  	
  CALLISTO PHARMACEUTICALS, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  

 

 13

NOTICE OF
EXERCISE

TO:         CALLISTO
PHARMACEUTICALS, INC.

(1)   The
undersigned hereby elects to purchase               
Warrant Shares of the Company pursuant to the terms of the attached Warrant
(only if exercised in full), and tenders herewith payment of the exercise price
in full, together with all applicable transfer taxes, if any.

(2)   Payment
shall take the form of (check applicable box):

o
in lawful money of the United States; or

o
the cancellation of such number of Warrant Shares as is necessary, in accordance
with the formula set forth in subsection 2(c), to exercise this Warrant with
respect to the maximum number of Warrant Shares purchasable pursuant to the
cashless exercise procedure set forth in subsection 2(c).

(3)   Please issue a certificate or certificates
representing said Warrant Shares in the name of the undersigned or in such
other name as is specified below:

The
Warrant Shares shall be delivered to the following:

(4)  Accredited
Investor.  The undersigned is an “accredited
investor” as defined in Regulation D promulgated under the Securities Act of
1933, as amended.

[SIGNATURE OF HOLDER]

	
  Name of Investing Entity:

  	
   

  	
   

  
	
  Signature of Authorized Signatory of Investing
  Entity:

  	
   

  	
   

  
	
  Name of Authorized Signatory:

  	
   

  	
   

  
	
  Title of Authorized Signatory:

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  
							

 

ASSIGNMENT
FORM

(To assign the foregoing warrant, execute

this form and supply required information. 

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, the
foregoing Warrant and all rights evidenced thereby are hereby assigned to

                                                                                                
whose address is

                                                                                                                               .

Dated:                          ,
           

	
  

  	
  Holder’s Signature:

  	
   

  	
   

  
	
   

  	
  Holder’s Address:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature Guaranteed:

  	
   

  	
   

  
						

 

NOTE:  The signature to this Assignment Form must
correspond with the name as it appears on the face of the Warrant, without
alteration or enlargement or any change whatsoever, and must be guaranteed by a
bank or trust company.  Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

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

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

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

ARTICLE I

DEFINITIONS

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

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

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

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

   
 

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

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

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

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

“Commission” means
the Securities and Exchange Commission.

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

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

“Company Counsel”
means Sichenzia Ross Friedman Ference LLP.

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

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

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

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

“Escrow Agent”
means Company Counsel.

 2
 

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

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

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

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

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

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

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

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

“Lead Investors
Escrow Agent” means StockTrans, Inc.

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

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

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

 3
 

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

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

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

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

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

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

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

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

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

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

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

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

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

 4
 

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

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

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

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

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

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

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

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

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

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

ARTICLE
II

PURCHASE
AND SALE

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

 5
 

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

2.2           Deliveries.

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

(i)            this Agreement duly
executed by the Company;

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

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

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

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

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

 6
 

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

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

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

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

(i)            this Agreement duly
executed by such Purchaser;

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

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

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

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

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

(i)            the
Lead Investor Put Option Agreement; and

(ii)           the Lead Investor
Escrow Agreement.

2.3           Closing
Conditions.

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

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

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

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

 7
 

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

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

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

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

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

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

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

ARTICLE
III

REPRESENTATIONS AND WARRANTIES

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

 8
 

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

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

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

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

 9
 

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

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

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

 10
 

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

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

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

 11
 

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

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

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

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

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

 12
 

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

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

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

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

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

 13
 

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

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

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

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

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

 14
 

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

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

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

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

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

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

 15
 

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

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

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

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

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

 16
 

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

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

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

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

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

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

 17
 

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

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

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

ARTICLE
IV

OTHER
AGREEMENTS OF THE PARTIES

4.1           Transfer
Restrictions.

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

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

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

 18
 

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

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

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

 19
 

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

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

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

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

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

 20
 

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

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

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

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

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

 21

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

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

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

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

 22
 

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

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

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

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

 23
 

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

ARTICLE V

MISCELLANEOUS

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

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

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

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

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

 24
 

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

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

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

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

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

 25
 

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

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

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

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

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

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

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

 26
 

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

[SIGNATURE PAGE
FOLLOWS]

 27
 

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

	
  CALLISTO PHARMACEUTICALS, INC.

  	
   

  	
  Address for Notice:

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
  Callisto Pharmaceuticals, Inc.  

  
	
  Name: Gary
  Jacob, Ph.D.

  	
   

  	
  420 Lexington Avenue, Suite 1609

  
	
  Title: Chief
  Executive Officer

  	
   

  	
  New York, NY 10170

  
	
   

  	
   

  	
   

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

  	
   

  	
   

  
	
  Jeffrey J.
  Fessler, Esq. 

  	
   

  	
   

  
	
  Sichenzia Ross
  Friedman Ference LLP

  	
   

  	
   

  
	
  1065 Avenue of
  the Americas 

  	
   

  	
   

  
	
  New York, New
  York 10018

  	
   

  	
   

  
					

 

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR
PURCHASER FOLLOWS]

 28
 

[PURCHASER
SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]

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

	
  

  	
  RAB Special Situations (Master) Fund Limited by

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Signature)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Name)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Signature)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Name)

  
	
   

  	
   

  
	
   

  	
  Authorised
  signatories for RAB Capital plc for and on

  behalf of RAB Special Situations (Master) Fund Limited

  
	
   

  	
   

  
	
   

  	
  Address: 

  	
  c/o RAB Capital
  plc

  
	
   

  	
   

  	
    1
  Adam Street

  
	
   

  	
   

  	
    London
  WC2N 6LE

  
	
   

  	
   

  	
    United
  Kingdom

  
	
   

  	
   

  
	
   

  	
  Facsimile: (+44)
  20 7389 7057

  
				

 

Registration
Information

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

Credit Suisse Client Nominees (UK) Limited

One Cabot Square

London, United Kingdom

E14 4QJ

 29
 

Delivery
of Certificates

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

Martin Feast

Prime Brokerage Settlements

CSFB (Europe) Ltd.

One Cabot Square

London E14 4QJ

United Kingdom

Phone:  44 20 7888 1187

Fax:  44 20 7458 8245

Notation:                                                                                      RAB Special Situations
(Master) Fund Limited

Subscription Amount: 
$5,000,000

Shares of Preferred Stock:  500,000

Warrant Shares:  10,000,000

[SIGNATURE PAGES CONTINUE]

 30
 

[PURCHASER
SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]

	
  

  	
  Absolute Octane Master Fund Limited

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Signature)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Name)

  

 

Subscription Amount:  $5,000,000

Shares of Preferred Stock: 
500,000

Warrant Shares:  10,000,000

[SIGNATURE PAGES CONTINUE]

 31
 

 

	
  Name of Investing Entity:

  	
   

  	
   

  
	
  Signature of Authorized Signatory of Investing
  Entity:

  	
   

  	
   

  
	
  Name of Authorized Signatory:

  	
   

  	
   

  
	
  Title of Authorized Signatory:

  	
   

  	
   

  
	
  Email Address of Authorized Signatory:

  	
   

  	
   

  
	
  Tax ID number of Investing Entity:

  	
   

  	
   

  
								

 

Address for Notice of Investing
Entity:

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

Subscription Amount:

Shares of Preferred Stock:

Warrant Shares:

 32
 

EXHIBIT A

[Certificate of Designation]

 33
 

EXHIBIT B

[Escrow Agreement]

 34
 

EXHIBIT C

[Lead Investors Put Option Agreement]

 35
 

EXHIBIT D

[Lead Investors Escrow Agreement]

 36
 

EXHIBIT E

[Registration Rights Agreement]

 37
 

EXHIBIT F

[Form of Warrant]

 38
 

EXHIBIT G

[Form of Opinion of Company Counsel]

 39

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