Document:

Exhibit
      10.1

    

    PURCHASE
      AGREEMENT

     

    THIS
      PURCHASE AGREEMENT (“Agreement”)
      is
      made as of the 23rd
      day of
      April, 2007 by and among Arbios Systems, Inc., a Delaware corporation (the
      “Company”),
      and
      the Investors set forth on the signature pages affixed hereto (each an
“Investor”
and
      collectively the “Investors”).

     

    Recitals

     

    A. The
      Company and the Investors are executing and delivering this Agreement in
      reliance upon the exemption from securities registration afforded by the
      provisions of Regulation D (“Regulation
      D”),
      as
      promulgated by the U.S. Securities and Exchange Commission (the “SEC”)
      under
      the Securities Act of 1933, as amended (the “1933
      Act”);
      and

     

    B. The
      Investors wish to purchase from the Company, and the Company wishes to sell
      and
      issue to the Investors, upon the terms and conditions stated in this Agreement,
      units (each, a “Unit”
and
      collectively, the “Units”)
      equal
      to (i) two (2) shares of the Company’s Common Stock, par value $0.001 per share
      (together with any securities into which such shares may be reclassified, the
      “Common
      Stock”),
      (ii)
      a warrant to purchase one (1) share of Common Stock, which warrant shall have
      an
      exercise price of $1.00 per share (subject to adjustment) and shall be in the
      form attached hereto as Exhibit
      A-1
      (the
“A
      Warrants”)
      and
      (iii) a warrant to purchase one (1) share of Common Stock, which warrant shall
      have an exercise price of $1.40 per share (subject to adjustment) and shall
      be
      in the form attached hereto as Exhibit
      A-2
      (the
“B
      Warrants,”
      together with the A Warrants, the “Warrants”);
      and

     

    C. Contemporaneous
      with the sale of the Common Stock and Warrants, the parties hereto will execute
      and deliver a Registration Rights Agreement, in the form attached hereto as
      Exhibit
      B
      (the
“Registration
      Rights Agreement”),
      pursuant to which the Company will agree to provide certain registration rights
      under the 1933 Act and the rules and regulations promulgated thereunder, and
      applicable state securities laws.

     

    In
      consideration of the mutual promises made herein and for other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      the
      parties hereto agree as follows:

     

    1.  Definitions.
      In
      addition to those terms defined above and elsewhere in this Agreement, for
      the
      purposes of this Agreement, the following terms shall have the meanings set
      forth below:

     

    “Affiliate”
means,
      with respect to any Person, any other Person which directly or indirectly
      through one or more intermediaries Controls, is controlled by, or is under
      common control with, such Person.

     

    “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.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “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’s
      Knowledge”
means
      the actual knowledge of the executive officers (as defined in Rule 405 under
      the
      1933 Act) of the Company, after due inquiry.

     

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

     

    “Control”
      (including the terms “controlling”, “controlled by” or “under common control
      with”) means the possession, direct or indirect, of the power to direct or cause
      the direction of the management and policies of a Person, whether through the
      ownership of voting securities, by contract or otherwise.

     

    “Effective
      Date”
means
      the date on which the initial Registration Statement is declared effective
      by
      the SEC.

     

    “Intellectual
      Property”
means
      all of the following: (i) patents, patent applications, patent disclosures
      and
      inventions (whether or not patentable and whether or not reduced to practice);
      (ii) trademarks, service marks, trade dress, trade names, corporate names,
      logos, slogans and Internet domain names, together with all goodwill associated
      with each of the foregoing; (iii) copyrights and copyrightable works; (iv)
      registrations, applications and renewals for any of the foregoing; and (v)
      proprietary computer software (including but not limited to data, databases
      and
      documentation). 

     

    “Investment
      Amount”
means,
      with respect to each Investor, the cash investment amount (the number of Units
      purchased multiplied by the Per Unit Purchase Price) paid by the Investor,
      which
      Investment Amount is indicated below such Investor’s name on its signature page
      to this Agreement.

     

    “Material
      Adverse Effect”
means
      a
      material adverse effect on (i) the assets, liabilities, results of operations,
      condition (financial or otherwise), business of the Company and its Subsidiaries
      taken as a whole, or (ii) the ability of the Company to perform its obligations
      under the Transaction Documents.

     

    “MRA
      Warrants”
means
      those certain warrants to purchase Common Stock issued to Musket Research
      Associates, Inc. in connection with the consummation of the transactions
      contemplated hereby.

     

    “Person”
means
      an individual, corporation, partnership, limited liability company, trust,
      business trust, association, joint stock company, joint venture, sole
      proprietorship, unincorporated organization, governmental authority or any
      other
      form of entity not specifically listed herein.

     

    
      
        
        

      

      
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    “Per
      Unit Purchase Price”
means
      $1.30 per Unit purchased.

     

    “SEC
      Filings”
has
      the
      meaning set forth in Section 4.6.

     

    “Registration
      Statement”
has
      the
      meaning set forth in the Registration Rights Agreement.

     

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

     

    “Shares”
means
      the shares of Common Stock being purchased by the Investors
      hereunder.

     

    “Subsidiary”
of
      any
      Person means another Person, an amount of the voting securities, other voting
      ownership or voting partnership interests of which is sufficient to elect at
      least a majority of its Board of Directors or other governing body (or, if
      there
      are no such voting interests, 50% or more of the equity interests of which)
      is
      owned directly or indirectly by such first Person.

     

    “Transaction
      Documents”
means
      this Agreement, the Warrants and the Registration Rights Agreement.

     

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

     

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

     

    2.  Purchase
      and Sale of the Shares and Warrants.
      Subject
      to the terms and conditions of this Agreement, on the Closing Date, each of
      the
      Investors shall severally, and not jointly, purchase, and the Company shall
      sell
      and issue to the Investors, the Units in the respective amounts set forth
      opposite the Investors’ names on the signature pages attached hereto in exchange
      for their Investment Amount set forth opposite the Investors’ names on the
      signature pages attached hereto all as specified in Section 3 below, with the
      number of Units and the Per Unit Purchase Price subject to proportionate
      adjustment for any stock splits, stock dividends, stock combinations and other
      similar transactions concerning the Common Stock that occur between the date
      of
      this Agreement and the Closing Date.

     

    3.  Closing.
      Unless
      otherwise agreed, upon the satisfaction or waiver of the conditions to closing
      specified herein, each Investor shall cause a wire transfer in immediately
      available funds to be sent to the account of the Company as instructed in
      writing by the Company, an amount representing such Investor’s Investment Amount
      as set forth on the signature pages to this Agreement. On the date (the
“Closing
      Date”)
      the
      Company receives an aggregate of up to $7,000,000 (but no less than $3,000,000),
      representing payment of all Investors’ Investment Amounts, the Company shall
      deliver, or instruct its transfer agent to deliver to the Investors certificates
      evidencing the Shares and Warrants comprising the Units purchased by the
      Investors, registered in such name or names as the Investors may designate
      (the
“Closing”).
      The
      Closing of the purchase and sale of the Units shall take place at the offices
      of
      Mintz, Levin, Cohn, Ferris, Glovsky, and Popeo, P.C., One Financial Center,
      Boston, Massachusetts 02111, or at such other location and on such other date
      as
      the Company and the Investors shall mutually agree.

     

    
      
        
        

      

      
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    4.  Representations
      and Warranties of the Company.
      The
      Company hereby represents and warrants to the Investors that, except as set
      forth in the SEC Filings or the schedules delivered herewith (the “Disclosure
      Schedules”):

     

    4.1  Organization,
      Good Standing and Qualification.
      Each of
      the Company and its Subsidiaries is a corporation duly organized, validly
      existing and in good standing under the laws of the jurisdiction of its
      incorporation and has all requisite corporate power and authority to carry
      on
      its business as now conducted and to own its properties. Each of the Company
      and
      its Subsidiaries is duly qualified to do business as a foreign corporation
      and
      is in good standing in each jurisdiction in which the conduct of its business
      or
      its ownership or leasing of property makes such qualification or leasing
      necessary unless the failure to so qualify has not and could not reasonably
      be
      expected to have a Material Adverse Effect. The Company’s Subsidiaries are
      listed on Schedule
      4.1
      hereto.

     

    4.2  Authorization.
      The
      Company has full power and authority and has taken all requisite action on
      the
      part of the Company, its officers, directors and stockholders necessary for
      (i)
      the authorization, execution and delivery of the Transaction Documents, (ii)
      authorization of the performance of all obligations of the Company hereunder
      or
      thereunder, and (iii) the authorization, issuance (or reservation for issuance)
      and delivery of the Securities. The Transaction Documents constitute the legal,
      valid and binding obligations of the Company, enforceable against the Company
      in
      accordance with their terms, subject to bankruptcy, insolvency, fraudulent
      transfer, reorganization, moratorium and similar laws of general applicability,
      relating to or affecting creditors’ rights generally.

     

    4.3  Capitalization.
      Schedule
      4.3
      sets
      forth (a) the authorized capital stock of the Company on the date hereof; (b)
      the number of shares of capital stock issued and outstanding; (c) the number
      of
      shares of capital stock issuable pursuant to the Company’s stock plans; and (d)
      the number of shares of capital stock issuable and reserved for issuance
      pursuant to securities (other than the Shares and the Warrants) exercisable
      for,
      or convertible into or exchangeable for any shares of capital stock of the
      Company. All of the issued and outstanding shares of the Company’s capital stock
      have been duly authorized and validly issued and are fully paid, nonassessable
      and free of pre-emptive rights and were issued in full compliance with
      applicable state and federal securities law and any rights of third parties.
      Except as described on Schedule 4.3, all of the issued and outstanding shares
      of
      capital stock of each Subsidiary have been duly authorized and validly issued
      and are fully paid, nonassessable and free of pre-emptive rights, were issued
      in
      full compliance with applicable state and federal securities law and any rights
      of third parties and are owned by the Company, beneficially and of record,
      subject to no lien, encumbrance or other adverse claim. Except as described
      on
Schedule
      4.3,
      no
      Person is entitled to pre-emptive or similar statutory or contractual rights
      with respect to any securities of the Company. Except as described on
Schedule
      4.3,
      there
      are no outstanding warrants, options, convertible securities or other rights,
      agreements or arrangements of any character under which the Company or any
      of
      its Subsidiaries is or may be obligated to issue any equity securities of any
      kind. Except as described on Schedule
      4.3
      and
      except for the Registration Rights Agreement, there are no voting agreements,
      buy-sell agreements, option or right of first purchase agreements or other
      agreements of any kind among the Company and any of the securityholders of
      the
      Company relating to the securities of the Company held by them. Except as
      described on Schedule 4.3 and except as provided in the Registration Rights
      Agreement, no Person has the right to require the Company to register any
      securities of the Company under the 1933 Act, whether on a demand basis or
      in
      connection with the registration of securities of the Company for its own
      account or for the account of any other Person.

     

    
      
        
        

      

      
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    Except
      as
      described on Schedule
      4.3,
      the
      issuance and sale of the Securities hereunder will not obligate the Company
      to
      issue shares of Common Stock or other securities to any other Person (other
      than
      the Investors) and will not result in the adjustment of the exercise,
      conversion, exchange or reset price of any outstanding security.

     

    Except
      as
      described on Schedule
      4.3,
      the
      Company does not have outstanding stockholder purchase rights or “poison pill”
or any similar arrangement in effect giving any Person the right to purchase
      any
      equity interest in the Company upon the occurrence of certain
      events.

     

    4.4  Valid
      Issuance.
      The
      Shares have been duly and validly authorized and, when issued and paid for
      pursuant to this Agreement, will be validly issued, fully paid and
      nonassessable, and shall be free and clear of all encumbrances and restrictions
      (other than those created by the Investors), except for restrictions on transfer
      set forth in the Transaction Documents or imposed by applicable securities
      laws.
      The Warrants have been duly and validly authorized. Upon the due exercise of
      the
      Warrants, the Warrant Shares will be validly issued, fully paid and
      non-assessable free and clear of all encumbrances and restrictions, except
      for
      restrictions on transfer set forth in the Transaction Documents or imposed
      by
      applicable securities laws and except for those created by the Investors. The
      Company has reserved a sufficient number of shares of Common Stock for issuance
      upon the exercise of the Warrants, free and clear of all encumbrances and
      restrictions, except for restrictions on transfer set forth in the Transaction
      Documents or imposed by applicable securities laws and except for those created
      by the Investors.

     

    4.5  Consents.
      The
      execution, delivery and performance by the Company of the Transaction Documents
      and the offer, issuance and sale of the Securities require no consent of, action
      by or in respect of, or filing with, any Person, governmental body, agency,
      or
      official other than filings that have been made pursuant to applicable state
      securities laws and post-sale filings pursuant to applicable state and federal
      securities laws which the Company undertakes to file within the applicable
      time
      periods. Subject to the accuracy of the representations and warranties of each
      Investor set forth in Section 5 hereof, the Company has taken all action
      necessary to exempt (i) the issuance and sale of the Securities, (ii) the
      issuance of the Warrant Shares upon due exercise of the Warrants, and (iii)
      the
      other transactions contemplated by the Transaction Documents from the provisions
      of any shareholder rights plan or other “poison pill” arrangement, any
      anti-takeover, business combination or control share law or statute binding
      on
      the Company or to which the Company or any of its assets and properties may
      be
      subject and any provision of the Company’s Certificate of Incorporation or
      By-laws that is or could reasonably be expected to become applicable to the
      Investors as a result of the transactions contemplated hereby, including without
      limitation, the issuance of the Securities and the ownership, disposition or
      voting of the Securities by the Investors or the exercise of any right granted
      to the Investors pursuant to this Agreement or the other Transaction
      Documents.

     

    
      
        
        

      

      
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    4.6  Delivery
      of SEC Filings; Business.
      The
      Company has made available to the Investors through the EDGAR system true and
      complete copies of the Company’s most recent Annual Report on Form 10-KSB for
      the fiscal year ended December 31, 2006 (the “10-KSB”),
      and
      all other reports filed by the Company pursuant to the 1934 Act since the filing
      of the 10-KSB and prior to the date hereof (collectively, the “SEC
      Filings”).
      The
      Company and its Subsidiaries are engaged in all material respects only in the
      business described in the SEC Filings and, except as described on Schedule
      4.6,
      the SEC Filings contain a complete and accurate description in all material
      respects of the business of the Company and its Subsidiaries, taken as a
      whole.

     

    4.7  Use
      of
      Proceeds.
      The net
      proceeds of the sale of the Shares and the Warrants hereunder shall be used
      by
      the Company for working capital and general corporate purposes.

     

    4.8  No
      Material Adverse Change.
      Since
      December 31, 2006, except as described on Schedule
      4.8,
      there
      has not been:

     

    (i)  any
      change in the consolidated assets, liabilities, financial condition or operating
      results of the Company from that reflected in the financial statements included
      in the SEC Filings, except for changes in the ordinary course of business which
      have not and could not reasonably be expected to have a Material Adverse Effect,
      individually or in the aggregate;

     

    (ii)  any
      declaration or payment of any dividend, or any authorization or payment of
      any
      distribution, on any of the capital stock of the Company, or any redemption
      or
      repurchase of any securities of the Company;

     

    (iii)  any
      material damage, destruction or loss, whether or not covered by insurance to
      any
      assets or properties of the Company or its Subsidiaries;

     

    (iv)  any
      waiver, not in the ordinary course of business, by the Company or any Subsidiary
      of a material right or of a material debt owed to it;

     

    (v)  any
      satisfaction or discharge of any lien, claim or encumbrance or payment of any
      obligation by the Company or a Subsidiary, except in the ordinary course of
      business and which is not material to the assets, properties, financial
      condition, operating results or business of the Company and its Subsidiaries
      taken as a whole (as such business is presently conducted);

     

    (vi)  any
      change or amendment to the Company’s Articles of Incorporation or by-laws, or
      material change to any material contract or arrangement by which the Company
      or
      any Subsidiary is bound or to which any of their respective assets or properties
      is subject;

     

    
      
        
        

      

      
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    (vii)  any
      material labor difficulties or labor union organizing activities with respect
      to
      employees of the Company or any Subsidiary;

     

    (viii)  any
      material transaction entered into by the Company or a Subsidiary other than
      in
      the ordinary course of business;

     

    (ix)  the
      loss
      of the services of any key employee, or material change in the composition
      or
      duties of the senior management of the Company or any Subsidiary;

     

    (x)  the
      loss
      or threatened loss of any customer which has had or could reasonably be expected
      to have a Material Adverse Effect; or

     

    (xi)  any
      other
      event or condition of any character that has had or could reasonably be expected
      to have a Material Adverse Effect.

     

    4.9  SEC
      Filings.
      At the
      time of filing thereof, the SEC Filings complied as to form in all material
      respects with the requirements of the 1934 Act and did not contain any untrue
      statement of a material fact or omit to state any material fact necessary in
      order to make the statements made therein, in the light of the circumstances
      under which they were made, not misleading.

     

    4.10  No
      Conflict, Breach, Violation or Default.
      The
      execution, delivery and performance of the Transaction Documents by the Company
      and the issuance and sale of the Securities will not conflict with or result
      in
      a breach or violation of any of the terms and provisions of, or constitute
      a
      default under (i) the Company’s Articles of Incorporation or the Company’s
      Bylaws, both as in effect on the date hereof (true and complete copies of which
      have been made available to the Investors through the EDGAR system), or (ii)(a)
      any statute, rule, regulation or order of any governmental agency or body or
      any
      court, domestic or foreign, having jurisdiction over the Company, any Subsidiary
      or any of their respective assets or properties, or (b) any agreement or
      instrument to which the Company or any Subsidiary is a party or by which the
      Company or a Subsidiary is bound or to which any of their respective assets
      or
      properties is subject.

     

    4.11  Tax
      Matters.
      The
      Company and each Subsidiary has timely prepared and filed all tax returns
      required to have been filed by the Company or such Subsidiary with all
      appropriate governmental agencies and timely paid all taxes shown thereon or
      otherwise owed by it. The charges, accruals and reserves on the books of the
      Company in respect of taxes for all fiscal periods are adequate in all material
      respects, and there are no material unpaid assessments against the Company
      or
      any Subsidiary nor, to the Company’s Knowledge, any basis for the assessment of
      any additional taxes, penalties or interest for any fiscal period or audits
      by
      any federal, state or local taxing authority except for any assessment which
      is
      not material to the Company and its Subsidiaries, taken as a whole. All taxes
      and other assessments and levies that the Company or any Subsidiary is required
      to withhold or to collect for payment have been duly withheld and collected
      and
      paid to the proper governmental entity or third party when due. There are no
      tax
      liens or claims pending or, to the Company’s Knowledge, threatened against the
      Company or any Subsidiary or any of their respective assets or property. Except
      as described on Schedule
      4.11,
      there
      are no outstanding tax sharing agreements or other such arrangements between
      the
      Company and any Subsidiary or other corporation or entity.

     

    
      
        
        

      

      
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    4.12  Title
      to Properties.
      The
      Company and each Subsidiary has good and marketable title to all real properties
      and all other properties and assets owned by it, in each case free from liens,
      encumbrances and defects that would materially affect the value thereof or
      materially interfere with the use made or currently planned to be made thereof
      by them; and the Company and each Subsidiary holds any leased real or personal
      property under valid and enforceable leases with no exceptions that would
      materially interfere with the use made or currently planned to be made thereof
      by them.

     

    4.13  Certificates,
      Authorities and Permits.
      The
      Company and each Subsidiary possess adequate certificates, authorities or
      permits issued by appropriate governmental agencies or bodies necessary to
      conduct the business now operated by it, and neither the Company nor any
      Subsidiary has received any notice of proceedings relating to the revocation
      or
      modification of any such certificate, authority or permit that, if determined
      adversely to the Company or such Subsidiary, could reasonably be expected to
      have a Material Adverse Effect, individually or in the aggregate.

     

    4.14  No
      Labor Disputes.
      No
      material labor dispute with the employees of the Company or any Subsidiary
      exists or, to the Company’s Knowledge, is imminent.

     

    4.15  Intellectual
      Property.

     

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

     

    (b)  All
      of
      the licenses and sublicenses and consent, royalty or other agreements concerning
      Intellectual Property which are necessary for the conduct of the Company’s and
      each of its Subsidiaries’ respective businesses as currently conducted to which
      the Company or any Subsidiary is a party or by which any of their assets are
      bound (other than generally commercially available, non custom, off the shelf
      software application programs having a retail acquisition price of less than
      $10,000 per license) (collectively, “License
      Agreements”)
      are
      valid and binding obligations of the Company or its Subsidiaries that are
      parties thereto and, to the Company’s Knowledge, the other parties thereto,
      enforceable in accordance with their terms, except to the extent that
      enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
      moratorium, fraudulent conveyance or other similar laws affecting the
      enforcement of creditors’ rights generally, and there exists no event or
      condition which will result in a material violation or breach of or constitute
      (with or without due notice or lapse of time or both) a default by the Company
      or any of its Subsidiaries under any such License Agreement.

     

    
      
        
        

      

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

     

    (d)  To
      the
      Company’s Knowledge, the Intellectual Property and Confidential Information of
      the Company and its Subsidiaries which are necessary for the conduct of the
      Company’s and each of the Subsidiaries’ respective businesses as currently
      conducted are not being infringed or otherwise impaired by any third party.
      There is no litigation or order pending or outstanding or, to the Company’s
      Knowledge, threatened or imminent, that seeks to limit or challenge or that
      concerns the ownership, use, validity or enforceability of any Intellectual
      Property or Confidential Information of the Company and its Subsidiaries and
      the
      Company’s and its Subsidiaries’ use of any Intellectual Property or Confidential
      Information owned by a third party, and, to the Company’s Knowledge, there is no
      valid basis for the same.

     

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

     

    (f)  The
      Company and its Subsidiaries have taken reasonable steps to protect the
      Company’s and its Subsidiaries’ rights in their Intellectual Property and
      Confidential Information. Each employee, consultant and contractor who has
      had
      access to Confidential Information which is necessary for the conduct of
      Company’s and each of its Subsidiaries’ respective businesses as currently
      conducted or as currently proposed to be conducted has executed an agreement
      to
      maintain the confidentiality of such Confidential Information and has executed
      appropriate agreements that are substantially consistent with the Company’s
      standard forms thereof.

     

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

     

    
      
        
        

      

      
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    4.17  Litigation.
      There
      are no pending actions, suits or proceedings against or affecting the Company,
      its Subsidiaries or any of its or their properties; and to the Company’s
      Knowledge, no such actions, suits or proceedings are threatened or
      contemplated.

     

    4.18  Financial
      Statements.
      The
      financial statements included in each SEC Filing present fairly, in all material
      respects, the consolidated financial position of the Company as of the dates
      shown and its consolidated results of operations and cash flows for the periods
      shown, and such financial statements have been prepared in conformity with
      U.S.
      generally accepted accounting principles applied on a consistent basis
      (“GAAP”)
      (except as may be disclosed therein or in the notes thereto). Except as set
      forth in the financial statements of the Company included in the SEC Filings
      filed prior to the date hereof or as described on Schedule
      4.18,
      neither
      the Company nor any of its Subsidiaries has incurred any liabilities, contingent
      or otherwise, except those incurred in the ordinary course of business,
      consistent (as to amount and nature) with past practices since the date of
      such
      financial statements, none of which, individually or in the aggregate, have
      had
      or could reasonably be expected to have a Material Adverse Effect.

     

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

     

    4.20  Brokers
      and Finders.
      No
      Person will have, as a result of the transactions contemplated by the
      Transaction Documents, any valid right, interest or claim against or upon the
      Company, any Subsidiary or an Investor for any commission, fee or other
      compensation pursuant to any agreement, arrangement or understanding entered
      into by or on behalf of the Company, other than as described in Schedule
      4.20.

     

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

     

    4.22  No
      Integrated Offering.
      Neither
      the Company nor any of its Affiliates, nor any Person acting on its or their
      behalf has, directly or indirectly, made any offers or sales of any Company
      security or solicited any offers to buy any security, under circumstances that
      would adversely affect reliance by the Company on Section 4(2) for the exemption
      from registration for the transactions contemplated hereby or would require
      registration of the Securities under the 1933 Act.

     

    4.23  Private
      Placement.
      Assuming the truth and accuracy of the representations and warranties contained
      in Section 5 hereof, the offer and sale of the Securities to the Investors
      as
      contemplated hereby is exempt from the registration requirements of the 1933
      Act.

     

    
      
        
        

      

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

     

    4.25  Transactions
      with Affiliates.
      Except
      as disclosed in the SEC Filings or as disclosed on Schedule
      4.25,
      none of
      the officers or directors of the Company and, to the Company’s Knowledge, none
      of the employees of the Company is presently a party to any transaction with
      the
      Company or any Subsidiary (other than as holders of stock options and/or
      warrants, and for services as employees, officers and directors), including
      any
      contract, agreement or other arrangement providing for the furnishing of
      services to or by, providing for rental of real or personal property to or
      from,
      or otherwise requiring payments to or from any officer, director or such
      employee or, to the Company’s Knowledge, any entity in which any officer,
      director, or any such employee has a substantial interest or is an officer,
      director, trustee or partner.

     

    4.26  Internal
      Controls.
      The
      Company is in material compliance with the provisions of the Sarbanes-Oxley
      Act
      of 2002 currently applicable to the Company. The Company and the Subsidiaries
      maintain a system of internal accounting controls sufficient to provide
      reasonable assurance that (i) transactions are executed in accordance with
      management’s general or specific authorizations, (ii) transactions are recorded
      as necessary to permit preparation of financial statements in conformity with
      GAAP and to maintain asset accountability, (iii) access to assets is permitted
      only in accordance with management’s general or specific authorization, and (iv)
      the recorded accountability for assets is compared with the existing assets
      at
      reasonable intervals and appropriate action is taken with respect to any
      differences. The Company has established disclosure controls and procedures
      (as
      defined in 1934 Act Rules 13a-14 and 15d-14) for the Company and designed such
      disclosure controls and procedures to ensure that material information relating
      to the Company, including the Subsidiaries, is made known to the certifying
      officers by others within those entities, particularly during the period in
      which the Company’s most recently filed period report under the 1934 Act, as the
      case may be, is being prepared. The Company’s certifying officers have evaluated
      the effectiveness of the Company’s controls and procedures as of the end of the
      period covered by the most recently filed periodic report under the 1934 Act
      (such date, the “Evaluation
      Date”).
      The
      Company presented in its most recently filed periodic report under the 1934
      Act
      the conclusions of the certifying officers about the effectiveness of the
      disclosure controls and procedures based on their evaluations as of the
      Evaluation Date. Since the Evaluation Date, there have been no significant
      changes in the Company’s internal controls (as such term is defined in Item 307
      of Regulation S-B) or, to the Company’s Knowledge, in other factors that could
      significantly affect the Company’s internal controls. The Company maintains and
      will continue to maintain a standard system of accounting established and
      administered in accordance with GAAP and the applicable requirements of the
      1934
      Act.

     

    
      
        
        

      

      
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    4.27  Disclosures.
      The
      written materials delivered to the Investors in connection with the transactions
      contemplated by the Transaction Documents do not contain any untrue statement
      of
      a material fact or omit to state a material fact necessary in order to make
      the
      statements contained therein, in light of the circumstances under which they
      were made, not misleading.

     

    5.  Representations
      and Warranties of the Investors.
      Each of
      the Investors hereby severally, and not jointly, represents and warrants to
      the
      Company that:

     

    5.1  Organization
      and Existence.
      Such
      Investor is a validly existing corporation, limited partnership or limited
      liability company and has all requisite corporate, partnership or limited
      liability company power and authority to invest in the Securities pursuant
      to
      this Agreement.

     

    5.2  Authorization.
      The
      execution, delivery and performance by such Investor of the Transaction
      Documents to which such Investor is a party have been duly authorized and will
      each constitute the valid and legally binding obligation of such Investor,
      enforceable against such Investor in accordance with their respective terms,
      subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
      moratorium and similar laws of general applicability, relating to or affecting
      creditors’ rights generally.

     

    5.3  Purchase
      Entirely for Own Account.
      The
      Securities to be received by such Investor hereunder will be acquired for such
      Investor’s own account, not as nominee or agent, and not with a view to the
      resale or distribution of any part thereof in violation of the 1933 Act, and
      such Investor has no present intention of selling, granting any participation
      in, or otherwise distributing the same in violation of the 1933 Act without
      prejudice, however, to such Investor’s right at all times to sell or otherwise
      dispose of all or any part of such Securities in compliance with applicable
      federal and state securities laws. Nothing contained herein shall be deemed
      a
      representation or warranty by such Investor to hold the Securities for any
      period of time. Such Investor is not a broker-dealer registered with the SEC
      under the 1934 Act or an entity engaged in a business that would require it
      to
      be so registered.

     

    5.4  Investment
      Experience.
      Such
      Investor acknowledges that it can bear the economic risk and complete loss
      of
      its investment in the Securities and has such knowledge and experience in
      financial or business matters that it is capable of evaluating the merits and
      risks of the investment contemplated hereby.

     

    5.5  Disclosure
      of Information.
      Such
      Investor has had an opportunity to receive all information related to the
      Company requested by it and to ask questions of and receive answers from the
      Company regarding the Company, its business and the terms and conditions of
      the
      offering of the Securities. Such Investor acknowledges receipt of copies of
      the
      SEC Filings. Neither such inquiries nor any other due diligence investigation
      conducted by such Investor shall modify, amend or affect such Investor’s right
      to rely on the Company’s representations and warranties contained in this
      Agreement.

     

    
      
        
        

      

      
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    5.6  Restricted
      Securities.
      Such
      Investor understands that the Securities are characterized as “restricted
      securities” under the U.S. federal securities laws inasmuch as they are being
      acquired from the Company in a transaction not involving a public offering
      and
      that under such laws and applicable regulations such securities may be resold
      without registration under the 1933 Act only in certain limited
      circumstances.

     

    5.7  Legends.
      It is
      understood that, except as provided below, certificates evidencing the
      Securities may bear the following or any similar legend:

     

    (a)  “The
      securities represented hereby may not be transferred unless (i) such securities
      have been registered for sale pursuant to the Securities Act of 1933, as
      amended, (ii) such securities may be sold pursuant to Rule 144(k), or (iii)
      the
      Company has received an opinion of counsel reasonably satisfactory to it that
      such transfer may lawfully be made without registration under the Securities
      Act
      of 1933, as amended, or qualification under applicable state securities
      laws.”

     

    (b)  If
      required by the authorities of any state in connection with the issuance of
      sale
      of the Securities, the legend required by such state authority.

     

    5.8  Accredited
      Investor.
      Such
      Investor is an accredited investor as defined in Rule 501(a) of Regulation
      D, as
      amended, under the 1933 Act.

     

    5.9  No
      General Solicitation.
      Such
      Investor did not learn of the investment in the Securities as a result of any
      public advertising or general solicitation.

     

    5.10  Foreign
      Investor.
      If an
      Investor is not a United States person, such Investor hereby represents that
      he
      or she has satisfied himself or herself as to the full observance of the laws
      of
      his or her jurisdiction in connection with any invitation to subscribe for
      the
      Securities or any use of this Agreement, including (i) the legal requirements
      within his jurisdiction for the purchase of the Securities, (ii) any foreign
      exchange restrictions applicable to such purchase, (iii) any governmental or
      other consents that may need to be obtained, and (iv) the income tax and other
      tax consequences, if any, that may be relevant to the purchase, holding,
      redemption, sale, or transfer of the Securities. Such Investor’s subscription
      and payment for, and his or her continued beneficial ownership of the
      Securities, will not violate any applicable securities or other laws of his
      or
      her jurisdiction. 

     

    5.11  Brokers
      and Finders.
      Except
      as set forth on Schedule 5.11, no Person will have, as a result of the
      transactions contemplated by the Transaction Documents, any valid right,
      interest or claim against or upon the Company, any Subsidiary or an Investor
      for
      any commission, fee or other compensation pursuant to any agreement, arrangement
      or understanding entered into by or on behalf of such Investor.

     

    5.12  Prohibited
      Transactions.
      From
      the earlier of (i) the date on which such Investor was made aware of the
      transactions contemplated by this Agreement, or (ii) during the last thirty
      (30)
      days prior to the date hereof, neither such Investor nor any person over which
      such Investor has control which (x) had knowledge of the transactions
      contemplated hereby, (y) has or shares discretion relating to such Investor’s
      investments or trading or information concerning such Investor’s investments,
      including in respect of the Securities, or (z) is subject to such Investor’s
      review or input concerning such Affiliate’s investments or trading
      (collectively, “Trading
      Affiliates”)
      has,
      directly or indirectly, effected or agreed to effect any short sale, whether
      or
      not against the box, established any “put equivalent position” (as defined in
      Rule 16a-1(h) under the 1934 Act) with respect to the Common Stock, granted
      any
      other right (including, without limitation, any put or call option) with respect
      to the Common Stock or with respect to any security that includes, relates
      to or
      derived any significant part of its value from the Common Stock or otherwise
      sought to hedge its position in the Securities (each, a “Prohibited
      Transaction”).
      Prior
      to the time that the press release referred to in Section 9.7 hereof has been
      issued, such Investor shall not, and shall cause its Trading Affiliates not
      to,
      engage, directly or indirectly, in a Prohibited Transaction. Such Investor
      acknowledges that the representations, warranties and covenants contained in
      this Section 5.12 are being made for the benefit of the Investors as well as
      the
      Company and that each of the other Investors shall have an independent right
      to
      assert any claims against such Investor arising out of any breach or violation
      of the provisions of this Section 5.12.

     

    
      
        
        

      

      
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    6.  Conditions
      to Closing.

     

    6.1  Conditions
      to the Investors’ Obligations.
      The
      obligation of each Investor to purchase the Units at the Closing is subject
      to
      the fulfillment to such Investor’s satisfaction, on or prior to the Closing
      Date, of the following conditions, any of which may be waived by such Investor
      (as to itself only):

     

    (a)  The
      representations and warranties made by the Company in Section 4 hereof qualified
      as to materiality shall be true and correct at all times prior to and on the
      Closing Date, except to the extent any such representation or warranty expressly
      speaks as of an earlier date, in which case such representation or warranty
      shall be true and correct as of such earlier date, and, the representations
      and
      warranties made by the Company in Section 4 hereof not qualified as to
      materiality shall be true and correct in all material respects at all times
      prior to and on the Closing Date, except to the extent any such representation
      or warranty expressly speaks as of an earlier date, in which case such
      representation or warranty shall be true and correct in all material respects
      as
      of such earlier date. The Company shall have performed in all material respects
      all obligations and conditions herein required to be performed or observed
      by it
      on or prior to the Closing Date.

     

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

     

    (c)  The
      Company shall have executed and delivered the Registration Rights
      Agreement.

     

    (d)  No
      judgment, writ, order, injunction, award or decree of or by any court, or judge,
      justice or magistrate, including any bankruptcy court or judge, or any order
      of
      or by any governmental authority, shall have been issued, and no action or
      proceeding shall have been instituted by any governmental authority, enjoining
      or preventing the consummation of the transactions contemplated hereby or in the
      other Transaction Documents.

     

    
      
        
        

      

      
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    (e)  The
      Company shall have delivered a Certificate, in form reasonably satisfactory
      to
      the Investors, executed on behalf of the Company by its Secretary, dated as
      of
      the Closing Date, certifying the resolutions adopted by the Board of Directors
      of the Company approving the transactions contemplated by this Agreement and
      the
      other Transaction Documents and the issuance of the Securities, certifying
      the
      current versions of the Articles of Incorporation and Bylaws of the Company
      and
      certifying as to the signatures and authority of persons signing the Transaction
      Documents and related documents on behalf of the Company.

     

    (f)  No
      stop
      order or suspension of trading shall have been imposed by the SEC or any other
      governmental or regulatory body with respect to public trading in the Common
      Stock.

     

    (g) The
      Investors shall have received an opinion from Mintz, Levin, Cohn, Ferris,
      Glovsky and Popeo, P.C., the Company’s counsel, dated as of the Closing Date, in
      form and substance reasonably acceptable to the Investors and addressing such
      legal matters as the Investors may reasonably request. 

    

    6.2  Conditions
      to Obligations of the Company.
      The
      Company’s obligation to sell and issue the Units at the Closing is subject to
      the fulfillment to the satisfaction of the Company on or prior to the Closing
      Date of the following conditions, any of which may be waived by the
      Company:

     

    (a)  The
      representations and warranties made by the Investors in Section 5 hereof, other
      than the representations and warranties contained in Sections 5.3, 5.4, 5.5,
      5.6, 5.7, 5.8, 5.9 and 5.10 (the “Investment
      Representations”),
      shall
      be true and correct in all material respects when made, and shall be true and
      correct in all material respects on the Closing Date with the same force and
      effect as if they had been made on and as of said date. The Investment
      Representations shall be true and correct in all respects when made, and shall
      be true and correct in all respects on the Closing Date with the same force
      and
      effect as if they had been made on and as of said date. The Investors shall
      have
      performed in all material respects all obligations and conditions herein
      required to be performed or observed by them on or prior to the Closing
      Date.

     

    (b)  The
      Investors shall have executed and delivered the Registration Rights
      Agreement.

     

    (c)  Each
      Investor shall have delivered its Investment Amount to the Company.

     

    6.3  Termination
      of Obligations to Effect Closing; Effects.

     

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

     

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

       

    

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    (ii)  By
      the
      Company if any of the conditions set forth in Section 6.2 shall have become
      incapable of fulfillment within thirty (30) days of the date hereof, and shall
      not have been waived by the Company;

     

    (iii)  By
      an
      Investor (with respect to itself only) if any of the conditions set forth in
      Section 6.1 shall have become incapable of fulfillment within thirty (30) days
      of the date hereof, and shall not have been waived by the Investor;
      or

     

    (iv)  By
      either
      the Company or any Investor (with respect to itself only) if the Closing has
      not
      occurred on or prior to the thirty (30) day anniversary of the date
      hereof;

     

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

     

    (b)  In
      the
      event of termination by the Company or any Investor of its obligations to effect
      the Closing pursuant to this Section 6.3, written notice thereof shall forthwith
      be given to the other Investors and the other Investors shall have the right
      to
      terminate their obligations to effect the Closing upon written notice to the
      Company and the other Investors. Nothing in this Section 6.3 shall be deemed
      to
      release any party from any liability for any breach by such party of the terms
      and provisions of this Agreement or the other Transaction Documents or to impair
      the right of any party to compel specific performance by any other party of
      its
      obligations under this Agreement or the other Transaction
      Documents.

     

    7.  Covenants
      and Agreements of the Company.

     

    7.1  Reservation
      of Common Stock.
      The
      Company shall at all times reserve and keep available out of its authorized
      but
      unissued shares of Common Stock, solely for the purpose of providing for the
      exercise of the Warrants, such number of shares of Common Stock as shall from
      time to time equal the number of shares sufficient to permit the exercise of
      the
      Warrants issued pursuant to this Agreement in accordance with their respective
      terms.

     

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

     

    7.3  Insurance.
      The
      Company shall not materially reduce the insurance coverages described in Section
      4.19.

     

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

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    7.5  Listing
      of Shares, Warrant Shares and Related Matters.
      If the
      Company applies to have its Common Stock or other securities traded on any
      principal stock exchange or market, it shall include in such application the
      Shares and the Warrant Shares and will take such other action as is necessary
      to
      cause such Common Stock to be so listed. The Company will use commercially
      reasonable efforts to continue the listing and trading of its Common Stock
      on
      such stock exchange or market and, in accordance, therewith, will use
      commercially reasonable efforts to comply in all respects with the Company’s
      reporting, filing and other obligations under the bylaws or rules of such market
      or exchange, as applicable.

     

    7.6  Termination
      of Covenants.
      The
      provisions of Sections 7.2 through 7.4 shall terminate and be of no further
      force and effect on the date on which the Company’s obligations under the
      Registration Rights Agreement to register or maintain the effectiveness of
      any
      registration covering the Registrable Securities (as such term is defined in
      the
      Registration Rights Agreement) shall terminate.

     

    7.7  Removal
      of Legends.
      Upon
      the earlier of (i) the Effective Date and receipt by the Company of the
      Investor’s written confirmation that such Securities will not be disposed of
      except in compliance with the prospectus delivery requirements of the 1933
      Act
      or (ii) Rule 144(k) becoming available, the Company shall, upon an Investor’s
      written request, promptly cause certificates evidencing the Investor’s
      Securities to be replaced with certificates which do not bear such restrictive
      legends, and Warrant Shares subsequently issued upon due exercise of the
      Warrants shall not bear such restrictive legends provided the provisions of
      either clause (i) or clause (ii) above, as applicable, are satisfied with
      respect to such Warrant Shares. On the Effective Date, the Company shall cause
      its counsel to deliver to the Company’s transfer agent one or more blanket
      opinions to the effect that the removal of such legends in such circumstances
      may be effected under the 1933 Act. If an Investor shall make a sale or transfer
      of Shares pursuant to the Registration
      Statement
      and
      shall have delivered to the Company’s transfer agent a written request
to
      transfer the Shares, accompanied by the certificate(s)
      representing such Shares containing
      a restrictive
      legend
      (the
      date that
      such
delivery
      to the transfer agent is complete,
      the
“Delivery
      Date”)
      and
      (1) the Company shall fail to deliver or cause to be delivered to such Investor
      a certificate(s) representing such Shares that is free from all restrictive
      or
      other legends by the third
      trading
      day following the
      Delivery Date
      and
      (2) following such third
      trading
      day after the Delivery
      Date and
      prior to the time a certificate(s) representing such Shares is received free
      from restrictive legends, the Investor, or any third party on behalf of such
      Investor or for the Investor’s account, purchases (in an open market transaction
      or otherwise) shares of Common Stock to deliver in satisfaction of a sale by
      the
      Investor of such Shares (a “Buy-In”),
      then
      the Company shall, at its option, either (A) pay
      in
      cash to the Investor (for costs incurred either directly by such Investor or
      on
      behalf of a third party) the amount by which the total purchase price paid
      for
      Common Stock as a result of the Buy-In (including brokerage
      commissions,
      if
      any)
      exceeds the proceeds
      received by such Investor
      as
      a
      result of the sale to which such Buy-In relates (the “Buy-In
      Price”)
      or
      (B)
      promptly honor its obligation to deliver to the Investor a certificate(s)
      representing such Shares and pay cash to the Investor in an amount equal to
      the
      excess (if any) of the Buy-In Price over the product of (x) such number of
      Shares, times (y) the Closing Price (as defined below) on the date of the event
      giving rise to the Company’s obligation to deliver such certificate(s). For the
      purposes of this Section 7.7, “Closing
      Price”
shall
      mean, for any date, the price determined by the first of the following clauses
      that applies: (a) if the Common Stock is then listed or quoted a national
      securities exchange, the closing price per share of the Common Stock for such
      date (or the nearest preceding date) on the exchange on which the Common Stock
      is then listed or quoted; (b) if prices for the Common Stock are then quoted
      on
      the OTC Bulletin Board, the closing bid price per share of the Common Stock
      for
      such date (or the nearest preceding date) so quoted; (c) if prices for the
      Common Stock are then reported in the “Pink Sheets” published by the National
      Quotation Bureau Incorporated (or a similar organization or agency succeeding
      to
      its functions of reporting prices), the most recent closing bid price per share
      of the Common Stock so reported; or (d) in all other cases, the fair market
      value of a share of Common Stock as determined by an independent appraiser
      selected in good faith by the Company. The
      Investor shall provide
      the
      Company written notice indicating the amounts payable to the Investor in respect
      of the Buy-In.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    7.8  Right
      to Participate in Future Financings.
      From
      the date hereof until one year after the Effective Date, each Investor shall
      have the right to participate in any closing of a financing by the Company
      of
      its Common Stock or Common Stock Equivalents (a “Subsequent
      Financing”)
      up to
      their Pro Rata Portion (as defined below) of 50% of the aggregate cash
      investment amount paid by the investors in the Subsequent Financing (the
“Investment
      Limit”).
      At
      least five (5) Business Days prior to the closing of the Subsequent Financing,
      the Company shall deliver to each Investor a written notice of its intention
      to
      effect a Subsequent Financing (“Pre-Notice”)
      (unless such receipt is expressly waived in written or by electronic
      transmission), which Pre-Notice shall ask such Investor if it wants to review
      the details of such financing (such additional notice, a “Subsequent
      Financing Notice”).
      Upon
      the request of a Investor (such request being an acknowledgement of receipt
      of
      material, non-public, confidential information by such Investor) received within
      one (1) Business Day of delivery of the Pre-Notice, and only upon a request
      by
      such Investor, for a Subsequent Financing Notice, the Company shall promptly,
      but no later than one (1) Business Day after such request, deliver a Subsequent
      Financing Notice to such Investor. The Subsequent Financing Notice shall
      describe in reasonable detail the proposed terms of such Subsequent Financing,
      the amount of proceeds intended to be raised thereunder, the Person with whom
      such Subsequent Financing is proposed to be effected, and attached to which
      shall be a term sheet or similar document relating thereto. Each Investor shall
      notify the Company by 6:30 p.m. (New York City time) on the third (3rd)
      Business Day after their receipt of the Subsequent Financing Notice of its
      willingness to participate in the Subsequent Financing on the terms described
      in
      the Subsequent Financing Notice and the amount such Investor wishes to invest
      in
      the Subsequent Financing up to the Investment Limit, subject to completion
      of
      mutually acceptable documentation. If one or more Investors fail to provide
      the
      Company with timely notice of their willingness to participate in the Subsequent
      Financing, the Company may effect the remaining portion of such Subsequent
      Financing on the terms and to the Persons set forth in the Subsequent Financing
      Notice; provided
      that the
      Company must provide the Investors with a second Subsequent Financing Notice,
      and the Investors will again have the rights set forth above in this Section
      7.8, if the Subsequent Financing subject to the initial Subsequent Financing
      Notice is not consummated for any reason on the terms set forth in such
      Subsequent Financing Notice within 60 days after the date of the initial
      Subsequent Financing Notice with the Person identified in the Subsequent
      Financing Notice. In the event the Company receives responses to Subsequent
      Financing Notices from Investors seeking to purchase more than the financing
      sought by the Company in the Subsequent Financing such Investors shall have
      the
      right to purchase their Pro Rata Portion of the Common Stock or Common Stock
      Equivalents to be issued in such Subsequent Financing subject to the Investment
      Limit. “Pro
      Rata Portion”
for
      any
      Investor is the ratio, expressed as a percentage, of (x) the Investment Amount
      for such Investor to (y) the aggregate Investment Amounts of all Investors
      providing timely notice to the Company of their willingness to participate
      in
      the Subsequent Financing. The term “Subsequent
      Financing”
shall
      not include any of the following, and notwithstanding the foregoing, this
      Section 7.8 shall not apply in respect of the issuance of (a) shares of Common
      Stock, warrants or options to employees, consultants, officers or directors
      of
      the Company in connection with their service as directors of the Company, their
      employment by the Company or their retention as consultants by the Company
      as
      compensation or pursuant to an equity compensation program approved by the
      Board
      of Directors of the Company or the compensation committee of the Board of
      Directors of the Company, (b) securities upon the exercise of or conversion
      of
      any 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, (c)
      the
      Warrant Shares, the MRA Warrants and the Common Stock underlying the MRA
      Warrants, (d) shares of Common Stock or Common Stock Equivalents issued or
      issuable to a strategic partner, collaborator, licensee or licensor, bank or
      other financial institution in a transaction the primary purpose of which is
      not
      the raising of capital, pursuant to a bona fide firm commitment underwritten
      public offering with a nationally recognized underwriter (excluding any equity
      line) in an aggregate offering amount greater than $25,000,000, or pursuant
      to
      the Company’s bona fide acquisition of another corporation, or all or a portion
      of its assets, by merger, purchase of assets or stock or other corporate
      reorganization in each case, as approved by the Company’s board of directors and
      not for the principal purpose of raising capital.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    8.  Survival
      and Indemnification.

     

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

     

    8.2  Indemnification.
      The
      Company agrees to indemnify and hold harmless each Investor and its Affiliates
      and their respective directors, officers, employees and agents from and against
      any and all losses, claims, damages, liabilities and expenses (including without
      limitation reasonable attorney fees and disbursements and other expenses
      incurred in connection with investigating, preparing or defending any action,
      claim or proceeding, pending or threatened and the costs of enforcement thereof)
      (collectively, “Losses”)
      to
      which such Person may become subject as a result of any breach of
      representation, warranty, covenant or agreement made by or to be performed
      on
      the part of the Company under the Transaction Documents, and will reimburse
      any
      such Person for all such amounts as they are incurred by such
      Person.

     

    8.3  Conduct
      of Indemnification Proceedings.
      Promptly after receipt by any Person (the “Indemnified
      Person”)
      of
      notice of any demand, claim or circumstances which would or might give rise
      to a
      claim or the commencement of any action, proceeding or investigation in respect
      of which indemnity may be sought pursuant to Section 8.2, such Indemnified
      Person shall promptly notify the Company in writing and the Company shall assume
      the defense thereof, including the employment of counsel reasonably satisfactory
      to such Indemnified Person, and shall assume the payment of all fees and
      expenses; provided,
      however,
      that
      the failure of any Indemnified Person so to notify the Company shall not relieve
      the Company of its obligations hereunder except to the extent that the Company
      is materially prejudiced by such failure to notify. In any such proceeding,
      any
      Indemnified Person shall have the right to retain its own counsel, but the
      fees
      and expenses of such counsel shall be at the expense of such Indemnified Person
      unless: (i) the Company and the Indemnified Person shall have mutually agreed
      to
      the retention of such counsel; or (ii) in the reasonable judgment of counsel
      to
      such Indemnified Person representation of both parties by the same counsel
      would
      be inappropriate due to actual or potential differing interests between them.
      The Company shall not be liable for any settlement of any proceeding effected
      without its written consent, which consent shall not be unreasonably withheld,
      but if settled with such consent, or if there be a final judgment for the
      plaintiff, the Company shall indemnify and hold harmless such Indemnified Person
      from and against any loss or liability (to the extent stated above) by reason
      of
      such settlement or judgment. Without the prior written consent of the
      Indemnified Person, which consent shall not be unreasonably withheld, the
      Company shall not effect any settlement of any pending or threatened proceeding
      in respect of which any Indemnified Person is or could have been a party and
      indemnity could have been sought hereunder by such Indemnified Party, unless
      such settlement includes an unconditional release of such Indemnified Person
      from all liability arising out of such proceeding.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    9.  Miscellaneous.

     

    9.1  Successors
      and Assigns.
      This
      Agreement may not be assigned by a party hereto without the prior written
      consent of the Company or the Investors, as applicable, provided,
      however,
      that an
      Investor may assign its rights and delegate its duties hereunder in whole or
      in
      part to an Affiliate or to a third party acquiring some or all of its Securities
      in a private transaction without the prior written consent of the Company or
      the
      other Investors, after notice duly given by such Investor to the Company,
provided,
      that no
      such assignment or obligation shall affect the obligations of such Investor
      hereunder. The provisions of this Agreement shall inure to the benefit of and
      be
      binding upon the respective permitted successors and assigns of the parties.
      Nothing in this Agreement, express or implied, is intended to confer upon any
      party other than the parties hereto or their respective successors and assigns
      any rights, remedies, obligations, or liabilities under or by reason of this
      Agreement, except as expressly provided in this Agreement.

     

    9.2  Counterparts;
      Faxes.
      This
      Agreement may be executed in two or more counterparts, each of which shall
      be
      deemed an original, but all of which together shall constitute one and the
      same
      instrument. This Agreement may also be executed via facsimile, which shall
      be
      deemed an original.

     

    9.3  Titles
      and Subtitles.
      The
      titles and subtitles used in this Agreement are used for convenience only and
      are not to be considered in construing or interpreting this
      Agreement.

     

    9.4  Notices.
      Unless
      otherwise provided, any notice required or permitted under this Agreement shall
      be given in writing and shall be deemed effectively given as hereinafter
      described (i) if given by personal delivery, then such notice shall be deemed
      given upon such delivery, (ii) if given by telex or facsimile, then such notice
      shall be deemed given upon receipt of confirmation of complete transmittal,
      (iii) if given by mail, then such notice shall be deemed given upon the earlier
      of (A) receipt of such notice by the recipient or (B) three days after such
      notice is deposited in first class mail, postage prepaid, and (iv) if given
      by
      an internationally recognized overnight air courier, then such notice shall
      be
      deemed given one business day after delivery to such carrier. All notices shall
      be addressed to the party to be notified at the address as follows, or at such
      other address as such party may designate by ten days’ advance written notice to
      the other party:

     

    If
      to the
      Company:

     

    Arbios
      Systems, Inc.

    1050
      Winter Street, Suite 1000

    Waltham,
      Massachusetts 02451

    Attention:
      President

    Fax:
      (781) 839-7294

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    With
      a
      copy to:

     

    Mintz,
      Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

    One
      Financial Center

    Boston,
      Massachusetts 02111

    Attention:
      William T. Whelan, Esq.

    Fax:
      (617) 542-2241

     

    If
      to the
      Investors:

     

    to
      the
      addresses set forth on the signature pages hereto.

     

    9.5  Expenses.
      The
      parties hereto shall pay their own costs and expenses in connection herewith,
      except that the Company shall be responsible for the reasonable fees and
      expenses of one (1) counsel to the Investors, not to exceed $50,000 (including
      all costs related to any patent and intellectual property due diligence. In
      the
      event that legal proceedings are commenced by any party to this Agreement
      against another party to this Agreement in connection with this Agreement or
      the
      other Transaction Documents, the party or parties which do not prevail in such
      proceedings shall severally, but not jointly, pay their pro rata share of the
      reasonable attorneys’ fees and other reasonable out-of-pocket costs and expenses
      incurred by the prevailing party in such proceedings.

     

    9.6  Amendments
      and Waivers.
      Any
      term of this Agreement may be amended and the observance of any term of this
      Agreement may be waived (either generally or in a particular instance and either
      retroactively or prospectively), only with the written consent of the Company
      and the holders of a majority of the Shares issued pursuant to this Agreement.
      Any amendment or waiver effected in accordance with this paragraph shall be
      binding upon each holder of any Securities purchased under this Agreement at
      the
      time outstanding, each future holder of all such Securities, and the
      Company.

     

    9.7  Publicity.
      Except
      as set forth below, no public release or announcement concerning the
      transactions contemplated hereby shall be issued by the Company or the Investors
      without the prior consent of the Company (in the case of a release or
      announcement by the Investors) or the Investors (in the case of a release or
      announcement by the Company) (which consents shall not be unreasonably
      withheld), except as such release or announcement may be required by law or
      the
      applicable rules or regulations of any securities exchange or securities market,
      in which case the Company or the Investors, as the case may be, shall allow
      the
      Investors or the Company, as applicable, to the extent reasonably practicable
      in
      the circumstances, reasonable time to comment on such release or announcement
      in
      advance of such issuance. By 8:30 a.m. (New York City time) on the trading
      day
      immediately following the Closing Date, the Company shall issue a press release
      disclosing the consummation of the transactions contemplated by this Agreement.
      No later than the fourth trading day following the Closing Date, the Company
      will file a Current Report on Form 8-K attaching the press release described
      in
      the foregoing sentence as well as copies of the Transaction Documents. In
      addition, the Company will make such other filings and notices in the manner
      and
      time required by the SEC. Notwithstanding the foregoing, the Company shall
      not
      publicly disclose the name of any Investor, or include the name of any Investor
      in any filing with the SEC (other than the Registration Statement and any
      exhibits to filings made in respect of this transaction in accordance with
      periodic filing requirements under the 1934 Act) or any regulatory agency or
      Nasdaq, without the prior written consent of such Investor, except to the extent
      such disclosure is required by law or trading market regulations, in which
      case
      the Company shall provide the Investors with prior notice of such
      disclosure.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    9.8  Severability.
      Any
      provision of this Agreement that is prohibited or unenforceable in any
      jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
      such prohibition or unenforceability without invalidating the remaining
      provisions hereof but shall be interpreted as if it were written so as to be
      enforceable to the maximum extent permitted by applicable law, and any such
      prohibition or unenforceability in any jurisdiction shall not invalidate or
      render unenforceable such provision in any other jurisdiction. To the extent
      permitted by applicable law, the parties hereby waive any provision of law
      which
      renders any provision hereof prohibited or unenforceable in any
      respect.

     

    9.9  Entire
      Agreement.
      This
      Agreement, including the Exhibits and the Disclosure Schedules, and the other
      Transaction Documents constitute the entire agreement among the parties hereof
      with respect to the subject matter hereof and thereof and supersede all prior
      agreements and understandings, both oral and written, between the parties with
      respect to the subject matter hereof and thereof.

     

    9.10  Further
      Assurances.
      The
      parties shall execute and deliver all such further instruments and documents
      and
      take all such other actions as may reasonably be required to carry out the
      transactions contemplated hereby and to evidence the fulfillment of the
      agreements herein contained.

     

    9.11  Governing
      Law; Consent to Jurisdiction; Waiver of Jury Trial.
      This
      Agreement shall be governed by, and construed in accordance with, the internal
      laws of the State of New York without regard to the choice of law principles
      thereof. Each of the parties hereto irrevocably submits to the exclusive
      jurisdiction of the courts of the State of New York located in New York County
      and the United States District Court for the Southern District of New York
      for
      the purpose of any suit, action, proceeding or judgment relating to or arising
      out of this Agreement and the transactions contemplated hereby. Service of
      process in connection with any such suit, action or proceeding may be served
      on
      each party hereto anywhere in the world by the same methods as are specified
      for
      the giving of notices under this Agreement. Each of the parties hereto
      irrevocably consents to the jurisdiction of any such court in any such suit,
      action or proceeding and to the laying of venue in such court. Each party hereto
      irrevocably waives any objection to the laying of venue of any such suit, action
      or proceeding brought in such courts and irrevocably waives any claim that
      any
      such suit, action or proceeding brought in any such court has been brought
      in an
      inconvenient forum. EACH
      OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
      LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN
      CONSULTED SPECIFICALLY AS TO THIS WAIVER.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

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

     

    [signature
      page follows]

    

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties have executed this Purchase Agreement or caused
      their duly authorized officers to execute this Agreement as of the date first
      above written.

     

    
      	 The
              Company: 	 	 ARBIOS
              SYSTEMS, INC.
	 	
               

            
	 	 	 
	 	 	/s/ Walter
              Ogier
	 	
              
Walter
              C. Ogier
	 	President
              and
              Chief Executive Officer

    

     

    

    [remainder
      left intentionally blank]

     

    
      COMPANY
        SIGNATURE PAGE TO PURCHASE AGREEMENT

       

    

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    

    INVESTOR
      SIGNATURE PAGE TO PURCHASE AGEEMENT

    
      	 	 	 
	 The
              Investors: 	[________________________]
	 
 	 
 	 
 
	
            	By:  	 
	 	
              

              Name:

              Title:

            

    

    

    Investment
      Amount: $

    Number
      of
      Shares:

    Number
      of
      Warrants:

     

    
      	Address
              for Notice: 	 	 
	 	 	 
	 	 	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A-1

    

    Form
      of A Warrant

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A-2

    

    Form
      of B Warrant

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      B

    

    Form
      of Registration Rights AgreementExhibit
      10.2

     

    REGISTRATION
      RIGHTS AGREEMENT

    

    This
      Registration Rights Agreement (the “Agreement”)
      is
      made and entered into as of this 23rd
      day of
      April, 2007 by and among Arbios Systems, Inc., a Delaware corporation (the
      “Company”),
      and
      the Investors (as such term is defined in that certain Purchase Agreement dated
      of even date herewith, by and among the Company and the Investors named therein
      (the “Purchase
      Agreement”)).

     

    The
      parties hereby agree as follows:

     

    1. Certain
      Definitions.

     

    As
      used
      in this Agreement, the following terms shall have the following
      meanings:

     

    “Affiliate”
means,
      with respect to any person, any other person which directly or indirectly
      controls, is controlled by, or is under common control with, such
      person.

     

    “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.

     

    “Common
      Stock”
shall
      mean the Company’s common stock, par value $0.001 per share, and any securities
      into which such shares may hereinafter be reclassified.

     

    “Investors”
shall
      mean the Investors identified in the Purchase Agreement and any Affiliate or
      permitted transferee of any Investor who is a subsequent holder of any Warrants
      or Registrable Securities.

     

    “Prospectus”
shall
      mean the prospectus included in any Registration Statement, as amended or
      supplemented by any prospectus supplement, with respect to the terms of the
      offering of any portion of the Registrable Securities covered by such
      Registration Statement and by all other amendments and supplements to the
      prospectus, including post-effective amendments and all material incorporated
      by
      reference in such prospectus.

     

    “Register,”
      “registered”
and
      “registration”
refer
      to a registration made by preparing and filing a Registration Statement or
      similar document in compliance with the 1933 Act (as defined below), and the
      declaration or ordering of effectiveness of such Registration Statement or
      document.

     

    “Registrable
      Securities”
shall
      mean the Shares and the shares of Common Stock issuable (i) upon the exercise
      of
      the Warrants, if any, and (ii) any other securities issued or issuable with
      respect to or in exchange for Registrable Securities; provided,
      that, a
      security shall cease to be a Registrable Security upon (A) sale pursuant to
      a
      Registration Statement or Rule 144 under the 1933 Act, or (B) such security
      becoming eligible for sale by the Investors pursuant to Rule
      144(k).

     

    “Registration
      Statement”
shall
      mean any registration statement of the Company filed under the 1933 Act that
      covers the resale of any of the Registrable Securities pursuant to the
      provisions of this Agreement, amendments and supplements to such Registration
      Statement, including post-effective amendments, all exhibits and all material
      incorporated by reference in such Registration Statement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Required
      Investors”
means
      the Investors holding a majority of the Registrable Securities.

     

    “SEC”
means
      the U.S. Securities and Exchange Commission.

     

    “Shares”
means
      the shares of Common Stock issued pursuant to the Purchase
      Agreement.

     

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

     

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

     

    “Warrants”
means,
      the warrants to purchase shares of Common Stock issued to the Investors pursuant
      to the Purchase Agreement, the forms of which are attached to the Purchase
      Agreement as Exhibit A-1 and Exhibit A-2.

     

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

     

    2. Registration.

     

    (a)  Registration
      Statements.

     

    (i) No
      later
      than the sixtieth (60th)
      day
      immediately following the date of the closing (the “Closing
      Date”)
      of the
      purchase and sale of the securities contemplated by the Purchase Agreement
      (the
“Filing
      Deadline”),
      the
      Company shall prepare and file with the SEC one Registration Statement on Form
      SB-2 (or, if Form SB-2 is not then available to the Company, on such form of
      registration statement as is then available to effect a registration for resale
      of the Registrable Securities), covering the resale of the Registrable
      Securities in an amount at least equal to the number of Shares plus the Warrant
      Shares. Such Registration Statement shall include the plan of distribution
      attached hereto as Exhibit
      A.
      The
      Company shall use its commercially reasonable efforts to obtain from each person
      who now has piggyback registration rights a waiver of those rights with respect
      to the Registration Statement. The Registration Statement (and each amendment
      or
      supplement thereto, and each request for acceleration of effectiveness thereof)
      shall be provided in accordance with Section 3(c) to the Investors and their
      counsel prior to its filing or other submission. 

     

    (ii) Promptly
      following the date (the “Qualification
      Date”)
      upon
      which the Company becomes eligible to use a registration statement on Form
      S-3
      to register the Registrable Securities for resale, but in no event more than
      twenty (20) Business Days after the Qualification Date (the “Qualification
      Deadline”),
      the
      Company shall file a registration statement on Form S-3 covering the Registrable
      Securities (or a post-effective amendment on Form S-3 to the registration
      statement on Form SB-2) (a “Shelf
      Registration Statement”)
      and
      shall use commercially reasonable efforts to cause such Shelf Registration
      Statement to be declared effective as promptly as practicable
      thereafter.

    

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

    (b)  Expenses.
      The
      Company will pay all expenses associated with each registration, including
      filing and printing fees, the Company’s counsel and accounting fees and
      expenses, costs associated with clearing the Registrable Securities for sale
      under applicable state securities laws, listing fees, but excluding Investors’
legal and other expenses, discounts, commissions, fees of underwriters, selling
      brokers, dealer managers or similar securities industry professionals with
      respect to the Registrable Securities being sold.

     

    (c)  Effectiveness.

     

    (i) The
      Company shall use commercially reasonable efforts to have any Registration
      Statement filed pursuant to this Section 2 declared effective as soon as
      practicable. The Company shall notify the Investors by facsimile or e-mail
      as
      promptly as practicable, and in any event, within twenty-four (24) hours, after
      any Registration Statement is declared effective and shall simultaneously
      provide the Investors with copies of any related Prospectus to be used in
      connection with the sale or other disposition of the securities covered thereby.
      Subject to the limitation set forth in Section 2(d), if (A)(x) a Registration
      Statement covering the Registrable Securities is not declared effective by
      the
      SEC within ninety (90) days after the Filing Deadline (120 days if the
      Registration Statement is subjected to a review by the SEC), or (y) a Shelf
      Registration Statement is not declared effective by the SEC within ninety (90)
      days after the Qualification Deadline (120 days if the Shelf Registration
      Statement is subjected to a review by the SEC) or
      (B)
      after a Registration Statement has been declared effective by the SEC, sales
      cannot be made pursuant to such Registration Statement for any reason (including
      without limitation by reason of a stop order, or the Company’s failure to update
      the Registration Statement), but excluding the inability of any Investor to
      sell
      the Registrable Securities covered thereby due to market conditions and except
      as excused pursuant to subparagraph (ii) below, then
      the
      Company will make payment to each Investor, as liquidated damages and not as
      a
      penalty, in an amount equal to 1.5% of the aggregate purchase price paid by
      such
      Investor pursuant to the Purchase Agreement for the number of Shares and
      outstanding Warrant Shares then held by such Investor for each 30-day period
      (or
      a pro rata payment for any portion of such 30-day period following the initial
      30-day period) following the date by which such Registration Statement should
      have been effective (the “Blackout
      Period”),
      provided,
      however,
      that no
      such payment will be required if any delay in a Registration Statement or Shelf
      Registration Statement being declared effective by the SEC is due in any part
      to
      the SEC’s application or interpretation of Rule 415 promulgated under the 1933
      Act. Such payments shall be in partial compensation to the Investors, and shall
      not constitute the Investors’ exclusive remedy for such events. The amounts
      payable as liquidated damages pursuant to this paragraph shall be paid monthly
      within three (3) Business Days of the last day of each month following the
      commencement of the Blackout Period until the termination of the Blackout
      Period. Such payments shall be made to each Investor in cash.

     

    (ii) For
      not
      more than twenty (20) consecutive days or for a total of not more than
      forty-five (45) days in any twelve (12) month period, the Company may delay
      the
      disclosure of material non-public information concerning the Company, by
      suspending the use of any Prospectus included in any registration contemplated
      by this Section containing such information, the disclosure of which at the
      time
      is not, in the good faith opinion of the Company, in the best interests of
      the
      Company (an “Allowed
      Delay”);
      provided,
      that
      the Company shall promptly (a) notify the Investors in writing of the existence
      of (but in no event, without the prior written consent of an Investor, shall
      the
      Company disclose to such Investor any of the facts or circumstances regarding)
      material non-public information giving rise to an Allowed Delay, (b) advise
      the
      Investors in writing to cease all sales under the Registration Statement until
      the end of the Allowed Delay and (c) use commercially reasonable efforts to
      terminate an Allowed Delay as promptly as practicable.

     

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

    (d)  Limitation
      on Liquidated Damages.
      Notwithstanding the other provisions of this Section 2, in no event shall the
      Company be liable for liquidated damages in excess of 12% of the aggregate
      purchase price paid by the Investors pursuant to the Purchase
      Agreement.

     

    3. Company
      Obligations.
      The
      Company will use commercially reasonable efforts to effect the registration
      of
      the Registrable Securities in accordance with the terms hereof, and pursuant
      thereto the Company will, as expeditiously as possible:

     

    (a)  use
      commercially reasonable efforts to cause such Registration Statement to become
      effective and to remain continuously effective for a period that will terminate
      upon the earlier of (i) the date on which all Registrable Securities covered
      by
      such Registration Statement as amended from time to time, have been sold, (ii)
      the date on which all Registrable Securities covered by such Registration
      Statement may be sold pursuant to Rule 144(k) (the “Effectiveness
      Period”)
      and
      advise the Investors in writing when the Effectiveness Period has expired and
      (iii) the five year anniversary of the Closing Date;

     

    (b)  prepare
      and file with the SEC such amendments and post-effective amendments to the
      Registration Statement and the Prospectus as may be necessary to keep the
      Registration Statement effective for the period specified in Section 3(a) and
      to
      comply with the provisions of the 1933 Act and the 1934 Act with respect to
      the
      distribution of all of the Registrable Securities covered thereby;

     

    (c)  provide
      copies to and permit counsel designated by the Investors to review each
      Registration Statement and all amendments and supplements thereto no less than
      three (3) Business Days prior to their filing with the SEC and not file any
      document to which such counsel reasonably objects;

     

    (d)  furnish
      to the Investors and their legal counsel (i) promptly after the same is prepared
      and publicly distributed, filed with the SEC, or received by the Company (but
      not later than two (2) Business Days after the filing date, receipt date or
      sending date, as the case may be) one (1) copy of any Registration Statement
      and
      any amendment thereto, each preliminary prospectus and Prospectus and each
      amendment or supplement thereto, and each letter written by or on behalf of
      the
      Company to the SEC or the staff of the SEC, and each item of correspondence
      from
      the SEC or the staff of the SEC, in each case relating to such Registration
      Statement (other than any portion of any thereof which contains information
      for
      which the Company has sought confidential treatment), and (ii) such number
      of
      copies of a Prospectus, including a preliminary prospectus, and all amendments
      and supplements thereto and such other documents as each Investor may reasonably
      request in order to facilitate the disposition of the Registrable Securities
      owned by such Investor that are covered by the related Registration
      Statement;

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

    (e)  use
      commercially reasonable efforts to (i) prevent the issuance of any stop order
      or
      other suspension of effectiveness and, (ii) if such order is issued, obtain
      the
      withdrawal of any such order at the earliest possible moment;

     

    (f)  prior
      to
      any public offering of Registrable Securities, use commercially reasonable
      efforts to register or qualify or cooperate with the Investors and their counsel
      in connection with the registration or qualification of such Registrable
      Securities for offer and sale under the securities or blue sky laws of such
      jurisdictions requested by the Investors and do any and all other commercially
      reasonable acts or things necessary or advisable to enable the distribution
      in
      such jurisdictions of the Registrable Securities covered by the Registration
      Statement; provided,
      however, that the Company shall not be required in connection therewith or
      as a
      condition thereto to (i) qualify to do business in any jurisdiction where it
      would not otherwise be required to qualify but for this Section 3(f), (ii)
      subject itself to general taxation in any jurisdiction where it would not
      otherwise be so subject but for this Section 3(f), or (iii) file a general
      consent to service of process in any such jurisdiction;

     

    (g)  use
      commercially reasonable efforts to cause all Registrable Securities covered
      by a
      Registration Statement to be listed on each securities exchange, interdealer
      quotation system or other market on which similar securities issued by the
      Company are then listed;

     

    (h)  immediately
      notify the Investors, at any time when a Prospectus relating to Registrable
      Securities is required to be delivered under the 1933 Act, upon discovery that,
      or upon the happening of any event as a result of which, the Prospectus included
      in a Registration Statement, as then in effect, includes an untrue statement
      of
      a material fact or omits to state any material fact required to be stated
      therein or necessary to make the statements therein not misleading in light
      of
      the circumstances then existing, and at the request of any such Investor,
      promptly prepare and furnish to such Investor a reasonable number of copies
      of a
      supplement to or an amendment of such Prospectus as may be necessary so that,
      as
      thereafter delivered to the purchasers of such Registrable Securities, such
      Prospectus shall not include an untrue statement of a material fact or omit
      to
      state a material fact required to be stated therein or necessary to make the
      statements therein not misleading in light of the circumstances then existing;
      and

     

    (i)  otherwise
      use commercially reasonable efforts to comply with all applicable rules and
      regulations of the SEC under the 1933 Act and the 1934 Act, take such other
      actions as may be reasonably necessary to facilitate the registration of the
      Registrable Securities hereunder; and make available to its security holders,
      as
      soon as reasonably practicable, but not later than the Availability Date (as
      defined below), an earnings statement covering a period of at least twelve
      (12)
      months, beginning after the effective date of each Registration Statement,
      which
      earnings statement shall satisfy the provisions of Section 11(a) of the 1933
      Act, including Rule 158 promulgated thereunder (for the purpose of this
      subsection 3(i), “Availability Date” means the 45th day following the end of the
      fourth fiscal quarter that includes the effective date of such Registration
      Statement, except that, if such fourth fiscal quarter is the last quarter of
      the
      Company’s fiscal year, “Availability Date” means the 90th day after the end of
      such fourth fiscal quarter).

     

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

    (j)  With
      a
      view to making available to the Investors the benefits of Rule 144 (or its
      successor rule) and any other rule or regulation of the SEC that may at any
      time
      permit the Investors to sell shares of Common Stock to the public without
      registration, the Company covenants and agrees to: (i) use
      commercially reasonable efforts to make
      and
      keep public information available, as those terms are understood and defined
      in
      Rule 144, until the earlier of (A) six months after such date as all of the
      Registrable Securities may be resold pursuant to Rule 144(k) or any other rule
      of similar effect or (B) such date as all of the Registrable Securities shall
      have been resold; (ii) file with the SEC in a timely manner all reports and
      other documents required of the Company under the 1934 Act; and (iii) furnish
      to
      each Investor upon request, as long as such Investor owns any Registrable
      Securities, (A) a written statement by the Company that it has complied with
      the
      reporting requirements of the 1934 Act, (B) a copy of the Company’s most recent
      Annual Report on Form 10-KSB or Quarterly Report on Form 10-QSB, and (C) such
      other information as may be reasonably requested in order to avail such Investor
      of any rule or regulation of the SEC that permits the selling of any such
      Registrable Securities without registration.

    

    4. Information.
      After
      the date hereof, the Company shall not disclose material nonpublic information
      to the Investors, or to advisors to or representatives of the Investors, unless
      prior to disclosure of such information the Company identifies such information
      as being material nonpublic information and provides the Investors, such
      advisors and representatives with the opportunity to accept or refuse to accept
      such material nonpublic information for review and any Investor wishing to
      obtain such information enters into an appropriate confidentiality agreement
      with the Company with respect thereto.

     

    5. Obligations
      of the Investors.

     

    (a)  Each
      Investor shall furnish in writing to the Company such information regarding
      itself, the Registrable Securities held by it and the intended method of
      disposition of the Registrable Securities held by it, as shall be reasonably
      required to effect the registration of such Registrable Securities and shall
      execute such documents in connection with such registration as the Company
      may
      reasonably request. At least five (5) Business Days prior to the first
      anticipated filing date of any Registration Statement, the Company shall notify
      each Investor of the information the Company requires from such Investor if
      such
      Investor elects to have any of the Registrable Securities included in the
      Registration Statement. An Investor shall provide such information to the
      Company at least two (2) Business Days prior to the first anticipated filing
      date of such Registration Statement if such Investor elects to have any of
      the
      Registrable Securities included in the Registration Statement.

     

    (b)  Each
      Investor, by its acceptance of the Registrable Securities agrees to cooperate
      with the Company as reasonably requested by the Company in connection with
      the
      preparation and filing of a Registration Statement hereunder, unless such
      Investor has notified the Company in writing of its election to exclude all
      of
      its Registrable Securities from such Registration Statement.

     

    (c)  Each
      Investor agrees that, upon receipt of any notice from the Company of either
      (i)
      the commencement of an Allowed Delay pursuant to Section 2(c)(ii) or (ii) the
      happening of an event pursuant to Section 3(h) hereof, such Investor will
      immediately discontinue disposition of Registrable Securities pursuant to the
      Registration Statement covering such Registrable Securities, until the
      Investor’s receipt of the copies of the supplemented or amended prospectus filed
      with the SEC and until any related post-effective amendment is declared
      effective and, if so directed by the Company, the Investor shall deliver to
      the
      Company (at the expense of the Company) or destroy (and deliver to the Company
      a
      certificate of destruction) all copies in the Investor’s possession of the
      Prospectus covering the Registrable Securities current at the time of receipt
      of
      such notice.

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

    6. Indemnification.

     

    (a)  Indemnification
      by the Company.
      The
      Company will indemnify and hold harmless each Investor and its officers,
      directors, members, employees and agents, successors and assigns, and each
      other
      person, if any, who controls such Investor within the meaning of the 1933 Act,
      against any losses, claims, damages or liabilities, joint or several, to which
      they may become subject under the 1933 Act or otherwise, insofar as such losses,
      claims, damages or liabilities (or actions in respect thereof) arise out of
      or
      are based upon: (i) any untrue statement or alleged untrue statement of any
      material fact contained in any Registration Statement, any preliminary
      prospectus or final prospectus contained therein, or any amendment or supplement
      thereof; (ii) any blue sky application or other document executed by the Company
      specifically for that purpose or based upon written information furnished by
      the
      Company filed in any state or other jurisdiction in order to qualify any or
      all
      of the Registrable Securities under the securities laws thereof (any such
      application, document or information herein called a “Blue Sky Application”);
      (iii) the omission or alleged omission to state therein a material fact required
      to be stated therein or necessary to make the statements therein not misleading;
      or (iv) any violation by the Company or its agents of any rule or regulation
      promulgated under the 1933 Act applicable to the Company or its agents and
      relating to action or inaction required of the Company in connection with such
      registration; provided,
      however,
      that
      the Company will not be liable in any such case if and to the extent that any
      such loss, claim, damage or liability arises out of or is based upon an untrue
      statement or alleged untrue statement or omission or alleged omission so made
      in
      conformity with information furnished by such Investor or any such controlling
      person in writing specifically for use in such Registration Statement or
      Prospectus.

     

    (b)  Indemnification
      by the Investors.
      Each
      Investor agrees, severally but not jointly, to indemnify and hold harmless,
      to
      the fullest extent permitted by law, the Company, its directors, officers,
      employees, stockholders and each person who controls the Company (within the
      meaning of the 1933 Act) against any losses, claims, damages, liabilities and
      expense (including reasonable attorney fees) resulting from any untrue statement
      of a material fact or any omission of a material fact required to be stated
      in
      the Registration Statement or Prospectus or preliminary prospectus or amendment
      or supplement thereto or necessary to make the statements therein not
      misleading, to the extent, but only to the extent that such untrue statement
      or
      omission is contained in any information furnished in writing by such Investor
      to the Company specifically for inclusion in such Registration Statement or
      Prospectus or amendment or supplement thereto. In no event shall the liability
      of an Investor be greater in amount than the dollar amount of the net proceeds
      (net of all expense paid by such Investor in connection with any claim relating
      to this Section 6 and the amount of any damages such Investor has otherwise
      been
      required to pay by reason of such untrue statement or omission) received by
      such
      Investor upon the sale of the Registrable Securities included in the
      Registration Statement giving rise to such indemnification
      obligation.

     

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

    (c)  Conduct
      of Indemnification Proceedings.
      Any
      person entitled to indemnification hereunder shall (i) give prompt notice to
      the
      indemnifying party of any claim with respect to which it seeks indemnification
      and (ii) permit such indemnifying party to assume the defense of such claim
      with
      counsel reasonably satisfactory to the indemnified party; provided
      that any
      person entitled to indemnification hereunder shall have the right to employ
      separate counsel and to participate in the defense of such claim, but the fees
      and expenses of such counsel shall be at the expense of such person unless
      (a)
      the indemnifying party has agreed to pay such fees or expenses, or (b) the
      indemnifying party shall have failed to assume the defense of such claim and
      employ counsel reasonably satisfactory to such person or (c) in the reasonable
      judgment of any such person, based upon written advice of its counsel, a
      conflict of interest exists between such person and the indemnifying party
      with
      respect to such claims (in which case, if the person notifies the indemnifying
      party in writing that such person elects to employ separate counsel at the
      expense of the indemnifying party, the indemnifying party shall not have the
      right to assume the defense of such claim on behalf of such person); and
provided,
      further,
      that
      the failure of any indemnified party to give notice as provided herein shall
      not
      relieve the indemnifying party of its obligations hereunder, except to the
      extent that such failure to give notice shall materially adversely affect the
      indemnifying party in the defense of any such claim or litigation. It is
      understood that the indemnifying party shall not, in connection with any
      proceeding in the same jurisdiction, be liable for fees or expenses of more
      than
      one separate firm of attorneys at any time for all such indemnified parties.
      No
      indemnifying party will, except with the consent of the indemnified party,
      consent to entry of any judgment or enter into any settlement that does not
      include as an unconditional term thereof the giving by the claimant or plaintiff
      to such indemnified party of a release from all liability in respect of such
      claim or litigation.

     

    (d)  Contribution.
      If for
      any reason the indemnification provided for in the preceding paragraphs (a)
      and
      (b) is unavailable to an indemnified party or insufficient to hold it harmless,
      other than as expressly specified therein, then the indemnifying party shall
      contribute to the amount paid or payable by the indemnified party as a result
      of
      such loss, claim, damage or liability in such proportion as is appropriate
      to
      reflect the relative fault of the indemnified party and the indemnifying party,
      as well as any other relevant equitable considerations. No person guilty of
      fraudulent misrepresentation within the meaning of Section 11(f) of the 1933
      Act
      shall be entitled to contribution from any person not guilty of such fraudulent
      misrepresentation. In no event shall the contribution obligation of a holder
      of
      Registrable Securities be greater in amount than the dollar amount of the
      proceeds (net of all expenses paid by such holder in connection with any claim
      relating to this Section 6 and the amount of any damages such holder has
      otherwise been required to pay by reason of such untrue or alleged untrue
      statement or omission or alleged omission) received by it upon the sale of
      the
      Registrable Securities giving rise to such contribution obligation.

     

    7. Miscellaneous.

     

    (a)  Amendments
      and Waivers.
      This
      Agreement may be amended only by a writing signed by the Company and the
      Required Investors. The Company may take any action herein prohibited, or omit
      to perform any act herein required to be performed by it, only if the Company
      shall have obtained the written consent to such amendment, action or omission
      to
      act, of the Required Investors.

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

    (b)  Notices.
      All
      notices and other communications provided for or permitted hereunder shall
      be
      made as set forth in Section 9.4 of the Purchase Agreement.

     

    (c)  Assignments
      and Transfers by Investors.
      The
      provisions of this Agreement shall be binding upon and inure to the benefit
      of
      the Investors and their respective successors and assigns. An Investor may
      transfer or assign, in whole or from time to time in part, to one or more
      persons its rights hereunder in connection with the transfer of Registrable
      Securities by such Investor to such person, provided
      that
      such Investor complies with all laws applicable thereto and provides written
      notice of assignment to the Company promptly after such assignment is
      effected.

     

    (d)  Assignments
      and Transfers by the Company.
      This
      Agreement may not be assigned by the Company (whether by operation of law or
      otherwise) without the prior written consent of the Required Investors;
provided,
      however,
      that
      the Company may assign its rights and delegate its duties hereunder to any
      surviving or successor corporation in connection with a merger or consolidation
      of the Company with another corporation, or a sale, transfer or other
      disposition of all or substantially all of the Company’s assets to another
      corporation, without the prior written consent of the Required Investors, after
      notice duly given by the Company to each Investor.

     

    (e)  Benefits
      of the Agreement.
      The
      terms and conditions of this Agreement shall inure to the benefit of and be
      binding upon the respective permitted successors and assigns of the parties.
      Nothing in this Agreement, express or implied, is intended to confer upon any
      party other than the parties hereto or their respective successors and assigns
      any rights, remedies, obligations, or liabilities under or by reason of this
      Agreement, except as expressly provided in this Agreement.

     

    (f)  Counterparts;
      Faxes.
      This
      Agreement may be executed in two or more counterparts, each of which shall
      be
      deemed an original, but all of which together shall constitute one and the
      same
      instrument. This Agreement may also be executed via facsimile, which shall
      be
      deemed an original.

     

    (g)  Titles
      and Subtitles.
      The
      titles and subtitles used in this Agreement are used for convenience only and
      are not to be considered in construing or interpreting this
      Agreement.

     

    (h)  Severability.
      Any
      provision of this Agreement that is prohibited or unenforceable in any
      jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
      such prohibition or unenforceability without invalidating the remaining
      provisions hereof but shall be interpreted as if it were written so as to be
      enforceable to the maximum extent permitted by applicable law, and any such
      prohibition or unenforceability in any jurisdiction shall not invalidate or
      render unenforceable such provision in any other jurisdiction. To the extent
      permitted by applicable law, the parties hereby waive any provision of law
      which
      renders any provisions hereof prohibited or unenforceable in any
      respect.

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

    (i)  Further
      Assurances.
      The
      parties shall execute and deliver all such further instruments and documents
      and
      take all such other actions as may reasonably be required to carry out the
      transactions contemplated hereby and to evidence the fulfillment of the
      agreements herein contained.

     

    (j)  Entire
      Agreement.
      This
      Agreement is intended by the parties as a final expression of their agreement
      and intended to be a complete and exclusive statement of the agreement and
      understanding of the parties hereto in respect of the subject matter contained
      herein. This Agreement supersedes all prior agreements and understandings
      between the parties with respect to such subject matter.

     

    (k)  Governing
      Law; Consent to Jurisdiction; Waiver of Jury Trial.
      This
      Agreement shall be governed by, and construed in accordance with, the internal
      laws of the State of New York without regard to the choice of law principles
      thereof. Each of the parties hereto irrevocably submits to the exclusive
      jurisdiction of the courts of the State of new York located in New York County
      and the United States District Court for the Southern District of New York
      for
      the purpose of any suit, action, proceeding or judgment relating to or arising
      out of this Agreement and the transactions contemplated hereby. Service of
      process in connection with any such suit, action or proceeding may be served
      on
      each party hereto anywhere in the world by the same methods as are specified
      for
      the giving of notices under this Agreement. Each of the parties hereto
      irrevocably consents to the jurisdiction of any such court in any such suit,
      action or proceeding and to the laying of venue in such court. Each party hereto
      irrevocably waives any objection to the laying of venue of any such suit, action
      or proceeding brought in such courts and irrevocably waives any claim that
      any
      such suit, action or proceeding brought in any such court has been brought
      in an
      inconvenient forum. EACH
      OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
      LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN
      CONSULTED SPECIFICALLY AS TO THIS WAIVER.

     

    [remainder
      left intentionally blank]

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
      or
      caused their duly authorized officers to execute this Registration Rights
      Agreement as of the date first above written.

     

    
      	 The
              Company:	 	 ARBIOS
              SYSTEMS, INC.
	 	 
	 	 	 
	 	  	/s/ Walter
              Ogier
	 	
              

              Walter
                C. Ogier

              President
                and Chief Executive Officer

            

    

    

    [SIGNATURE
      PAGES OF INVESTORS TO FOLLOW]

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

    

    [INVESTOR
      SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]

     

    The
      Investors:    

     

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

    Exhibit
      A

    

    Plan
      of Distribution

    

    The
      selling stockholders, which as used herein includes donees, pledgees,
      transferees or other successors-in-interest selling shares of common stock
      or
      interests in shares of common stock received after the date of this prospectus
      from a selling stockholder as a gift, pledge, partnership distribution or other
      transfer, may, from time to time, sell, transfer or otherwise dispose of any
      or
      all of their shares of common stock or interests in shares of common stock
      on
      any stock exchange, market or trading facility on which the shares are traded
      or
      in private transactions. These dispositions may be at fixed prices, at
      prevailing market prices at the time of sale, at prices related to the
      prevailing market price, at varying prices determined at the time of sale,
      or at
      negotiated prices.

    

    The
      selling stockholders may use any one or more of the following methods when
      disposing of shares or interests therein:

    

    -
      ordinary brokerage transactions and transactions in which the broker-dealer
      solicits purchasers;

    

    -
      block
      trades in which the broker-dealer will attempt to sell the shares as agent,
      but
      may position and resell a portion of the block as principal to facilitate the
      transaction;

    

    -
      purchases by a broker-dealer as principal and resale by the broker-dealer for
      its account;

    

    -
      an
      exchange distribution in accordance with the rules of the applicable
      exchange;

    

    -
      privately negotiated transactions;

    

    -
      short
      sales effected after the date the registration statement of which this
      Prospectus is a part is declared effective by the SEC;

    

    -
      through
      the writing or settlement of options or other hedging transactions, whether
      through an options exchange or otherwise;

    

    -
      broker-dealers may agree with the selling stockholders to sell a specified
      number of such shares at a stipulated price per share;

    

    -
      a
      combination of any such methods of sale; and

    

    -
      any
      other method permitted pursuant to applicable law.

    

    The
      selling stockholders may, from time to time, pledge or grant a security interest
      in some or all of the shares of common stock owned by them and, if they default
      in the performance of their secured obligations, the pledgees or secured parties
      may offer and sell the shares of common stock, from time to time, under this
      prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
      other applicable provision of the Securities Act amending the list of selling
      stockholders to include the pledgee, transferee or other successors in interest
      as selling stockholders under this prospectus. The selling stockholders also
      may
      transfer the shares of common stock in other circumstances, in which case the
      transferees, pledgees or other successors in interest will be the selling
      beneficial owners for purposes of this prospectus.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    In
      connection with the sale of our common stock or interests therein, the selling
      stockholders may enter into hedging transactions with broker-dealers or other
      financial institutions, which may in turn engage in short sales of the common
      stock in the course of hedging the positions they assume. The selling
      stockholders may also sell shares of our common stock short and deliver these
      securities to close out their short positions, or loan or pledge the common
      stock to broker-dealers that in turn may sell these securities. The selling
      stockholders may also enter into option or other transactions with
      broker-dealers or other financial institutions or the creation of one or more
      derivative securities which require the delivery to such broker-dealer or other
      financial institution of shares offered by this prospectus, which shares such
      broker-dealer or other financial institution may resell pursuant to this
      prospectus (as supplemented or amended to reflect such
      transaction).

    

    The
      aggregate proceeds to the selling stockholders from the sale of the common
      stock
      offered by them will be the purchase price of the common stock less discounts
      or
      commissions, if any. Each of the selling stockholders reserves the right to
      accept and, together with their agents from time to time, to reject, in whole
      or
      in part, any proposed purchase of common stock to be made directly or through
      agents. We will not receive any of the proceeds from this offering. Upon any
      exercise of the warrants by payment of cash, however, we will receive the
      exercise price of the warrants.

    

    The
      selling stockholders also may resell all or a portion of the shares in open
      market transactions in reliance upon Rule 144 under the Securities Act of 1933,
      provided
      that
      they meet the criteria and conform to the requirements of that
      rule.

    

    The
      selling stockholders and any underwriters, broker-dealers or agents that
      participate in the sale of the common stock or interests therein may be
      "underwriters" within the meaning of Section 2(11) of the Securities Act. Any
      discounts, commissions, concessions or profit they earn on any resale of the
      shares may be underwriting discounts and commissions under the Securities Act.
      Selling stockholders who are "underwriters" within the meaning of Section 2(11)
      of the Securities Act will be subject to the prospectus delivery requirements
      of
      the Securities Act.

    

    To
      the
      extent required, the shares of our common stock to be sold, the names of the
      selling stockholders, the respective purchase prices and public offering prices,
      the names of any agents, dealer or underwriter, any applicable commissions
      or
      discounts with respect to a particular offer will be set forth in an
      accompanying prospectus supplement or, if appropriate, a post-effective
      amendment to the registration statement that includes this
      prospectus.

    

    In
      order
      to comply with the securities laws of some states, if applicable, the common
      stock may be sold in these jurisdictions only through registered or licensed
      brokers or dealers. In addition, in some states the common stock may not be
      sold
      unless it has been registered or qualified for sale or an exemption from
      registration or qualification requirements is available and is complied
      with.

    

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

    We
      have
      advised the selling stockholders that the anti-manipulation rules of Regulation
      M under the Exchange Act may apply to sales of shares in the market and to
      the
      activities of the selling stockholders and their affiliates. In addition, we
      will make copies of this prospectus (as it may be supplemented or amended from
      time to time) available to the selling stockholders for the purpose of
      satisfying the prospectus delivery requirements of the Securities Act. The
      selling stockholders may indemnify any broker-dealer that participates in
      transactions involving the sale of the shares against certain liabilities,
      including liabilities arising under the Securities Act.

    

    We
      have
      agreed to indemnify the selling stockholders against liabilities, including
      liabilities under the Securities Act and state securities laws, relating to
      the
      registration of the shares offered by this prospectus.

    

    We
      have
      agreed with the selling stockholders to keep the registration statement of
      which
      this prospectus constitutes a part effective until the earlier of (1) such
      time
      as all of the shares covered by this prospectus have been disposed of pursuant
      to and in accordance with the registration statement or (2) the date on which
      the shares may be sold pursuant to Rule 144(k) of the Securities
      Act.

    
      

      
        
          
          

        

        
          -15-

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