Document:

Exhibit
      10.1

    

    ALTEON
      INC.

    

    CONVERTIBLE
      NOTE AND WARRANT PURCHASE AGREEMENT

    

    

    

    January
      11, 2007

    

    Alteon
      Inc.

    6
      Campus
      Drive

    Parsippany,
      NJ 07054

    

    Ladies
      and Gentlemen:

     

    1. Purchase
      and Sale.
      On the
      Closing Date (as defined herein), each of the undersigned (each a “Lender”
and,
      collectively, the “Lenders”),
      hereby agrees to purchase from Alteon Inc., a Delaware corporation (the
“Company”),
      a
      Senior Convertible Secured Promissory Note, in the form attached hereto as
      Exhibit
      A
      (each, a
“Convertible
      Note”
and,
      collectively, the “Convertible
      Notes”),
      in
      the principal amount set forth opposite such Lender’s
      name
      on Schedule
      A,
      and a
      warrant in the form attached hereto as Exhibit
      B
      (each a
“Warrant”
and
      collectively the “Warrants”,
      and
      together with the Convertible Notes, the “Securities”),
      to
      purchase the number of shares of common stock, $0.01 par value per share, of
      the
      Company (“Common
      Stock”),
      set
      forth opposite such Lender’s name on Schedule
      A.

     

    2. Closing
      Date and Payment.
      The
      closing (the “Closing”)
      of the
      purchase and sale of the Securities shall take place at the offices of the
      Company at 10:00 a.m. on the date hereof (the “Closing
      Date”).
      At
      the
      Closing, subject to the terms and conditions contained in this Agreement, each
      Lender shall deliver to the Company by check or by wire transfer the aggregate
      purchase price for its Securities in exchange for the Securities to be issued
      to
      such Lender.

     

    3. Representations
      and Warranties of each Lender.
      Each
      Lender hereby acknowledges, represents, warrants and/or agrees as
      follows:

     

    (a) Neither
      the sale of the Securities nor the issuance of the shares of capital stock
      upon
      conversion or exercise thereof or upon conversion, if applicable, of such
      capital stock (collectively, such shares are referred to herein as the
“Conversion
      Securities”)
      has
      been registered under the Securities Act of 1933, as amended, or any successor
      statute (the “Securities
      Act”),
      or
      any state securities laws. The Lender understands that the offering and sale
      of
      the Securities is intended to be exempt from registration under the Securities
      Act, by virtue of Section 4(2) and/or Section 4(6) of the Securities Act and
      the
      provisions of Regulation D promulgated thereunder;

     

    
      
         

      

      
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    (b) The
      Lender is acquiring the Securities solely for its own account for investment
      and
      not with a view to resale or distribution and has no present intention of
      transferring the Securities to any other person or entity;

     

    (c) The
      Lender is an “accredited investor” as that term is defined in Rule 501 of
      Regulation D under the Securities Act;

     

    (d) The
      Lender is a sophisticated investor and has such knowledge and experience in
      financial, tax, and business matters, including, without limitation, experience
      in investments by actual participation, so as to enable it to utilize the
      information made available to it in connection with the offering of the
      Securities, to evaluate the merits and risks of an investment in the Securities
      and to make an informed investment decision with respect thereto;

     

    (e) The
      Lender is either a natural person or an entity which was not formed for the
      specific purpose of acquiring the Securities. With respect to any entity-Lender,
      the execution, delivery and performance of this Agreement by the Lender have
      been duly authorized and the Agreement is a valid and legally binding agreement
      of the Lender;

     

    (f) The
      Lender has received all documents requested by the Lender regarding the Company
      and has reviewed them and believes it is well-informed about the
      Company;

     

    (g) The
      Lender acknowledges that neither the U.S. Securities and Exchange Commission
      (“SEC”)
      nor
      any U.S. state or foreign securities commission has approved the Securities
      or
      any of the Conversion Securities or passed upon or endorsed the merits of the
      offering;

     

    (h) The
      Lender is aware that an investment in the Securities involves a number of very
      significant risks;

     

    (i) The
      Lender must bear the economic risk of the investment indefinitely because none
      of the Securities or Conversion Securities may be sold, hypothecated or
      otherwise disposed of unless subsequently registered under the Securities Act
      and applicable state securities laws or an exemption from registration is
      available. Legends shall be placed on the Securities and Conversion Securities
      to the effect that they have not been registered under the Securities Act or
      applicable state securities laws and of the resulting limitations on transfer
      and that appropriate notations thereof will be made in the Company’s books and
      stock transfer records;

     

    (j) The
      aggregate purchase price of the Securities does not exceed twenty percent (20%)
      of the investor’s net worth;

     

    (k) The
      Lender has taken no action which would give rise to any claim by any person
      for
      brokerage commission, finders’ fees or the like relating to this Agreement or
      the transactions contemplated hereby; and

     

    
      
         

      

      
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    (l) The
      information contained herein is accurate and may be relied upon by the Company
      in determining the availability of an exemption from registration under Federal
      and state securities laws in connection with the offering of the Securities
      and
      Conversion Securities.

     

    4. Representations
      and Warranties of the Company.
      The
      Company hereby acknowledges, represents, warrants and/or agrees as
      follows:

     

    (a) Organization,
      Standing and Qualification of the Company.
      The
      Company is a corporation duly organized, validly existing and in good standing
      under the laws of the State of Delaware. The Company has all requisite corporate
      power and authority to own and operate its properties and to carry on its
      business as now being conducted and as proposed to be conducted. The Company
      is
      duly qualified to do business as a foreign corporation and is in good standing
      in each jurisdiction in which failure to so qualify would materially and
      adversely affect the business, properties, operations or condition, financial
      or
      otherwise, of the Company. The resolutions adopted by the directors of the
      Company on January 5, 2007 authorizing the transactions contemplated by this
      Agreement have not been amended or modified in any way, have not been rescinded
      and are in full force and effect on the date hereof.

     

    (b) Corporate
      Authority; Enforceability.
      The
      Company has full right, power and authority to issue and sell the Securities
      as
      herein contemplated and the Company has full power and authority to enter into
      and perform its obligations under this Agreement, the Securities, the Security
      Agreement (defined in Section 7(a)), the Intellectual Property Security
      Agreement (defined in Section 7(a)) and the Registration Rights Agreement
      (defined in Section 7(a)). The execution and delivery of this Agreement, the
      Securities, the Security Agreement, the Intellectual Property Security Agreement
      and the Registration Rights Agreement by the Company and the consummation of
      the
      transactions contemplated herein and therein have been duly authorized and
      approved by all requisite corporate action, and each of this Agreement, the
      Securities, the Security Agreement, the Intellectual Property Security Agreement
      and the Registration Rights Agreement are a valid and legally binding obligation
      of the Company; provided,
      however,
      that
      (i) the conversion of the Convertible Notes may require approval of the
      Company’s stockholders under the applicable rules of the American Stock
      Exchange, which approval has not been obtained and (ii) insofar as any
      foreclosure on the collateral under the Security Agreement would constitute
      a
      sale of all or substantially all of the Company’s assets requiring stockholder
      approval, such stockholder approval has not been obtained. 

     

    (c) Conflicts.
      Subject
      to Section 4(b)(i) and (ii) above, neither the authorization, execution and
      delivery of this Agreement, the Securities, the Security Agreement, the
      Intellectual Property Security Agreement and the Registration Rights Agreement
      nor the consummation of the transactions herein and therein contemplated, will
      (i) conflict with or result in a breach of any of the terms of the Company’s
      Certificate of Incorporation or By-Laws, (ii) violate any judgment, order,
      injunction, decree or award of any court or governmental body, having
      jurisdiction over the Company, against or binding on the Company or to which
      its
      property is subject, (iii) violate any material law or regulation of any
      jurisdiction which is applicable to the Company, (iv) violate, conflict with
      or
      result in the breach or termination of, or constitute a default under, the
      terms
      of any material agreement to which the Company is a party, except for such
      violations or defaults which do not materially and adversely affect the
      business, assets, operations or financial condition of the Company, or (v)
      violate or conflict with the rules and regulations of the American Stock
      Exchange applicable to the Company.

     

    
      
         

      

      
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    (d) Capitalization.
      The
      capitalization of the Company is as set forth on Schedule
      4(d)
      attached
      hereto. The Company has not issued any capital stock since its most
      recently filed periodic report under the Securities Exchange Act of 1934, as
      amended (the “Exchange
      Act”),
      other
      than pursuant to the exercise of employee stock options under the Company’s
      stock option plans and the issuance of shares of Common Stock to employees
      pursuant to the Company’s employee stock purchase plan outstanding as of the
      date of the most recently filed periodic report under the Exchange Act. All
      of
      the outstanding shares of capital stock of the Company are validly issued,
      fully
      paid and nonassessable. No further approval or authorization of any stockholder
      or the Board of Directors of the Company is required for the issuance and sale
      of the Securities, the Conversion Securities issuable upon exercise of the
      Warrants or, except as described in Section 4(b)(i) above, the Conversion
      Securities issuable upon conversion of the Convertible Notes. The issuance
      of
      the Securities pursuant to the provisions of this Agreement will not violate
      any
      preemptive rights or rights of first refusal granted by the Company that will
      not be validly waived or complied with, and will be free of any liens or
      encumbrances, other than any liens or encumbrances created by or imposed upon
      the Lenders through no action of the Company. There are no stockholders
      agreements, voting agreements or other similar agreements with respect to the
      Company’s capital stock to which the Company is a party or, to the knowledge of
      the Company, between or among any of the Company’s stockholders. 

     

    

    (e) Litigation.
      There
      are no actions, suits or proceedings at law or in equity or by or before any
      governmental instrumentality or other agency or regulatory authority now
      pending, or, to the best knowledge of the Company, threatened against the
      Company which, if adversely determined, could materially and adversely affect
      the business, assets, operations or condition, financial or otherwise, of the
      Company. There is no action, suit or proceeding by the Company currently pending
      or that the Company currently intends to initiate.

     

    (f) Compliance
      with Laws.
      The
      Company is not in violation of any statute, law, rule or regulation, or in
      default with respect to any judgment, writ, injunction, decree, rule or
      regulation of any court or governmental agency or instrumentality, except for
      such violations or defaults which do not materially and adversely affect the
      business, assets, operations or condition, financial or otherwise, of the
      Company.

     

    
      
         

      

      
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    (g) Governmental
      Consents.
      Subject
      to the accuracy of the representations and warranties of the Lenders set forth
      herein, no registration or filing with, or consent or approval of or other
      action by, any Federal, state or other government agency under laws and
      regulations thereof as now in effect is or will be necessary for the valid
      execution, delivery and performance by the Company of this Agreement, the
      Security Agreement, the Intellectual Property Security Agreement and the
      Registration Rights Agreement, and the issuance, sale and delivery of the
      Securities, other than the filing of a Form D with the SEC and the filings
      required by state securities law.

     

    (h) Title.
      The
      Company has good and marketable title in fee simple to all real property and
      good and marketable title to all personal property owned by it which is material
      to the business of the Company, in each case free and clear of all liens,
      encumbrances and defects except such as do not materially affect the value
      of
      such property and do not interfere with the use made and proposed to be made
      of
      such property by the Company. Any real property and facilities held under lease
      by the Company are held by it under valid, subsisting and enforceable leases
      with such exceptions as are not material and do not interfere with the use
      made
      and proposed to be made of such property and buildings by the
      Company. 

     

    (i) Regulatory
      Matters.
      The
      clinical, pre-clinical and other trials, studies and tests conducted by or
      on
      behalf of or sponsored by the Company relating to its pharmaceutical product
      candidates were and, if still pending, are being conducted in all material
      respects in accordance with medical and scientific protocols and research
      procedures that the Company reasonably believes are appropriate. The
      descriptions of the results of such trials, studies and tests as set forth
      in
      the SEC Documents (as defined in Section 4(k)), provided to the Lenders are
      accurate in all material respects and fairly present the data derived from
      such
      trials, studies and tests. The Company has operated and currently is in
      compliance in all material respects with applicable statutes and implementing
      regulations administered or enforced by the United States Food and Drug
      Administration (“FDA”).
      Except as set forth in the SEC Documents, the Company has not received any
      warning letters or written correspondence from the FDA and/or any other
      governmental entity requiring the termination, suspension or modification of
      any
      clinical, pre-clinical and other trials, studies or tests that are material
      to
      the Company. The Company has submitted to the FDA an Investigational New Drug
      Application or amendment or supplement thereto for all clinical trials it has
      conducted or sponsored or is conducting or sponsoring with respect to its
      product candidates termed “Alagebrium” and “ALT-2074” (the “Specified
      Candidates”),
      and
      all such submissions were in material compliance with applicable laws and rules
      and regulations when submitted and no material deficiencies are presently being
      asserted by the FDA with respect to any such submissions. None of the clinical
      trials that the Company is currently conducting or sponsoring or intends to
      conduct or sponsor with respect to the Specified Candidates is subject to any
      temporary or permanent clinical hold by the FDA or any other government agency,
      and the Company has no reason to believe that such clinical trials will be
      subject to any such action.

     

    
      
         

      

      
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    (j) Material
      License Agreements.
      Each of
      the Material License Agreements (as defined below) is in full force and effect,
      and neither the Company nor, to its knowledge, the licensor, is in breach of
      any
      Material License Agreement and the Company is aware of no circumstances or
      grounds that would reasonably be expected to give rise to a claim of material
      breach or right of rescission, termination, revision, or amendment of any
      Material License Agreement. Any consent of the licensor required pursuant to
      any
      Material License Agreement in connection with the transactions contemplated
      by
      this Agreement, the Security Agreement, the Intellectual Property Security
      Agreement and the Registration Rights Agreement has been obtained and is in
      full
      force and effect. As used herein, the term “Material
      License Agreement”
shall
      mean: Exclusive License Agreement dated as of September 28, 2004 by and between
      Oxis International, a Delaware corporation, and HaptoGuard, as amended on March
      22, 2005 and further amended on July 19, 2006; and License and Research
      Agreement dated as of July 12, 2004 by and between BIO-RAP Technologies, Ltd.,
      an Israeli corporation, on its own behalf and on behalf of the Rappaport Family
      Institute for Research in the Medical Sciences, and HaptoGaurd. 

     

    (k) SEC
      Documents; Financial Statements.
      During
      the two (2) years prior to the date hereof, the Company has filed all
      reports, schedules, forms, statements and other documents required to be filed
      by it with the SEC pursuant to the reporting requirements of the Exchange Act
      (all of the foregoing filed prior to the date hereof and all exhibits included
      therein and financial statements, notes and schedules thereto and documents
      incorporated by reference therein being hereinafter referred to as the
“SEC
      Documents”).
      The
      Company has delivered to the Lenders or their respective representatives true,
      correct and complete copies of each of the SEC Documents not available on the
      Electronic Data Gathering, Analysis, and Retrieval system of the SEC
      (“EDGAR”)
      that
      have been requested by each Lender. As of their respective dates, the SEC
      Documents complied as to form in all material respects with the requirements
      of
      the Exchange Act and the rules and regulations of the SEC promulgated thereunder
      applicable to the SEC Documents, and none of the SEC Documents, at the time
      they
      were filed with the SEC, contained any untrue statement of a material fact
      or
      omitted to state a material fact required to be stated therein or necessary
      in
      order to make the statements therein, in the light of the circumstances under
      which they were made, not misleading. As of their respective dates, the
      financial statements of the Company included in the SEC Documents complied
      as to
      form in all material respects with applicable accounting requirements and the
      published rules and regulations of the SEC with respect thereto as in effect
      as
      of the time of filing. Such financial statements have been prepared in
      accordance with generally accepted accounting principles (“GAAP”),
      consistently applied, during the periods involved (except (i) as may be
      otherwise indicated in such financial statements or the notes thereto, or
      (ii) in the case of unaudited interim statements, to the extent they may
      exclude footnotes or may be condensed or summary statements) and fairly present
      in all material respects the financial position of the Company as of the dates
      thereof and the results of its operations and cash flows for the periods then
      ended (subject, in the case of unaudited statements, to normal year-end audit
      adjustments). The Company has no liabilities or obligations required to be
      disclosed in the SEC Documents that are not so disclosed in the SEC Documents,
      other than those incurred in the ordinary course of the Company’s business. The
      information contained in the Company’s interim balance sheet as of November 30,
      2006 is true and correct in all material respects.

     

    
      
         

      

      
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    (l) Sarbanes-Oxley;
      Internal Accounting Controls.
      Except
      as set forth in Part I - Item 4 of the Company’s Quarterly Report on Form 10-Q
      for the quarter ended September 30, 2006 SEC Documents (the “Specified
      Weakness”),
      the
      Company is in material compliance with all provisions of the Sarbanes-Oxley
      Act
      of 2002 which are applicable to it as of the Closing Date. The Company is taking
      all reasonable measures to implement remedial controls to address the Specified
      Weakness. The Company maintains a system of internal accounting controls
      sufficient to provide reasonable assurance that (i) transactions are executed
      in
      accordance with management’s general or specific authorizations, (ii)
      transactions are recorded as necessary to permit preparation of financial
      statements in conformity with GAAP and to maintain asset accountability, (iii)
      access to assets is permitted only in accordance with management’s general or
      specific authorization, and (iv) the recorded accountability for assets is
      compared with the existing assets at reasonable intervals and appropriate action
      is taken with respect to any differences. The Company has established disclosure
      controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
      15d-15(e)) for the Company and designed such disclosure controls and procedures
      to ensure that information required to be disclosed by the Company in the
      reports it files or submits under the Exchange Act is recorded, processed,
      summarized and reported, within the time periods specified in the Commission’s
      rules and forms. The Company’s certifying officers have evaluated the
      effectiveness of the Company’s disclosure controls and procedures as of the end
      of the period covered by the Company’s most recently filed periodic report under
      the Exchange Act (such date, the “Evaluation
      Date”).
      The
      Company presented in its most recently filed periodic report under the Exchange
      Act the conclusions of the certifying officers about the effectiveness of the
      disclosure controls and procedures based on their evaluations as of the
      Evaluation Date. Since the Evaluation Date, there have been no changes in the
      Company’s internal control over financial reporting (as such term is defined in
      the Exchange Act) that has materially affected, or is reasonably likely to
      materially affect, the Company’s internal control over financial
      reporting.

     

    
      
         

      

      
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    (m) Absence
      of Changes.
      Except
      as disclosed in Schedule 4(m),
      since
      September 30, 2006, and except as otherwise disclosed in the SEC Documents,
      the
      Company has not (i) declared or paid any dividends, (ii) sold any
      assets, individually or in the aggregate, in excess of One Hundred Thousand
      Dollars ($100,000) outside of the ordinary course of business, or (iii) had
      capital expenditures, individually or in the aggregate, in excess of One Hundred
      Thousand Dollars ($100,000). During the two (2) years prior to the date hereof,
      except as disclosed in the SEC Documents (i) the Common Stock has been
      designated for quotation on the American Stock Exchange, (ii) trading in
      the Common Stock has not been suspended by the SEC or the American Stock
      Exchange and (iii) the Company has received no communication, written or
      oral, from the SEC or the American Stock Exchange regarding the suspension
      or
      delisting of the Common Stock from the American Stock Exchange.  The
      Company has not taken any steps to seek protection pursuant to any bankruptcy
      law nor does the Company have any knowledge or reason to believe that its
      creditors intend to initiate involuntary bankruptcy proceedings or any actual
      knowledge of any fact which would reasonably lead any creditor or creditors
      having claims individually or in the aggregate in excess of One Hundred Thousand
      Dollars ($100,000) to do so. Based on the financial condition of the Company
      as
      of the Closing, after giving effect to the receipt by the Company of the
      proceeds from the transactions contemplated hereby, the Company reasonably
      believes that (i) the fair saleable value of the Company’s assets exceeds the
      amount that will be required to be paid on or in respect of the Company’s
      existing debts and other liabilities (including, without limitation, known
      contingent liabilities and the principal and interest on the Convertible Notes)
      as they mature; (ii) the Company’s assets do not constitute unreasonably small
      capital to carry on its business as now conducted and as proposed to be
      conducted including its capital needs taking into account the particular capital
      requirements of the business conducted by the Company, and projected capital
      requirements and capital availability thereof; and (iii) the current cash flow
      of the Company, together with the proceeds the Company would receive, were
      it to
      liquidate all of its assets, after taking into account all anticipated uses
      of
      the cash, would be sufficient to pay all amounts on or in respect of its
      liabilities when such amounts are required to be paid, including, without
      limitation, with respect to the principal and interest on the Convertible Notes.
      The Company does not intend to incur debts beyond its ability to pay such debts
      as they mature (taking into account the timing and amounts of cash to be payable
      on or in respect of its debt). The SEC Documents set forth as of the dates
      thereof all outstanding secured and unsecured Indebtedness of the Company or
      any
      Subsidiary, or for which the Company or any Subsidiary has commitments. For
      the
      purposes of this Agreement, “Indebtedness”
shall
      mean (a) any liabilities for borrowed money or amounts owed (other than trade
      accounts payable incurred in the ordinary course of business), (b) all
      guaranties, endorsements and other contingent obligations in respect of
      Indebtedness of others, whether or not the same are or should be reflected
      in
      the Company’s balance sheet (or the notes thereto), except guaranties by
      endorsement of negotiable instruments for deposit or collection or similar
      transactions in the ordinary course of business; and (c) the present value
      of
      any lease payments due under leases required to be capitalized in accordance
      with GAAP. Neither the Company nor any Subsidiary is in default with respect
      to
      any Indebtedness.

     

    
      
         

      

      
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    (n) Patents
      and Trademarks.
      The
      Company has rights to use all patents, patent applications, trademarks,
      trademark applications, service marks, trade names, trade secrets, inventions,
      copyrights, licenses and other intellectual property rights and similar rights
      necessary or material for use in connection with its business as described
      in
      the SEC Documents and which the failure to so have would have a material adverse
      effect on the results of operations, assets, business, or condition (financial
      or otherwise) of the Company (collectively,
      the “Intellectual
      Property Rights”).
      The
      Company has not received any notice (written or otherwise) that the Intellectual
      Property Rights used by the Company violate or infringe upon the rights of
      any
      other person or entity. To the knowledge of the Company, all such Intellectual
      Property Rights are enforceable and there is no existing infringement by another
      person or entity of any of the Intellectual Property Rights. The Company has
      taken reasonable security measures to protect the secrecy, confidentiality
      and
      value of all of its Intellectual Property Rights.

     

    (o) Labor
      Relations.
      No
      material labor dispute exists or, to the knowledge of the Company, is imminent
      with respect to any of the employees of the Company which could reasonably
      be
      expected to result in a material adverse effect on the results of operations,
      assets, business, prospects or condition (financial or otherwise) of the
      Company. To the knowledge of the Company, no executive officer is, or is now
      expected to be, in violation of any material term of any employment contract,
      confidentiality, disclosure or proprietary information agreement or
      non-competition agreement, or any other contract or agreement or any restrictive
      covenant, and the continued employment of each such executive officer does
      not
      subject the Company to any liability with respect to any of the foregoing
      matters. The Company is in compliance with all U.S. federal, state, local and
      foreign laws and regulations relating to employment and employment practices,
      terms and conditions of employment and wages and hours, except where the failure
      to be in compliance could not, individually or in the aggregate, reasonably
      be
      expected to have a material adverse effect on the results of operations, assets,
      business, prospects or condition (financial or otherwise) of the
      Company.

     

    (p) Offering.
      Assuming the accuracy of the representations and warranties of the Lenders
      contained in Section 3 hereof, the offer, issue, and sale of the Securities
      and Conversion Securities are exempt from the registration and prospectus
      delivery requirements of the Securities Act and the registration or
      qualification requirements of all applicable state securities laws.
      Neither
      the Company nor any authorized agent acting on its behalf will knowingly take
      any action hereafter that would cause the loss of such exemptions.

     

    (q) Acknowledgment.
      The
      Company acknowledges and agrees that each Lender is acting solely in the
      capacity of an arm’s length purchaser with respect to the Securities and the
      transactions contemplated hereby and thereby and that no Lender is (i) an
      officer or director of the Company, (ii) an “affiliate” of the Company (as
      defined in Rule 144 of the Securities Act) or (iii) to the knowledge of the
      Company, a “beneficial owner” of more than 10% of the shares of Common Stock (as
      defined for purposes of Rule 13d-3 of the Exchange Act). The Company further
      acknowledges that no Lender is acting as a financial advisor or fiduciary of
      the
      Company (or in any similar capacity) with respect to this Agreement and the
      transactions contemplated hereby, and any advice given by any Lender or any
      of
      its representatives or agents in connection with this Agreement and the
      transactions contemplated hereby is merely incidental to such Lender’s purchase
      of the Securities. The Company further represents to each Lender that the
      Company’s decision to enter into this Agreement, the Security Agreement, the
      Intellectual Property Security Agreement and the Registration Rights Agreement
      and issue the Securities has been based solely on the independent evaluation
      by
      the Company and its representatives.

     

    
      
         

      

      
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    (r) No
      General Solicitation; Placement Agent’s Fees.
      Neither
      the Company, nor any of its affiliates, nor any person acting on its or their
      behalf, has engaged in any form of general solicitation or general advertising
      (within the meaning of Regulation D of the Securities Act) in connection with
      the offer or sale of the Securities. The Company shall be responsible for the
      payment of any placement agent’s fees, financial advisory fees, or brokers’
commissions (other than for persons engaged by any Lender or its investment
      advisor) relating to or arising out of the transactions contemplated hereby.
      The
      Company shall pay, and hold each Lender harmless against, any liability, loss
      or
      expense (including, without limitation, attorney’s fees and out-of-pocket
      expenses) arising in connection with any such claim. The Company acknowledges
      that it has engaged Rodman & Renshaw, LLC as placement agent (the
“Agent”)
      in
      connection with the sale of the Securities. Other than the Agent, the Company
      has not engaged any placement agent or other agent in connection with the sale
      of the Securities.

     

    (s) No
      Integrated Offering.
      Neither
      the Company nor any person acting on its behalf has, directly or indirectly,
      made any offers or sales of any security or solicited any offers to buy any
      security, under circumstances that would require registration of any of the
      Securities under the Securities Act or cause this offering of the Securities
      to
      be integrated with prior offerings by the Company for purposes of the Securities
      Act or any applicable shareholder approval provisions, including, without
      limitation, under the rules and regulations of the American Stock Exchange
      or
      any other exchange or automated quotation system on which any of the securities
      of the Company are listed or designated. 

     

    (t) Application
      of Takeover Protections; Rights Agreement.
      The
      Company and its Board of Directors have taken all necessary action, if any,
      in
      order to render inapplicable any control share acquisition, business
      combination, poison pill (including any distribution under that certain
      Stockholders’ Rights Agreement, dated as of July 27, 1995, between the Company
      and Registrar and Transfer Company, as amended, and any other rights agreement)
      or other similar anti-takeover provision under the Certificate of Incorporation
      or the laws of the jurisdiction of its formation which is or could become
      applicable to (i) any Lender as a result of the transactions contemplated by
      this Agreement, including, without limitation, the Company’s issuance of the
      Securities and any Lender’s ownership of the Securities and (ii) the Lenders and
      their affiliates for a period of not less than five (5) years after the Closing
      Date.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    (u) Form
      S-3 Eligibility.
      The
      Company meets the eligibility requirements set forth in the SEC’s Form S-3
      promulgated under the Securities Act for the registration of the Conversion
      Shares for resale by the Lenders.

     

    (v) Registration
      Rights.
      Except
      as set forth on Schedule
      4(v),
      and
      except for such rights as have previously be satisfied, other than each of
      the
      Lenders, no person or entity has any right to cause the Company to effect the
      registration under the Securities Act of any securities of the
      Company.

     

    (w) Manipulation
      of Price.
      The
      Company has not, and to its knowledge no one acting on its behalf has, (i)
      taken, directly or indirectly, any action designed to cause or to result in
      the
      stabilization or manipulation of the price of any security of the Company to
      facilitate the sale or resale of any of the Securities, (ii) other than the
      Agent, sold, bid for, purchased, or paid any compensation for soliciting
      purchases of, any of the Securities, or (iii) other than the Agent, paid or
      agreed to pay to any person any compensation for soliciting another to purchase
      any other securities of the Company.

     

    (x) Disclosure.
      All
      disclosure provided to the Lenders with regard to the representations and
      warranties contained in this Section 4 regarding the Company, its business
      and
      the transactions contemplated hereby, furnished in writing by Company is true
      and correct in all material respects and does not contain any untrue statement
      of a material fact or omit to state any material fact necessary in order to
      make
      the statements made therein, in the light of the circumstances under which
      they
      were made, not misleading.

     

    (y) Alagebrium.
      The
      Company owns the rights, including all Intellectual Property Rights, to its
      product candidate alagebrium free and clear of any license held by third parties
      and has the ability to assign its rights therein, including pursuant to the
      Security Agreement and the Intellectual Property Security Agreement, without
      the
      consent of any third party. 

     

    5. Affirmative
      Covenants of the Company.
      From
      and after the Closing Date and so long as the Convertible Notes remain
      outstanding, unless it receives the prior written consent of Lenders holding
      a
      majority in principal amount of all then outstanding Convertible Notes to act
      to
      the contrary, the Company shall comply with the following
      covenants:

     

    (a) Financial
      Information.
      The
      Company shall maintain a system of accounting established and administered
      in
      accordance with GAAP consistently applied, and shall set aside on its books,
      all
      such proper reserves as shall be required by GAAP. Any Lender may direct the
      Company by written notice from time to time to provide any or all of the
      following materials or information in which case the Company shall furnish
      such
      materials or information, at the Company’s expense, to such Lender:

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    (i)
       Unless
      otherwise filed and available on the EDGAR system, no later than ninety (90)
      days after the end of each fiscal year, audited consolidated financial
      statements of the Company, together with all notes thereto, prepared in
      reasonable detail in accordance with GAAP, together with an opinion, based
      on an
      audit by independent certified public accountants selected by the Company,
      stating that such financial statements have been so prepared. The consolidated
      financial statements of the Company shall contain a balance sheet as of the
      end
      of such fiscal year and a statement of operations, cash flows and stockholders’
equity for such fiscal year, each setting forth in comparative form the
      corresponding figures for the preceding fiscal year. 

     

    (ii) Subject
      to the prior receipt by the Company of a written Regulation FD-compliant
      confidentiality agreement from the requesting Lender, no later than ninety
      (90)
      days following the first day of each fiscal year of the Company, a budget
      prepared by the Company for each of the four quarters of such fiscal year
      prepared in the same level of detail as prepared for and delivered to the
      Company’s Board of Directors for the Company.

     

    (iii) Unless
      otherwise filed and available on the EDGAR system, no later than forty-five
      (45)
      days after the end of each of the first three fiscal quarters of the Company’s
      fiscal year, the Company’s unaudited consolidated balance sheet as of the end of
      such fiscal quarter and an unaudited consolidated statement of operations and
      cash flows for such fiscal quarter and for the period from the beginning of
      the
      then current fiscal year to the end of such fiscal quarter, setting forth in
      each case, in comparative form, figures for the corresponding periods in the
      preceding fiscal year, all in reasonable detail and prepared in accordance
      with
      GAAP, subject to changes resulting from normal or recurring year-end
      adjustments.

     

    (iv) Subject
      to the prior receipt by the Company of a written Regulation FD-compliant
      confidentiality agreement from the requesting Lender, no later than thirty
      (30)
      days after the end of each calendar month, the Company’s unaudited consolidated
      interim balance sheet as of the end of such month and the related unaudited
      consolidated interim statements of operations and cash flows for such one-month
      period and the portion of the fiscal year through the end of such month, setting
      forth in each case, in comparative form, figures for the corresponding fiscal
      periods in the preceding fiscal year (subject to normal year-end audit
      adjustments and the absence of footnote disclosure).

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    (b) Inspections.
      The
      Company shall, and shall cause its Subsidiaries to, furnish to each Lender
      any
      information which such Lender may from time to time reasonably request
      concerning any covenant, provision or condition of this Agreement, the Security
      Agreement, the Intellectual Property Security Agreement, the Registration Rights
      Agreement or the Securities or any matter in connection with the Company’s
      business and operations. During normal business hours, upon reasonable notice
      from Lenders holding a majority in principal amount of all then outstanding
      Convertible Notes, and without undue interruption of the Company’s business, the
      Company shall permit representatives of each Lender, including each Lender’s
      independent accountants, agents, attorneys, appraisers and any other
      representatives, to visit and inspect any of the Company’s property, including
      its books of account, other books and records, and any facilities or other
      business assets. The
      inspections in accordance
      with the preceding sentence shall be limited to no more than four (4) times
      each
      calendar year, and all out-of-pocket costs and expenses of such inspections
      shall be borne by the applicable Lenders; provided,
      however,
      that
      during any period in which an Event of Default (as such term is defined in
      the
      Convertible Notes) has occurred and is continuing, the number of inspections
      shall not be limited, and the reasonable, documented out-of-pocket
      costs and expenses of the inspections during the period
      in
      which an Event of Default has occurred and is continuing
      shall be
      borne by the Company. The information and access set forth in this Section
      5(b)
      shall in each case be subject to the Company’s prior receipt of a written
      Regulation FD-compliant confidentiality agreement from the requesting
      Lender.

     

    (c) Use
      of
      Proceeds.
      The
      Company shall use the net cash proceeds of the sale of the Securities for
      general corporate and working capital purposes.

     

    (d) Maintenance
      of Corporate Existence and Business.
      The
      Company will take such commercially reasonable action as may from time to time
      be necessary to preserve its corporate existence, rights and franchises,
      maintain its properties in good repair and to comply with the laws of the United
      States and all states and locations in which the Company shall do business
      as
      shall be necessary to permit the Company to conduct its business, and to
      preserve all of its rights, franchises and privileges.

     

    (e) Compliance
      with Laws.
      The
      Company shall comply with applicable laws, rules and regulations of all
      governmental authorities, the violation of which might have a material adverse
      effect upon its business or financial condition.

     

    (f) Payment
      of Taxes.
      The
      Company shall (i) timely file all required tax returns; and (ii) timely pay
      all
      taxes, assessments, and other governmental charges or levies imposed upon it
      or
      upon its income, profits or property, except to the extent the same are being
      contested in good faith and for which adequate reserves under GAAP have been
      established.

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    (g) Insurance.
      The
      Company shall maintain insurance in such amounts and covering such risks as
      are
      usually and customarily carried with respect to the Collateral (as
      such
      term is defined in the Convertible Notes) and any other assets and
      property
      of the Company of a character usually insured by similar entities engaged in
      the
      same or similar businesses as the Company. The Company shall at all times
      maintain insurance against its liability for injury to persons or property,
      which insurance shall be by financially sound and reputable
      insurers.

     

    (h) Subordination.
      All
      existing and hereafter arising Indebtedness of the Company shall be subordinated
      to the Indebtedness and other obligations of the Company under this Agreement
      and the Convertible Notes pursuant to subordination agreements reasonably
      satisfactory in form and substance to the each Lender, in their sole and
      absolute discretion. 

     

    (i) Listing.
      The
      Company shall promptly secure the listing of all of the Registrable Securities
      (as defined in the Registration Rights Agreement) upon each national securities
      exchange and automated quotation system, if any, upon which the Company’s Common
      Stock is then listed (subject to official notice of issuance) and shall maintain
      such listing of all Registrable Securities. The Company shall use commercially
      reasonable efforts to maintain the authorization for listing of the Common
      Stock
      on the American Stock Exchange. The Company shall pay all fees and expenses
      in
      connection with satisfying its obligations under this
      Section 5(i).

     

    (j) Non-Voting
      Observer.
      For
      so
      long as at least 50% of the Convertible Notes remain outstanding, the Lenders
      shall be entitled to designate one non-voting observer (an “Observer”)
      to the
      Board of Directors of the Company (which Observer shall be entitled to have
      expenses reimbursed by the Company as if such Observer were a director of the
      Company). Any person designated as an Observer to the Board of Directors will,
      to the extent permissible under Delaware law, have the right (i) to notice
      of and to be present at all meetings of the Board of Directors and its
      committees and to receive all materials, notices, minutes, consents and forms
      of
      consents in lieu of meetings distributed to the Board of Directors generally
      or
      to members of its committees at or in connection with any such meeting or action
      by written consent in lieu of such meeting, (ii) to have the same
      access to
      which
      directors are entitled under Delaware law to the books and records of, and
      information concerning the business and operations of, the Company and Board
      of
      Directors, (iii)  to be provided with copies of all notices, minutes,
      consents, forms of consents in lieu of meetings and all other materials provided
      to one or more of the directors of the Company (who are not officers or
      employees of the Company), and (iv) to have the same access to all
      information and materials, books and records and employees of the Company as
      may
      be given to any director of the Company (who is not an officer or employee
      of
      the Company);
      provided,
      however,
      that
      the rights granted to the Observer under this Agreement (including the right
      to
      receive all materials, notices, minutes, consents and forms of consents in
      lieu
      of meetings) shall be temporarily suspended if, in the reasonable
      opinion of the Board of Directors, the Observer’s attendance at any such meeting
      or portion thereof (i) relates to a subject matter that may result in a conflict
      of interest between the Company and any holder of Securities, or (ii) otherwise
      could violate the fiduciary duties of the Board of Directors, any
      confidentiality obligations of the Company or any attorney-client privilege
      that
      may exist in connection with such meeting or any portion thereof.
      The
      Board
      of Directors shall not hold informal meetings of the Board of Directors or
      any
      committee thereof (unless the Observer is invited thereto) as a means designed
      to circumvent or having the effect of circumventing the intention that the
      Lenders will have access to the Board of Directors and its committees as
      provided under this Agreement. 

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    (k) Pre-Emptive
      Rights.
      From
      the Closing Date until the later of (a) January 11, 2010, or (b) if issued,
      the
      date on which fewer than 50% of the shares of Preferred Stock initially issued
      in the Preferred Financing (as defined in Section 5(k)) remain outstanding,
      the
      Company shall not directly or indirectly, offer, sell or grant any option to
      purchase (or announce any offer, sale, grant or any option to purchase or other
      disposition of) any Common Stock, Options or Convertible Securities (any such
      offer, sale, grant, disposition or announcement being referred to as a
“Subsequent
      Placement”)
      unless
      the Company shall have first complied with this Section 5(k).

     

    (i) The
      Company shall deliver at least ten (10) days prior to the closing of a
      Subsequent Placement to each Lender a written notice (the “Offer
      Notice”)
      of any
      proposed or intended issuance or sale or exchange (the “Offer”)
      of the
      securities being offered (the “Offered
      Securities”)
      in a
      Subsequent Placement, which Offer Notice shall (A) identify and describe
      the Offered Securities, (B) describe the price and other terms upon which
      they are to be issued, sold or exchanged, and the number or amount of the
      Offered Securities to be issued, sold or exchanged, and (C) offer to issue
      and sell to or exchange with such Lenders at least 50% of the Offered
      Securities, allocated among such Lenders (a) based on such Lender’s pro
      rata portion of the aggregate principal amount of Convertible Notes purchased
      hereunder (the “Basic
      Amount”),
      and
      (b) with respect to each Lender that elects to purchase its Basic Amount,
      any additional portion of the Offered Securities attributable to the Basic
      Amounts of other Lenders as such Lender shall indicate it will purchase or
      acquire should the other Lenders subscribe for less than their Basic Amounts
      (the “Undersubscription
      Amount”).

     

    (ii) To
      accept
      an Offer, in whole or in part, such Lender must deliver a written notice to
      the
      Company prior to the end of the 10th
      business
      day after such Lender’s receipt of the Offer Notice (the “Offer
      Period”),
      setting forth the portion of such Lender’s Basic Amount that such Lender elects
      to purchase and, if such Lender shall elect to purchase all of its Basic Amount,
      the Undersubscription Amount, if any, that such Lender elects to purchase (in
      either case, the “Notice
      of Acceptance”).
      If
      the Basic Amounts subscribed for by all Lenders are less than the total of
      all
      of the Basic Amounts, then each Lender who has set forth an Undersubscription
      Amount in its Notice of Acceptance shall be entitled to purchase, in addition
      to
      the Basic Amounts subscribed for, the Undersubscription Amount it has subscribed
      for; provided,
      however,
      that if
      the Undersubscription Amounts subscribed for exceed the difference between
      the
      total of all the Basic Amounts and the Basic Amounts subscribed for (the
“Available
      Undersubscription Amount”),
      each
      Lender who has subscribed for any Undersubscription Amount shall be entitled
      to
      purchase only that portion of the Available Undersubscription Amount as the
      Basic Amount of such Lender bears to the total Basic Amounts of all Lenders
      that
      have subscribed for Undersubscription Amounts, subject to rounding by the
      Company to the extent its deems reasonably necessary.

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    (iii) The
      Company shall have forty-five (45) days from the expiration of the Offer Period
      above to offer, issue, sell or exchange all or any part of such Offered
      Securities as to which a Notice of Acceptance has not been given by the Lenders
      (the “Refused
      Securities”),
      but
      only upon terms and conditions (including, without limitation, unit prices
      and
      interest rates) that are not more favorable to the acquiring person or persons
      or less favorable to the Company than those set forth in the Offer
      Notice.

     

    (iv) Upon
      the
      closing of the issuance, sale or exchange of all or less than all of the Refused
      Securities, the Lenders shall acquire from the Company, and the Company shall
      issue to the Lenders, the number or amount of Offered Securities specified
      in
      the Notices of Acceptance, as reduced pursuant to Section 5(k)(iii) above
      if the Lenders have so elected, upon the terms and conditions specified in
      the
      Offer. 

     

    (v) Any
      Offered Securities not acquired by the Lenders or other persons in accordance
      with Section 5(k)(iii) above may not be issued, sold or exchanged until
      they are again offered to the Lenders under the procedures specified in this
      Agreement.

     

    (vi) The
      restrictions contained in this Section 5(k) shall not apply to the issuance
      of any Common Stock issued or issuable: (i) under any Approved Stock Plan;
      or (ii) upon conversion of the Convertible Notes or the exercise of the
      Warrants. “Approved
      Stock Plan”
means
      any employee benefit plan which has been approved by the Board of Directors
      and
      stockholders of the Company, pursuant to which the Company’s securities may be
      issued to any employee, officer or director for services provided to the
      Company.

     

    (l) Preferred
      Financing.
      As
      promptly as practical after the Closing Date, and in no event later than March
      31, 2007, each of the Company and the Lenders shall use their respective
      commercially reasonable efforts to negotiate and enter into definitive
      transaction documents pertaining to the transactions (the “Preferred
      Financing”)
      contemplated in that certain Memorandum of Proposed Terms for Private Placement
      of Preferred Stock and Warrants dated as of January 4, 2007 (the “Term
      Sheet”);
      subject in the case of the Lenders to the satisfactory completion of their
      due
      diligence review in their sole discretion. Without limiting the generality
      of
      the foregoing, the Company shall provide each stockholder entitled to vote
      at a
      special or annual meeting of stockholders of the Company (the “Stockholder
      Meeting”),
      which
      shall be promptly called and held not later than April 30, 2007 (which date
      will
      be extended to May 31, 2007) if the SEC reviews and comments on the proxy
      statement relating to the Stockholder Meeting (the “Stockholder
      Meeting Deadline”),
      a
      proxy statement, in a form reviewed and approved by the Lenders soliciting
      each
      such stockholder’s affirmative vote at the Stockholder Meeting for approval of
      the Preferred Financing and the other matters contemplated in the Term Sheet
      in
      accordance with applicable law and the rules and regulations of the American
      Stock Exchange (such affirmative approval being referred to herein as the
“Stockholder
      Approval”),
      and
      the Company shall use its commercially reasonable efforts to solicit its
      stockholders’ approval of such resolutions and to cause the Board of Directors
      of the Company to recommend to the stockholders that they approve such
      resolutions. The Company shall use its commercially reasonable efforts to obtain
      the Stockholder Approval by the Stockholder Meeting Deadline.

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    6. Negative
      Covenants of the Company.
      From
      and after the Closing Date and so long as the Convertible Notes remain
      outstanding, unless it receives the prior written consent of Lenders holding
      a
      majority in principal amount of all then outstanding Convertible Notes to act
      to
      the contrary, the Company shall not:

     

    (a) authorize
      or incur any Indebtedness other than the Convertible Notes contemplated
      hereby;

     

    (b)
       issue
      or
      sell any convertible debt, preferred stock (convertible or otherwise) or any
      other equity or equity-linked security at a price that values the Company’s
      Common Stock at a price less than $0.075 per share (as adjusted for all
      subsequent stock splits, stock dividends, consolidations, recapitalizations
      and
      reorganizations), other than any equity or equity-linked security that is issued
      pursuant to any transaction or transactions contemplated by Section 6(j) hereof
      if the proviso at the end of this Section 6 is satisfied1 ;

     

    (c) increase
      or decrease the authorized number of shares of capital stock of the
      Company;

     

    (d) create
      or
      issue any new class or series of shares having rights, preferences or privileges
      senior to the Common Stock;

     

    (e) pay
      or
      declare any dividends or make other distributions upon its shares of capital
      stock;

     

    
      
        

      

      1 Under
        consideration / to be confirmed.

       

    

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    (f) purchase,
      redeem or otherwise acquire any of the Company’s equity securities (including
      warrants, options and other rights to acquire equity securities) other than
      the
      repurchase of equity securities pursuant to existing agreements disclosed in
      Schedule
      6(f)
      attached
      hereto; 

     

    (g) issue
      any
      equity or equity-linked securities to any employee other that pursuant to the
      Company’s Approved
      Stock Plans;

     

    (h) liquidate
      or dissolve;

     

    (i) merge
      or
      consolidate with another corporation in which the holders of the Company’s
      voting equity securities immediately prior to the transaction would own 50%
      or
      less of the voting securities of the surviving corporation;

     

    (j) sell,
      license or dispose of any material assets of the Company, including intellectual
      property or other rights to the Company’s development stage, pre-clinical and/or
      diagnostic assets, including, without limitation, pursuant to any license,
      development, commercialization, distribution, marketing, co-marketing,
      collaboration, partnering or other agreement, other than licenses of immaterial
      technology in the ordinary course of business on commercially reasonable terms
      and consistent with past practices; 

     

    (k) change
      the authorized number of directors of the Company;

     

    (l) amend
      or
      waive any material provision of the Company’s Certificate of Incorporation or
      By-Laws;

     

    (m) materially
      change the nature of the Company’s business from that engaged in on the date
      hereof; 

     

    (n) intentionally
      take any action which is reasonably likely to result in (i) the Common Stock
      of
      the Company no longer being approved for quotation on the American Stock
      Exchange or the Nasdaq Stock Market or (ii) the Common Stock of the Company
      ceasing to be registered pursuant to Section 12 of the Exchange Act;
      or

     

    (o) agree,
      consent or acquiesce to any amendment, supplement or other modification to,
      or
      termination of, any of its material agreements, including, without limitation
      any Material License Agreement or any other agreement filed with the SEC
      pursuant to Item 601 of Regulation S-K;

     

    provided,
      however,
      that
      the Company shall not be required to obtain the Lenders’ prior written consent
      for any transaction or transactions contemplated by Section 6(i) or 6(j)
      hereof if the proceeds of such transaction or transactions are, at the
      closing thereof, used for the repayment in full of the Convertible Note in
      accordance with its terms, including any amounts required to be paid under
      Section 9 of such Convertible Note.

    

    
      
         

      

      
        18

        
          

        

      

      
         

      

       

    

    
      	 	
              7.

            	
              Conditions
                to Closing.

            

    

     

    (a) Conditions
      to the Lenders’ Obligations.
      Each
      Lender’s obligation to purchase its Securities on the Closing Date is subject to
      the following conditions:

     

    (i) The
      Company’s representations and warranties contained in Section 4 shall be true
      and correct on and as of the Closing Date;

     

    (ii) The
      Company shall deliver to each Lender at the Closing an executed Convertible
      Note
      and Warrant in the forms attached hereto as Exhibit
      A
      and
Exhibit
      B,
      respectively, in the original principal amount and to purchase the number of
      shares of Common Stock, respectively, set forth on Schedule
      A;
      

     

    (iii) The
      Company shall deliver to each Lender at the Closing an executed Security
      Agreement, in the form attached hereto as Exhibit
      C,
      among
      the Company and the collateral agent named therein, as agent for all Lenders
      (the “Collateral
      Agent”),
      to
      secure the Company’s obligations under the Securities (the “Security
      Agreement”);
      

     

    (iv)
       The
      Company shall deliver to each Lender at the Closing an executed Intellectual
      Property Security Agreement, in the form attached hereto as Exhibit
      D,
      among
      the Company and Collateral Agent, to secure the Company’s obligations under the
      Securities (the “Intellectual
      Property Security
      Agreement”);

     

    The
      Company shall deliver to each Lender at the Closing an executed Registration
      Rights Agreement, in the form attached hereto as Exhibit
      E,
      among
      the Company and each of the Lenders, to provide for the registration of the
      Conversion Securities issuable upon conversion of the Warrants (the
“Registration
      Rights Agreement”);
      

     

    (v)
       The
      Company shall deliver a certificate of the Secretary of the Company dated the
      Closing Date, certifying the incumbency and authority of the officers or
      authorized signatories of the Company who execute this Agreement, the Security
      Agreement, the Intellectual Property Security Agreement, the Registration Rights
      Agreement and the Securities and the truth, correctness and completeness of
      the
      following exhibits which shall be attached thereto: (i) a copy of
      resolutions duly adopted by the Board of Directors of the Company, in full
      force
      and effect at the time this Agreement is entered into, authorizing the execution
      of this Agreement, the Security Agreement, the Intellectual Property Security
      Agreement, the Registration Rights Agreement and the Securities and the other
      documents delivered or to be delivered in connection herewith and the
      consummation of the transactions contemplated herein and therein, as applicable,
      (ii) a copy of the Certificate of Incorporation of the Company, and all
      amendments thereto, certified by an appropriate official of the Company’s
      jurisdiction of incorporation, and (iii) a copy of the By-Laws of the
      Company; and

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

    (vi) The
      opinion of Mintz,
      Levin, Cohn, Ferris, Glovsky and Popeo, P.C.,
      counsel
      to the Company, dated the Closing Date, and in the form attached hereto as
      Exhibit F,
      subject
      only to such qualifications, limitations or exceptions as may be acceptable
      to
      each Lender.

     

    (b) Conditions
      to the Company’s Obligations.
      The
      Company’s obligation to issue the Securities to each Lender on the Closing Date
      is subject to the following conditions:

     

    (i) The
      Lender’s representations and warranties contained in Section 3 shall be true and
      correct on and as of the Closing Date; and

     

    (ii) The
      Lender shall have delivered to the Company the aggregate purchase price for
      the
      Securities being purchased by it hereunder.

     

    8. Binding
      Effect.
      This
      Agreement shall be binding upon and inure to the benefit of the parties hereto
      and their heirs, executors, administrators, successors, legal representatives,
      and permitted assigns.

     

    9. Amendment.
      The
      terms of this Agreement shall not be amended or modified except by a writing
      signed by the Company and holders of a majority in principal amount of the
      then
      outstanding Convertible Notes; provided,
      however,
      that if
      there are no Convertible Notes then outstanding, this Agreement shall not be
      amended or modified except by a writing signed by the Company and the Collateral
      Agent.

     

    10. Notices.
      All
      notices, requests, consents and other communications hereunder shall be in
      writing, shall be addressed to the receiving party’s address set forth below or
      to such other address as a party may designate by notice hereunder, and shall
      be
      either (i) delivered by hand, (ii) sent
      by
      overnight courier, with receipt acknowledgment, or (iii) sent by certified
      mail, return receipt requested, postage prepaid.

     

    If
      to a
      Lender:   To
      its
      address set forth on Schedule
      A:

     

    If
      to the
      Company: Alteon
      Inc.

    6
      Campus
      Drive

    Parsippany,
      NJ 07054

    Fax:
      (201) 934-8880

    Attn:
      Noah Berkowitz, President

     

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

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

    One
      Financial Center

    Boston,
      MA 02111     

    Fax:
      (617) 542-2241

    Attn:
      William T. Whelan, Esq.

     

    All
      notices, requests, consents and other communications hereunder shall be deemed
      to have been given (i) if by hand, at the time of the delivery thereof to
      the receiving party at the address of such party set forth above, (ii) if
      made by telecopy or facsimile transmission, at the time that receipt thereof
      has
      been acknowledged by electronic confirmation or otherwise, (iii) if sent by
      overnight courier, on the next business day (or if sent overseas, on the second
      business day) following the day such notice is delivered to the courier service,
      or (iv) if sent by certified mail, on the 5th business day (or if sent
      overseas, on the 10th business day) following the day such mailing is
      made.

     

    11. Assignability.
      This
      Agreement and the rights, interests and obligations hereunder are not
      transferable or assignable by the Lenders, except in connection with a transfer
      or assignment of the Securities in accordance with their terms.

     

    12. Applicable
      Law.
      This
      Agreement shall be governed by and construed in accordance with the internal
      law
      of the State of New York without regard to its conflicts of laws
      principles.

     

    13. Confidentiality.
      Each
Lender
      acknowledges and agrees that any information or data it has or will acquire
      from
      or about the Company, not otherwise properly in the public domain, was received
      in confidence. Each Lender
      agrees
      not to divulge, communicate or disclose, except as may be required by law or
      for
      the performance of this Agreement, or use other than in connection with its
      investment in the Company, any confidential information of the Company,
      including any scientific, technical, trade or business secrets of the Company
      and any scientific, technical, trade or business materials that are treated
      by
      the Company as confidential or proprietary, including, but not limited to,
      ideas, discoveries, inventions, developments and improvements belonging to
      the
      Company and confidential information obtained by or given to the Company about
      or belonging to third parties.

     

    14. Authorization
      of Agent.
      Each of
      the undersigned Lenders authorizes the Collateral Agent to act as its agent
      for
      all purposes under the Security Agreement and the Intellectual Property Security
      Agreement and to take any and all actions that such agent deems reasonably
      necessary, appropriate or advisable under the Security Agreement and the
      Intellectual Property Security Agreement. The Collateral Agent shall have the
      right to make demands, to give notices, to exercise or refrain from exercising
      any rights, and to take or refrain from taking action (including, without
      limitation, the release or substitution of the Collateral), in accordance with
      this Agreement, the Security Agreement and the Intellectual Property Security
      Agreement. The Collateral Agent may employ agents and attorneys-in-fact in
      connection herewith and shall not be liable for the gross negligence or
      misconduct of any such agents or attorneys-in-fact selected by it in good faith.
      The Collateral Agent shall be entitled to rely upon any written notice,
      statement, certificate, order or other document believed by it to be genuine
      and
      correct and to have been signed, sent or made by the proper person, and, with
      respect to all matters pertaining to this Agreement, the Security Agreement
      and
      the Intellectual Property Security Agreement and its duties hereunder and
      thereunder, upon advice of counsel selected by it. The Collateral Agent shall
      be
      deemed to have exercised reasonable care in the custody and preservation of
      the
      Collateral in its possession if such Collateral is accorded treatment
      substantially equivalent to that which the Collateral Agent, in its individual
      capacity, accords its own property consisting of similar instruments or
      interests, it being understood that neither the Collateral Agent nor any of
      the
      Lenders shall have responsibility for taking any necessary steps to preserve
      rights against any person or entity with respect to any Collateral.

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

    15. Fees
      and Expenses.
      The
      Company shall reimburse the Collateral Agent or
      its
      designee(s) (in addition to any other expense amounts paid to any Lender prior
      to the date of this Agreement) for all reasonable costs and expenses incurred
      in
      connection with the transactions contemplated by this Agreement and the
      Preferred Financing (including all reasonable legal fees and disbursements
      in
      connection therewith, documentation and implementation of the transactions
      contemplated by this Agreement and the Preferred Financing and due diligence
      in
      connection therewith) subject to a maximum of One Hundred Thousand Dollars
      ($100,000). Except as otherwise set forth above or in the Security Agreement,
      the Intellectual Property Security Agreement or the Registration Rights
      Agreement, each party to this Agreement shall bear its own expenses in
      connection with the sale of the Securities to the Lenders. Without limiting
      the
      generality of the foregoing, the Company shall be responsible for the payment
      of
      any placement agent’s fees, financial advisory fees, or broker’s commissions
      relating to or arising out of the transactions contemplated hereby, including,
      without limitation, any fees payable to the Agent; and the Company shall pay,
      and hold each Lender harmless against, any liability, loss or expense
      (including, without limitation, reasonable attorney’s fees and out-of-pocket
      expenses) arising in connection with any claim relating to any such
      payment.

     

    16.
       Indemnification.
      In
      consideration of each Lender’s execution and delivery of this Agreement, the
      Security Agreement, the Intellectual Property Security Agreement and the
      Registration Rights Agreement, to which such Lender may be a party, and each
      Lender’s acquisition of the Securities hereunder and in addition to all of the
      Company’s other obligations under this Agreement, the Security Agreement, the
      Intellectual Property Security Agreement, the Registration Rights Agreement
      and
      the Securities (collectively with any other documents contemplated thereby,
      the
“Transaction
      Documents”),
      the
      Company shall defend, protect, indemnify and hold harmless each Lender and
      each
      other holder of the Securities and all of their shareholders, partners, members,
      officers, directors, employees and any of the foregoing persons’ agents or other
      representatives (including, without limitation, those retained in connection
      with the transactions contemplated by this Agreement) (collectively, the
“Indemnitees”)
      from
      and against any and all actions, causes of action, suits, claims, losses, costs,
      penalties, fees, liabilities and damages, and expenses in connection therewith
      (irrespective of whether any such Indemnitee is a party to the action for which
      indemnification hereunder is sought), and including reasonable attorneys’ fees
      and disbursements (the “Indemnified
      Liabilities”),
      incurred by any Indemnitee as a result of, or arising out of, or relating to
      (a)
      any misrepresentation or breach of any representation or warranty made by the
      Company in the Transaction Documents or any other certificate, instrument or
      document contemplated hereby or thereby, (b) any breach of any covenant,
      agreement or obligation of the Company contained in the Transaction Documents
      or
      any other certificate, instrument or document contemplated hereby or thereby,
      or
      (c) any cause of action, suit or claim brought or made against such Indemnitee
      by a third party (including for these purposes a derivative action brought
      on
      behalf of the Company) and arising out of or resulting from (i) the execution,
      delivery, performance or enforcement of the Transaction Documents, or (ii)
      the
      status of such Lender or other holder of the Securities as a lender to or an
      investor in the Company pursuant to the transactions contemplated by the
      Transaction Documents. To the extent that the foregoing undertaking by the
      Company may be unenforceable for any reason, the Company shall make the maximum
      contribution to the payment and satisfaction of each of the Indemnified
      Liabilities which is permissible under applicable law. 

     

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

    17. Independent
      Nature of Lenders’ Obligations and Rights.
      The
      obligations of each Lender under any Transaction Document are several and not
      joint with the obligations of any other Lender, and no Lender shall be
      responsible in any way for the performance of the obligations of any other
      Lender under any Transaction Document. Nothing contained herein or in any other
      Transaction Document, and no action taken by any Lender pursuant hereto or
      thereto, shall be deemed to constitute the Lenders as a partnership, an
      association, a joint venture or any other kind of entity, or create a
      presumption that the Lenders are in any way acting in concert or as a group
      with
      respect to such obligations or the transactions contemplated by the Transaction
      Documents and the Company acknowledges that the Lenders are not acting in
      concert or as a group with respect to such obligations or the transactions
      contemplated by the Transaction Documents. Each Lender confirms that it has
      independently participated in the negotiation of the transaction contemplated
      hereby with the advice of its own counsel and advisors. Each Lender shall be
      entitled to independently protect and enforce its rights, including, without
      limitation, the rights arising out of this Agreement or out of any other
      Transaction Documents, and it shall not be necessary for any other Lender to
      be
      joined as an additional party in any proceeding for such purpose.

     

    18. Miscellaneous.

     

    (a) This
      Agreement, together with the Securities, the Security Agreement, the
      Intellectual Property Security Agreement and the Registration Rights Agreement,
      constitute the entire agreement between the Lenders and the Company with respect
      to the subject matter hereof and supersede all prior oral or written agreements
      and understandings, if any, relating to the subject matter hereof; provided,
      however,
      (i) any
      agreement pertaining to confidentiality is not superseded and shall remain
      in
      full force and effect and (ii) the Term Sheet (sections entitled “Effect of Term
      Sheet,” “Exclusivity and Confidentiality,” and “Expense Reimbursement”) shall
      remain in full force and effect; and provided further that the Exclusivity
      and
      Confidentiality section of the Term Sheet shall not apply to any equity or
      equity-linked security that is issued pursuant to any transaction or
      transactions contemplated by Section 6(j) hereof if the proviso at the end
      of
      Section 6 is satisfied. 

     

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

    (b) The
      representations, warranties, covenants and agreements of the parties made in
      this Agreement shall survive the execution and delivery hereof and the issuance
      and delivery of the Securities.

     

    (c) The
      Company shall issue new Securities in place of any previously issued Securities
      alleged to have been lost, stolen or destroyed, upon such terms and conditions
      as the Board of Directors may prescribe, including the presentation of
      reasonable evidence of such loss, theft or destruction (provided that an
      affidavit of a holder will be satisfactory for such purpose) and the giving
      of
      such indemnity as the Company’s Board of Directors may request for the
      protection of the Company or any transfer agent or registrar. Upon surrender
      of
      any previously issued Securities that has been mutilated, the Company shall
      issue new Securities in place thereof.

     

    (d) Each
      provision of this Agreement shall be considered separable and if for any reason
      any provision or provisions hereof are determined to be invalid or contrary
      to
      applicable law, such invalidity shall not impair the operation of or affect
      the
      remaining portions of this Agreement.

     

    (e) Section
      titles are for descriptive purposes only and shall not control or alter the
      meaning of this Agreement as set forth in the text.

     

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

     

    

     

    [Signature
      Page is Next]

     

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

    

    IN
      WITNESS WHEREOF, the parties hereto have executed this Agreement or caused
      this
      Agreement to be executed by their duly authorized representatives as of the
      day
      and date first written above.

    

    
      	 	 	 
	 	
              ALTEON
                INC.

            
	 
 	 
 	 
 
	 	By:  	/s/ Noah
              Berkowitz
	 	
              

              Noah
                Berkowitz

              President
                and Chief Executive Officer

            
	 	 

    

    
 

    

    

    Counterpart
      Signature Pages

    Begin
      on
      Next Page

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Counterpart
      Signature Page For Lenders

     

    The
      undersigned hereby agrees to become a party to that certain Securities Purchase
      Agreement dated as of January 11, 2007 (the “Agreement”)
      among
      Alteon Inc., a Delaware corporation (the “Company”) and others. From and after
      the undersigned’s execution and delivery and the Company’s acceptance of this
      Counterpart Signature Page, the undersigned shall be a party to the Agreement
      and the Securities purchased by the undersigned shall be deemed to be
“Securities” for all purposes of the Agreement.

     

    

    BAKER/TISCH
      INVESTMENTS, L.P.

    

    By: Baker/Tisch
      Capital, L.P.,
its
      general partner

    By: Baker/Tisch
      Capital (GP), LLC,
its
      general partner

    

    By: /s/
      Felix
      Baker                  
Name:
      Felix Baker, Ph.D
Title:
      Managing Member

    

     

    Securities
      Amount: US$
      39,958.51

     

    

    Address:  667
      Madison Avenue
17th
      Floor
New
      York,
      NY 10021

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Counterpart
      Signature Page For Lenders

     

    The
      undersigned hereby agrees to become a party to that certain Securities Purchase
      Agreement dated as of January 11, 2007 (the “Agreement”)
      among
      Alteon Inc., a Delaware corporation (the “Company”) and others. From and after
      the undersigned’s execution and delivery and the Company’s acceptance of this
      Counterpart Signature Page, the undersigned shall be a party to the Agreement
      and the Securities purchased by the undersigned shall be deemed to be
“Securities” for all purposes of the Agreement.

     

    

    BAKER
      BIOTECH FUND I, L.P.

    

    By:
       Baker
      Biotech Capital, L.P., 
its
      general partner

    By:
       Baker
      Biotech Capital (GP), LLC, 
its
      general partner

    

    By: /s/
      Felix
      Baker                  

Name:
      Felix Baker, Ph.D.
Title:
      Managing Member

    

     

    Securities
      Amount: US$
      762,087.46

     

    

    Address:
       667
      Madison Avenue
17th
      Floor
New
      York,
      NY 10021

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Counterpart
      Signature Page For Lenders

     

    The
      undersigned hereby agrees to become a party to that certain Securities Purchase
      Agreement dated as of January 11, 2007 (the “Agreement”)
      among
      Alteon Inc., a Delaware corporation (the “Company”) and others. From and after
      the undersigned’s execution and delivery and the Company’s acceptance of this
      Counterpart Signature Page, the undersigned shall be a party to the Agreement
      and the Securities purchased by the undersigned shall be deemed to be
“Securities” for all purposes of the Agreement.

     

    

    Baker
      Brothers Life Sciences, L.P.

    

    By:
       Baker
      Brothers Life Sciences Capital, L.P.
its
      general partner

    By:
       Baker
      Brothers Life Sciences Capital (GP), LLC 
is
      general partner

    

    By: /s/
      Felix
      Baker                

Name:
      Felix Baker, Ph.D.
Title:
      Managing Member

    

     

    Securities
      Amount: US$
      2,128,162.10

     

    

    Address:
       667
      Madison Avenue
17th
      Floor
New
      York,
      NY 10021

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Counterpart
      Signature Page For Lenders

     

    The
      undersigned hereby agrees to become a party to that certain Securities Purchase
      Agreement dated as of January 11, 2007 (the “Agreement”)
      among
      Alteon Inc., a Delaware corporation (the “Company”) and others. From and after
      the undersigned’s execution and delivery and the Company’s acceptance of this
      Counterpart Signature Page, the undersigned shall be a party to the Agreement
      and the Securities purchased by the undersigned shall be deemed to be
“Securities” for all purposes of the Agreement.

     

    

    14159,
      L.P.

    

    By:
       14159
      Capital, L.P., 
its
      general partner

    By:
       14159
      Capital (GP), LLC, 
is
      general partner

    

    By: /s/
      Felix
      Baker                     

Name:
      Felix Baker, Ph.D.
Title:
      Managing Member

    

     

    Securities
      Amount: US$
      69,791.94_______

     

    

    Address:
       667
      Madison Avenue
17th
      Floor
New
      York,
      NY 10021

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    SCHEDULE
      A

     

    LENDERS

    

    
      	
              Lender
                Name and Address

            	
              Amount
                of Notes

            	
              Number
                of 

              Warrants

            
	
              Baker
                Tisch Investments, L.P. 667 Madison Avenue, 17th Floor New York,
                NY 10021
                

            	
              $20,781.11

            	
              178,263

            
	
              Baker
                Tisch Investments, L.P. 667 Madison Avenue, 17th Floor New York,
                NY 10021
                

            	
              $19,177.40

            	
              164,507

            
	
              Baker
                Biotech Fund I, L.P. 

              667
                Madison Avenue, 17th Floor New York, NY 10021 

            	
              $402,372.05

            	
              3,451,608

            
	
              Baker
                Biotech Fund I, L.P. 

              667
                Madison Avenue, 17th Floor New York, NY 10021 

            	
              $359,715.41

            	
              3,085,693

            
	
              Baker
                Brothers Life Sciences, L.P. 667 Madison Avenue, 17th Floor New York,
                NY
                10021 

            	
              $2,128,162.10

            	
              18,255,696

            
	
              14159,
                L.P. 

              667
                Madison Avenue, 17th Floor New York, NY 10021 

            	
              $69,791.94

            	
              598,686

            
	
              Total:

            	
               

              $
                3,000,000.00

            	
              25,734,453

            

    

     

    
 

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
      A

    FORM
      OF SENIOR CONVERTIBLE SECURED PROMISSORY NOTE

    

    See
      attached.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
      B

    FORM
      OF WARRANT

    

    See
      attached.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
      C

    FORM
      OF SECURITY AGREEMENT

    

    See
      attached.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
      D

    FORM
      OF INTELLECTUAL PROPERTY SECURITY AGREEMENT

    

    See
      attached.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
      E

    FORM
      OF REGISTRATION RIGHTS AGREEMENT

    

    See
      attached.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
      F

    FORM
      OF OPINION OF COUNSEL

    See
      attached.Exhibit
      10.2

     

    SECURITY
      & GUARANTY AGREEMENT

     

    SECURITY
      & GUARANTY AGREEMENT (this “Agreement”), dated as of January 11, 2007, by
      and between Alteon Inc., a Delaware corporation (“Company”), HaptoGuard, Inc., a
      Delaware corporation and wholly owned subsidiary of the Company (“HaptoGuard”
and together with the Company, each a “Debtor” and collectively the “Debtors”)
      and Baker Bros Advisors LLC as collateral agent for the Secured Parties
      (together with its successors and assigns in such capacity, the “Collateral
      Agent”). 

     

    W
      I T N E
      S S E T H:

     

    WHEREAS,
      pursuant to a Convertible Note and Warrant Purchase Agreement, dated the date
      hereof, between Company and the Collateral Agent (the “Purchase Agreement”),
      Company has agreed to issue to the Lenders (as defined in the Purchase
      Agreement) and the Lenders have each agreed to purchase from Company certain
      of
      Company’s Convertible Secured Notes (the “Notes”), which are convertible into
      shares of Company’s Common Stock, $0.01 par value per share (the “Common
      Stock”). In connection therewith, Company shall also issue the Lenders certain
      warrants to purchase shares of Common Stock (the “Warrants”); and

     

    WHEREAS,
      in order to induce the Lenders to purchase the Notes, the Debtors have agreed
      to
      execute and deliver to the Collateral Agent this Agreement for the benefit
      of
      the Collateral Agent and the Lenders and to grant to it a first priority
      security interest in certain property of the Debtors to secure the prompt
      payment and performance of all of the Obligations (as hereinafter
      defined).

     

    NOW,
      THEREFORE, in consideration of the agreements herein contained and for other
      good and valuable consideration, the receipt and sufficiency of which is hereby
      acknowledged, the parties hereto hereby agree as follows:

     

    1. Certain
      Definitions.
      As used
      in this Agreement, the following terms shall have the meanings set forth in
      this
      Section 1. Terms used but not otherwise defined in this Agreement that are
      defined in Article 9 of the UCC shall have the respective meanings given such
      terms in Article 9 of the UCC.

     

    (a) “Collateral”
      means all right, title and interest in and to, whether now owned or hereafter
      acquired and wherever located:

     

    (i) all
      Receivables;

     

    (ii) all
      Equipment;

     

    (iii) all
      General Intangibles;

     

    (iv) all
      Inventory;

     

    (v) all
      Investment Property;

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    (vi) all
      Intellectual Property

     

    (vii) (a)
      without limiting the generality of the foregoing, all contract rights, rights
      of
      payment which have been earned under a contract right, instruments (including,
      without limitation, promissory notes), documents, chattel paper (including,
      without limitation, electronic chattel paper), warehouse receipts, deposit
      accounts, letters of credit and money; (b) all commercial tort claims (whether
      now existing or hereafter arising); (c) all letter of credit rights (whether
      or
      not the respective letter of credit is evidenced by a writing); (d) all
      supporting obligations; (e) all clinical, preclinical and non-clinical data;
      (f)
      all regulatory filings, applications, approvals and permits whether with or
      from
      the U.S. Food and Drug Administration or other government agency; (g) clinical
      and preclinical trial quantities or commercial inventories of finished product,
      active pharmaceutical ingredient and bulk drug supply and (h) to the extent
      assignable, as rights to tax credits and tax refunds;

     

    (viii) ledger
      sheets, ledger cards, files, correspondence, records, books of account, business
      papers, computers, computer software (owned by each Debtor or in which it has
      an
      interest), computer programs, tapes, disks and documents relating to (i), (ii),
      (iii), (iv), (v), (vi) or (vii) of this Section; and

     

    (ix) all
      Proceeds and products of (i), (ii), (iii), (iv), (v), (vi) and (vii) in whatever
      form, including, without limitation: cash, deposit accounts (whether or not
      comprised solely of proceeds), certificates of deposit, insurance proceeds
      (including, without limitation, hazard, flood and credit insurance), negotiable
      instruments and other instruments for the payment of money, chattel paper,
      security agreements, documents, eminent domain proceeds, condemnation proceeds
      and tort claim proceeds.

     

    (b) “Copyright
      Licenses” means any and all agreements, licenses and covenants providing for the
      granting of any right in or to Copyrights or otherwise providing for a covenant
      not to sue (whether the Debtor is licensee or licensor thereunder) including,
      without limitation, each agreement referred to in Schedule
      C
      hereto.

     

    (c) “Copyrights”
      mean all United States and foreign copyrights (including, without limitation,
      Community designs), including but not limited to copyrights in software and
      all
      rights in and to databases, and all Mask Works (as defined under 17 U.S.C.
      901
      of the U.S. Copyright Act), whether registered or unregistered, moral rights,
      reversionary interests, termination rights, and, with respect to any and all
      of
      the foregoing: (i) all registrations and applications therefor including,
      without limitation, the registrations and applications required to be listed
      in
Schedule
      C
      hereto,
      (ii) all extensions and renewals thereof, (iii) all rights corresponding thereto
      throughout the world, (iv) all rights to sue for past, present and future
      infringements thereof, and (v) all Proceeds of the foregoing, including, without
      limitation, licenses, royalties, income, payments, claims, damages and proceeds
      of suit.

     

    (d) “Equipment”
      means goods (other than Inventory) whether now owned or hereafter acquired
      and
      wherever located including, without limitation, all equipment, machinery,
      apparatus, motor vehicles, fittings, furniture, furnishings, fixtures, parts,
      accessories and all replacements and substitutions therefor or accessions
      thereto.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    (e) “General
      Intangibles” means all general intangibles as defined in the UCC, whether now
      owned or hereafter acquired, including, without limitation, all payment
      intangibles, and without limiting the generality of the foregoing all of the
      following whether or not constituting general intangibles as defined in the
      UCC:
      all choses in action, causes of action, corporate or other business records,
      inventions, designs, equipment formulations, manufacturing procedures, quality
      control procedures, service marks, trade secrets, goodwill, design rights,
      software, computer information, source codes, codes, records and updates,
      registrations, licenses, franchises, customer lists, tax refunds, tax refund
      claims, computer programs, all claims under guaranties, security interests
      or
      other security held or granted to secure payment of any of the Receivables
      by a
      Customer (other than to the extent covered by Receivables), all rights of
      indemnification and all other intangible property of every kind and nature
      (other than Receivables).

     

    (f) “Inventory”
      means all now owned or hereafter acquired goods, merchandise and other personal
      property, wherever located, to be furnished under any consignment arrangement,
      contract of service or held for sale or lease, all raw materials, work in
      process, finished goods and materials and supplies of any kind, nature or
      description which are or might be used or consumed in such party’s business or
      used in selling or furnishing such goods, merchandise and other personal
      property, and all documents of title or other documents representing
      them.

     

    (g) “Intellectual
      Property” means all Copyrights, Copyright Licenses, Patents, Patent Licenses,
      Trademarks and Trademark Licenses.

     

    (h) “Investment
      Property” means all now owned or hereafter acquired securities (whether
      certificated or uncertificated), securities entitlements, securities accounts,
      commodities contracts and commodities accounts.

     

    (i) “Obligations”
      means all of the Company’s obligations under this Agreement, the Warrants and
      the Notes, in each case, whether now or hereafter existing, voluntary or
      involuntary, direct or indirect, absolute or contingent, liquidated or
      unliquidated, as such obligations may be amended, supplemented, converted,
      extended or modified from time to time and all obligations of HaptoGuard
      hereunder.

     

    (j) “Patent
      Licenses” shall mean all agreements, licenses and covenants providing for the
      granting of any right in or to Patents or otherwise providing for a covenant
      not
      to sue (whether the Debtor is licensee or licensor thereunder) including,
      without limitation, each agreement referred to in Schedule
      C.

     

    (k) “Patents”
      shall mean all United States and foreign patents and certificates of invention,
      or similar industrial property rights, and applications for any of the
      foregoing, including, without limitation: (i) each patent and patent application
      referred to in Schedule
      C
      hereto,
      (ii) all reissues, divisions, continuations, continuations-in-part, extensions,
      renewals, and reexaminations thereof, (iii) all rights corresponding thereto
      throughout the world, (iv) all inventions and improvements described therein,
      (v) all rights to sue for past, present and future infringements thereof, (vi)
      all licenses, claims, damages, and proceeds of suit arising therefrom, and
      (vii)
      all Proceeds of the foregoing, including, without limitation, licenses,
      royalties, income, payments, claims, damages, and proceeds of suit.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    (l) “Permitted
      Liens” means any and all of the following: (i) liens existing as of the date of
      this Agreement and listed on Schedule
      B;
      (ii)
      liens for taxes, fees, assessments or other governmental charges or levies,
      either not delinquent or being contested in good faith by appropriate
      proceedings; provided, that the Company maintains adequate reserves therefor
      in
      accordance with GAAP; (iii) liens securing claims or demands of materialmen,
      artisans, mechanics, carriers, warehousemen, landlords and other like persons
      arising in the ordinary course of the Company’s business and imposed without
      action of such parties; provided, that the payment thereof is not yet required;
      (iv) liens arising from judgments, decrees or attachments that do not exceed
      $250,000 and to the extent applicable are not covered by a policy of insurance;
      (v) the following deposits, to the extent made in the ordinary course of
      business: deposits under worker’s compensation, unemployment insurance, social
      security and other similar laws, or to secure the performance of bids, tenders
      or contracts or to secure indemnity, performance or other similar bonds for
      the
      performance of bids, tenders or contracts (other than for the repayment of
      borrowed money) or to secure statutory obligations (other than liens arising
      under ERISA or environmental liens) or surety or appeal bonds, or to secure
      indemnity, performance or other similar bonds; (vi) purchase money security
      interests and liens in connection with financing leases on equipment, and (vii)
      liens incurred in connection with the extension, renewal or refinancing of
      the
      indebtedness secured by liens of the type described in clause (vi)
      above.

     

    (m) “Receivables”
      means (i) all Accounts (as defined in the UCC), (ii) such contract rights,
      instruments, documents, chattel paper (including,
      without
      limitation, electronic
      chattel paper), general intangibles relating to accounts, drafts and
      acceptances, credit card receivables and all other forms of obligations owing
      arising out of or in connection with the sale or lease of Inventory or the
      rendition of services, and (iii) all supporting obligations, guarantees and
      other security for any of the foregoing, whether secured or unsecured, now
      existing or hereafter created.

     

    (n) “Secured
      Parties” means from time to time each person or entity who is at any such time a
      Lender (as defined in the Purchase Agreement) or a holder of a Note or a
      Warrant.

     

    (o) “Trademark
      Licenses” shall mean any and all agreements, licenses and covenants providing
      for the granting of any right in or to Trademarks or otherwise providing for
      a
      covenant not to sue or permitting co-existence (whether the Debtor is licensee
      or licensor thereunder) including, without limitation, each agreement referred
      to in Schedule
      C.

     

    (p) “Trademarks”
      shall mean all United States, and foreign trademarks, trade names, corporate
      names, company names, business names, fictitious business names, Internet domain
      names, service marks, certification marks, collective marks, logos, other source
      or business identifiers, designs and general intangibles of a like nature,
      all
      registrations and applications for any of the foregoing including, without
      limitation: (i) the registrations and applications referred to in Schedule
      C,
      (ii)
      all extensions or renewals of any of the foregoing, (iii) all of the goodwill
      of
      the business connected with the use of and symbolized by the foregoing, (iv)
      the
      right to sue for past, present and future infringement or dilution of any of
      the
      foregoing or for any injury to goodwill, and (v) all Proceeds of the foregoing,
      including, without limitation, licenses, royalties, income, payments, claims,
      damages, and proceeds of suit.

     

    
      
        
        

      

      
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    (q) “UCC”
      means the Uniform Commercial Code, as currently in effect in the State of New
      York.

     

    2. Grant
      of Security Interest.
      To
      secure the payment and performance of all of the Obligations, the Debtors hereby
      grants to the Collateral Agent, a continuing security interest in all of the
      Debtor’s right, title and interest of whatsoever kind and nature in and to the
      Collateral (the “Security Interest”). Notwithstanding any provision of this
      Agreement to the contrary, Collateral shall not include (i) any property that
      is
      subject to a Permitted Lien pursuant to subsection (vi) of such definition
      to
      the extent that such Permitted Lien prohibits the security interest hereunder
      or
      (ii) any agreement with a third party existing on the date hereof that prohibits
      the grant of a lien on (but not merely the assignment of or of any interest
      in)
      such agreement or any of the Debtor’s rights thereunder without the consent of
      such party or under which a consent to such grant is otherwise required, which
      consent has not been obtained, except to the extent any such prohibition is
      made
      ineffective as a result of Section 9-406(d), 9-407, 9-408, or 9-409 of the
      UCC.

     

    3. Representations,
      Warranties, Covenants and Agreements of the Debtors.
      Each
      Debtor represents and warrants to, and covenants and agrees with, the Collateral
      Agent as follows:

     

    (a) Each
      Debtor
      has
      the
      requisite corporate power and authority to enter into this Agreement and
      otherwise to carry out its obligations hereunder. The execution, delivery and
      performance by the Debtor of this Agreement and the filings contemplated herein
      have been duly authorized by all necessary action on the part of the Debtor
      and
      no further action is required by the Debtor . This Agreement constitutes a
      legal, valid and binding obligation of the Debtor enforceable in accordance
      with
      its terms, except as enforceability may be limited by bankruptcy, insolvency,
      reorganization, moratorium or similar laws affecting the enforcement of
      creditor’s rights generally, and provided that (1) the conversion of all of the
      Notes may require approval of the Company’s stockholders under applicable rules
      of the American Stock Exchange, which approval has not been obtained, and (2)
      insofar as any foreclosure on the Collateral under this Agreement would
      constitute a sale of all or substantially all of the Debtor’s assets requiring
      stockholder approval, such approval has not been obtained.

     

    (b) Each
      Debtor represents and warrants that it has no place of business or offices
      where
      its respective books of account and records are kept (other than temporarily
      at
      the offices of its attorneys or accountants) or places where Collateral is
      stored or located, except as set forth on Schedule
      A
      attached
      hereto.

     

    (c) The
      full
      legal name of each Debtor is as set forth on the signature pages hereof. Each
      Debtor has not done in the last five (5) years, and does not do, business under
      any other name (including, without limitation, any trade name or fictitious
      business name).

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    (d) Without
      limiting any prohibitions or restrictions in the Note, a Debtor shall not change
      its name, identity, corporate structure (e.g.,
      by
      merger, consolidation, change in corporate form or otherwise), sole place of
      business, chief executive office, type of organization or jurisdiction of
      organization or establish any trade names unless it shall have (a) notified
      the
      Collateral Agent in writing at least ten (10) days prior to any such change
      or
      establishment, identifying such new proposed name, identity, corporate
      structure, sole place of business, chief executive office, jurisdiction of
      organization or trade name and providing such other information in connection
      therewith as the Collateral Agent may reasonably request and (b) taken all
      actions reasonably necessary or advisable to maintain the continuous validity,
      perfection and the same priority of the Collateral Agent’s security interest in
      the Collateral intended to be granted and agreed to hereby.

     

    (e) Except
      for Permitted Liens, each Debtor is the sole owner of the Collateral (except
      for
      exclusive, semi-exclusive and non-exclusive licenses granted by a Debtor in
      the
      ordinary course of business which licenses existing as of the date hereof are
      identified on Schedule D hereto), free and clear of any liens, security
      interests, encumbrances, rights or claims, and is fully authorized to grant
      the
      Security Interest in and to pledge the Collateral.

     

    (f) This
      Agreement creates in favor of the Collateral Agent a valid security interest
      in
      the Collateral securing the payment and performance of the Obligations and,
      upon
      making the filings described in the immediately following sentence, a perfected
      first priority security interest in such Collateral. Except for the filing
      of
      financing statements on Form-1 under the UCC with the Secretary of State of
      the
      State of Delaware, no authorization or approval of or filing with or notice
      to
      any governmental authority or regulatory body is required either (i) for the
      grant by a Debtor of, or the effectiveness of, the Security Interest granted
      hereby or for the execution, delivery and performance of this Agreement by
      each
      Debtor or (ii) for the perfection of or exercise by the Collateral Agent of
      its
      rights and remedies hereunder. 

     

    (g) Other
      than Permitted Liens and Permitted Transfers, the Debtors will not transfer,
      pledge, hypothecate, encumber, license, sell or otherwise dispose of any of
      the
      Collateral without the prior written consent of the Collateral Agent. “Permitted
      Transfers” means (i) sales of inventory in the normal course of business, (ii)
      licenses of technology in the ordinary course of business on commercially
      reasonable terms and consistent with the Company's past practices, or (iii)
      dispositions of worn-out or obsolete equipment and dispositions of equipment
      not
      exceeding $250,000 per year.

     

    (h) Each
      Debtor shall promptly execute (as applicable) and deliver to the Collateral
      Agent such further assignments, security agreements, financing statements or
      other instruments, documents, certificates and assurances and take such further
      action as the Collateral Agent may from time to time reasonably request and
      may
      reasonably deem necessary to perfect, protect or enforce its security interest
      in the Collateral.

     

    (i) With
      respect to any deposit accounts or securities accounts holding cash or
      securities in excess of $50,000 individually or $100,000 in the aggregate,
      the
      Company shall use its commercially reasonable efforts to cause the depositary
      bank or securities intermediary holding such account to enter into a control
      agreement in form and substance reasonably satisfactory to the Collateral Agent
      and establishing the Collateral Agent’s control (within the meaning of Section
      9-104 or 8-106 of the UCC, as applicable) over such deposit accounts and
      securities accounts. At the request of the Collateral Agent, the Debtors will
      move any deposit account or securities account for which they are unable to
      obtain such a control agreement to a financial institution that enters into
      such
      a control agreement.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    (j) Schedule
      C
      sets
      forth a true and complete list of (i) all United States, state and foreign
      registrations of and applications for Patents, Trademarks, and Copyrights owned
      by or, in the case of Copyrights, exclusively licensed to, each Debtor and
      (ii)
      all Patent Licenses, Trademark Licenses, Trade Secret Licenses and Copyright
      Licenses material to the business of each Debtor or otherwise of material
      value.

     

    (k) Each
      Debtor shall promptly report to the Collateral Agent (i) the filing of any
      application to register any Intellectual Property with the United States Patent
      and Trademark Office, the United States Copyright Office, or any state registry
      or foreign counterpart of the foregoing (whether such application is filed
      by
      the Company or through any agent, employee, licensee, or designee thereof)
      and
      (ii) the registration of any Intellectual Property by any such office. Each
      Debtor shall take such step as may be reasonably requested by the Collateral
      Agent to ensure that the security interest of the Collateral Agent is registered
      with each such recording office. 

     

    (l) With
      respect to any Collateral that is evidenced by, or constitutes, a Certificated
      Security, Chattel Paper or Instrument (other than any Chattel Paper or
      Instruments having a value less than $10,000 individually or $50,000 in the
      aggregate), each Debtor shall cause each originally executed copy thereof to
      be
      delivered to the Collateral Agent (or its agent or designee) appropriately
      indorsed to the Collateral Agent or indorsed in blank: (i) with respect to
      any
      such Collateral in existence on the date hereof, on or prior to the date hereof
      and (ii) with respect to any such Collateral hereafter arising, within ten
      (10)
      days of such Debtor acquiring rights therein. 

     

    4. Event
      of Default.
      The
      occurrence of an Event of Default (as defined in the Notes) under the Notes
      shall constitute an Event of Default hereunder.

     

    5. Duty
      To Hold In Trust.
      Upon
      the occurrence of any Event of Default that remains continuing and at any time
      thereafter, following written notice from Collateral Agent the Company shall,
      upon receipt by it of any revenue, income or other sums subject to the Security
      Interest, whether payable pursuant to the Notes or otherwise, or of any check,
      draft, note, trade acceptance or other instrument evidencing an obligation
      to
      pay any such sum, hold the same in trust for the Collateral Agent and shall
      forthwith endorse and transfer any such sums or instruments, or both, to the
      Collateral Agent for application to the satisfaction of the
      Obligations.

     

    6. Rights
      and Remedies Upon Default.
      Upon
      occurrence of any Event of Default that remains continuing and at any time
      thereafter, the Collateral Agent shall have the right to exercise all of the
      remedies conferred hereunder, and the Collateral Agent shall have all the rights
      and remedies of a Collateral Agent under the UCC and/or any other applicable
      law
      or in equity (including, without limitation, the Uniform Commercial Code of
      any
      jurisdiction in which any Collateral is then located). Without limitation,
      the
      Collateral Agent shall have the following rights and powers:

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    (a) The
      Collateral Agent shall have the right to take possession of the Collateral
      and,
      for that purpose, enter, with the aid and assistance of any person, any premises
      where the Collateral, or any part thereof, is or may be placed and remove the
      same, and the Debtor shall assemble the Collateral and make it available to
      the
      Collateral Agent at places which the Collateral Agent shall reasonably select,
      whether at the Company’s premises or elsewhere, and make available to the
      Collateral Agent, without rent, all of the Company’s respective premises and
      facilities for the purpose of the Collateral Agent taking possession of,
      removing or putting the Collateral in saleable or disposable form.

     

    (b) The
      Collateral Agent shall have the right to operate the business of the each Debtor
      using the Collateral and shall have the right to assign, sell, lease or
      otherwise dispose of and deliver all or any part of the Collateral, at public
      or
      private sale or otherwise, either with or without special conditions or
      stipulations, for cash or on credit or for future delivery, in such parcel
      or
      parcels and at such time or times and at such place or places, and upon such
      terms and conditions as the Collateral Agent may deem commercially reasonable,
      all without (except as shall be required by applicable statute and cannot be
      waived) advertisement or demand upon or notice to the Company or right of
      redemption of the Company, which are hereby expressly waived. Upon each such
      sale, lease, assignment or other transfer of Collateral, the Collateral Agent
      may, unless prohibited by applicable law which cannot be waived, purchase all
      or
      any part of the Collateral being sold, free from and discharged of all trusts,
      claims, right of redemption and equities of the Company, which are hereby waived
      and released.

     

    7. Applications
      of Proceeds.
      The
      proceeds of any such sale, lease or other disposition of the Collateral
      hereunder shall be applied first, to the expenses of retaking, holding, storing,
      processing and preparing for sale, selling, and the like (including, without
      limitation, any taxes, fees and other costs incurred in connection therewith)
      of
      the Collateral, to the reasonable attorneys’ fees and expenses incurred by the
      Collateral Agent in enforcing its rights hereunder and in connection with
      collecting, storing and disposing of the Collateral, and then to satisfaction
      of
      the Obligations, and to the payment of any other amounts required by applicable
      law, after which the Collateral Agent shall pay to the Company any surplus
      proceeds.

     

    8. Costs
      and Expenses.
      The
      Company agrees to pay all reasonable out-of-pocket fees, costs and expenses
      incurred in connection with any filing required hereunder, including without
      limitation, any financing statements, continuation statements, partial releases
      and/or termination statements related thereto. The Company will also, upon
      demand, pay to the Collateral Agent the amount of any and all reasonable
      expenses, including the reasonable fees and expenses of its counsel, which
      the
      Collateral Agent may incur in connection with (i) the enforcement of this
      Agreement or (ii) the custody or preservation of, or the sale of, collection
      from, or other realization upon, any of the Collateral.

     

    9. Security
      Interest Absolute.
      All
      rights of the Collateral Agent and all Obligations of each Debtor hereunder,
      shall be absolute and unconditional, irrespective of: (a) any lack of validity
      or enforceability of this Agreement, the Notes or any agreement entered into
      in
      connection with the foregoing, or any portion hereof or thereof; (b) any change
      in the time, manner or place of payment or performance of, or in any other
      term
      of, all or any of the Obligations, or any other amendment or waiver of or any
      consent to any departure from the Notes or any other agreement entered into
      in
      connection with the foregoing; (c) any exchange, release or nonperfection of
      any
      of the Collateral, or any release or amendment or waiver of or consent to
      departure from any other collateral for, or any guaranty, or any other security,
      for all or any of the Obligations; (d) any action by the Collateral Agent to
      obtain, adjust, settle and cancel in its sole discretion any insurance claims
      or
      matters made or arising in connection with the Collateral; or (e) any other
      circumstance which might otherwise constitute any legal or equitable defense
      available to a Debtor, or a discharge of all or any part of the Security
      Interest granted hereby. Each Debtor expressly waives presentment, protest,
      notice of protest, demand, notice of nonpayment and demand for performance.
      In
      the event that at any time any transfer of any Collateral or any payment
      received by the Collateral Agent hereunder shall be deemed by final order of
      a
      court of competent jurisdiction to have been a voidable preference or fraudulent
      conveyance under the bankruptcy or insolvency laws of the United States, or
      shall be deemed to be otherwise due to any party other than the Collateral
      Agent, then, in any such event, each Debtor’s obligations hereunder shall
      survive cancellation of this Agreement, and shall not be discharged or satisfied
      by any prior payment thereof and/or cancellation of this Agreement, but shall
      remain a valid and binding obligation enforceable in accordance with the terms
      and provisions hereof. Each Debtor waives all right to require the Collateral
      Agent to proceed against any other person or to apply any Collateral which
      the
      Collateral Agent may hold at any time, or to marshal assets, or to pursue any
      other remedy. Each Debtor waives any defense arising by reason of the
      application of the statute of limitations to any obligation secured
      hereby.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    10. Power
      of Attorney.
      Each
      Debtor hereby irrevocably appoints the Collateral Agent (such appointment being
      coupled with an interest) as each Debtor’s attorney-in-fact, with full authority
      in the place and stead of such Debtor and in the name of such Debtor, the
      Collateral Agent or otherwise, from time to time upon the occurrence and during
      the continuance of any Event of Default in the Collateral Agent’s discretion to
      take any action and to execute any instrument that the Collateral Agent may
      deem
      reasonably necessary or advisable to accomplish the purposes of this Agreement.
      

     

    11. Guarantee. 

     

    (a)
      HaptoGuard hereby unconditionally and irrevocably, guarantees to the Collateral
      Agent, for the ratable benefit of the Secured Parties and their respective
      successors, indorsees, transferees and assigns, the prompt and complete payment
      and performance by the Company when due (whether at the stated maturity, by
      acceleration or otherwise) of the Obligations of the Company. HaptoGuard hereby
      agrees that this Guaranty is an absolute guaranty of payment and performance
      and
      is not a guaranty of collection

     

    If
      and to
      the extent required in order for the Obligations of HaptoGuard to be enforceable
      under applicable federal, state and other laws relating to the insolvency of
      debtors, the maximum liability of HaptoGuard hereunder shall be limited to
      the
      greatest amount which can lawfully be guaranteed by HaptoGuard under such laws.
      HaptoGuard agrees that Obligations may at any time and from time to time be
      incurred or permitted in an amount exceeding the maximum liability of HaptoGuard
      under the preceding sentence without impairing the guarantee contained in this
      Section 11 or affecting the rights and remedies of any Secured Party
      hereunder.

     

    The
      guarantee contained in this Section 11 shall remain in full force and effect
      until payment in full of the Obligations.

     

    No
      payment made by the Company, HaptoGuard or any other Person or received or
      collected by any Secured Party from the Company, HaptoGuard or any other Person
      by virtue of any action or proceeding or any set-off or appropriation or
      application at any time or from time to time in reduction of or in payment
      of
      the Company Obligations shall be deemed to modify, reduce, release or otherwise
      affect the liability of any HaptoGuard hereunder which shall, notwithstanding
      any such payment (other than any payment made by HaptoGuard in respect of the
      Obligations), remain liable for the Obligations up to the maximum liability
      of
      such HaptoGuard hereunder until the Obligations are paid in full.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    (b)
      Rights of Reimbursement, Contribution and Subrogation.

     

    All
      rights and claims of HaptoGuard based upon or relating to any right of
      reimbursement, indemnification, contribution or subrogation that may at any
      time
      arise or exist in favor of HaptoGuard as to any payment on account of the
      Obligations made by it or received or collected from its property shall be
      fully
      subordinated in all respects to the prior payment in full of all of the
      Obligations. Until payment in full of the Obligations, HaptoGuard shall not
      demand or receive any collateral security, payment or distribution whatsoever
      (whether in cash, property or securities or otherwise) on account of any such
      right or claim. If any such payment or distribution is made or becomes available
      to HaptoGuard in any bankruptcy case or receivership, insolvency or liquidation
      proceeding, such payment or distribution shall be delivered by the person making
      such payment or distribution directly to the Collateral Agent, for application
      to the payment of the Obligations. If any such payment or distribution is
      received by any Debtor, it shall be held by such Debtor in trust, as trustee
      of
      an express trust for the benefit of the Secured Parties, and shall forthwith
      be
      transferred and delivered by such Debtor to the Administrative Agent, in the
      exact form received and, if necessary, duly endorsed.

     

    HaptoGuard
      shall remain obligated hereunder notwithstanding that, without any reservation
      of rights against HaptoGuard and without notice to or further assent by any
      HaptoGuard, any demand for payment of any of the Obligations made by any Secured
      Party may be rescinded by such Secured Party and any of the Obligations
      continued, and the Obligations, or the liability of any other Person upon or
      for
      any part thereof, or any collateral security or guarantee therefor or right
      of
      offset with respect thereto, may, from time to time, in whole or in part, be
      renewed, increased, extended, amended, modified, accelerated, compromised,
      waived, surrendered or released by any Secured Party, and the Note, Warrant
      and/or Purchase Agreement and any other documents executed and delivered in
      connection therewith may be amended, modified, supplemented or terminated,
      in
      whole or in part, as the Collateral Agent (or the requisite Lenders) may deem
      advisable from time to time, and any collateral security, guarantee or right
      of
      offset at any time held by any Secured Party for the payment of the Obligations
      may be sold, exchanged, waived, surrendered or released. No Secured Party shall
      have any obligation to protect, secure, perfect or insure any Lien at any time
      held by it as security for the Company Obligations or for the guarantee
      contained in this Section 11 or any property subject thereto.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    (c)
      Guarantee Absolute and Unconditional. HaptoGuard
      waives any and all notice of the creation, renewal, extension or accrual of
      any
      of the Obligations and notice of or proof of reliance by any Secured Party
      upon
      the guarantee contained in this Section 11 or acceptance of the guarantee
      contained in this Section 11; the Obligations, and any of them, shall
      conclusively be deemed to have been created, contracted or incurred, or renewed,
      extended, amended or waived, in reliance upon the guarantee contained in this
      Section 11; and all dealings between the Company and HaptoGuard, on the one
      hand, and the Secured Parties, on the other hand, likewise shall be conclusively
      presumed to have been had or consummated in reliance upon the guarantee
      contained in this Section 11. HaptoGuard waives diligence, presentment, protest,
      demand for payment and notice of default or nonpayment to or upon the Company
      or
      HaptoGuard with respect to the Obligations. HaptoGuard understands and agrees
      that the guarantee contained in this Section 11 shall be construed as a
      continuing, absolute and unconditional guarantee of payment and performance
      without regard to (a) the validity or enforceability of the Note, Warrant and/or
      Purchase Agreement and any other documents executed and delivered in connection
      therewith, any of the Obligations or any other collateral security therefor
      or
      guarantee or right of offset with respect thereto at any time or from time
      to
      time held by any Secured Party, (b) any defense, set-off or counterclaim (other
      than a defense of payment or performance hereunder) which may at any time be
      available to or be asserted by the Company or any other Person against any
      Secured Party, or (c) any other circumstance whatsoever (with or without notice
      to or knowledge of the Company or HaptoGuard) which constitutes, or might be
      construed to constitute, an equitable or legal discharge of the Company for
      the
      Obligations, or of HaptoGuard under the guarantee contained in this Section
      11,
      in bankruptcy or in any other instance. When making any demand hereunder or
      otherwise pursuing its rights and remedies hereunder against HaptoGuard, any
      Secured Party may, but shall be under no obligation to, make a similar demand
      on
      or otherwise pursue such rights and remedies as it may have against the Company
      or any other Person or against any collateral security or guarantee for the
      Obligations or any right of offset with respect thereto, and any failure by
      any
      Secured Party to make any such demand, to pursue such other rights or remedies
      or to collect any payments from the Company or any other Person or to realize
      upon any such collateral security or guarantee or to exercise any such right
      of
      offset, or any release of the Company or any other Person or any such collateral
      security, guarantee or right of offset, shall not relieve any HaptoGuard of
      any
      obligation or liability hereunder, and shall not impair or affect the rights
      and
      remedies, whether express, implied or available as a matter of law, of any
      Secured Party against any HaptoGuard. For the purposes hereof “demand” shall
      include the commencement and continuance of any legal proceedings.

     

    (d)
      Reinstatement. The
      guarantee contained in this Section 11 shall continue to be effective, or be
      reinstated, as the case may be, if at any time payment, or any part thereof,
      of
      any of the Obligations is rescinded or must otherwise be restored or returned
      by
      any Secured Party upon the insolvency, bankruptcy, dissolution, liquidation
      or
      reorganization of the Company or HaptoGuard, or upon or as a result of the
      appointment of a receiver, intervenor or conservator of, or trustee or similar
      officer for, the Company or HaptoGuard or any substantial part of its property,
      or otherwise, all as though such payments had not been made.

     

    12. Access;
      Right of Inspection.
      The
      Collateral Agent shall at all times have full and free access during normal
      business hours following reasonable advance notice to all the books,
      correspondence and records of each Debtor, and the Collateral Agent and its
      representatives may examine the same, take extracts therefrom and make
      photocopies thereof, and each Debtor agrees to render to the Collateral Agent,
      at such Debtor's cost and expense, such clerical and other assistance as may
      be
      reasonably requested with regard thereto. The Collateral Agent and its
      representatives shall at all times also have the right to enter any premises
      of
      each Debtor and inspect any property of each Debtor where any of the Collateral
      of such Debtor granted pursuant to this Agreement is located for the purpose
      of
      inspecting the same, observing its use or otherwise protecting its interests
      therein.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    13. Further
      Assurances

     

    .
      Each
      Debtor agrees that from time to time, at the expense of such Debtor, that it
      shall promptly execute and deliver all further instruments and documents, and
      take all further action, that may be necessary or desirable, or that the
      Collateral Agent may reasonably request, in order to create and/or maintain
      the
      validity, perfection or priority of and protect any security interest granted
      hereby or to enable the Collateral Agent to exercise and enforce its rights
      and
      remedies hereunder with respect to any Collateral

     

    14. Term
      of Agreement.
      This
      Agreement and the Security Interest shall terminate on the date on which all
      payments under the Notes have been made in full. Upon such termination, the
      Collateral Agent will promptly file all termination statements with respect
      to
      any financing statement executed and filed pursuant to this Agreement.

     

    15. Notices.
      All
      notices, requests, demands and other communications hereunder shall be in
      writing and shall be sent in accordance with the provision of Section 11 of
      the
      Purchase Agreement.

     

    16. Miscellaneous.

     

    (a) No
      course
      of dealing between the Debtors and the Collateral Agent, nor any failure to
      exercise, nor any delay in exercising, on the part of the Collateral Agent,
      any
      right, power or privilege hereunder or under the Notes shall operate as a waiver
      thereof; nor shall any single or partial exercise of any right, power or
      privilege hereunder or thereunder preclude any other or further exercise thereof
      or the exercise of any other right, power or privilege.

     

    (b) All
      of
      the rights and remedies of the Collateral Agent with respect to the Collateral,
      whether established hereby or by the Notes or by any other agreements,
      instruments or documents or by law shall be cumulative and may be exercised
      singly or concurrently.

     

    (c) This
      Agreement constitutes the entire agreement of the parties with respect to the
      subject matter hereof and is intended to supersede all prior negotiations,
      understandings and agreements with respect thereto. Except as specifically
      set
      forth in this Agreement, no provision of this Agreement may be modified or
      amended except by a written agreement specifically referring to this Agreement
      and signed by the parties hereto.

     

    (d) In
      the
      event that any provision of this Agreement is held to be invalid, prohibited
      or
      unenforceable in any jurisdiction for any reason, unless such provision is
      narrowed by judicial construction, this Agreement shall, as to such
      jurisdiction, be construed as if such invalid, prohibited or unenforceable
      provision had been more narrowly drawn so as not to be invalid, prohibited
      or
      unenforceable. If, notwithstanding the foregoing, any provision of this
      Agreement is held to be invalid, prohibited or unenforceable in any
      jurisdiction, such provision, as to such jurisdiction, shall be ineffective
      to
      the extent of such invalidity, prohibition or unenforceability without
      invalidating the remaining portion of such provision or the other provisions
      of
      this Agreement and without affecting the validity or enforceability of such
      provision or the other provisions of this Agreement in any other
      jurisdiction.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    (e) No
      waiver
      of any breach or default or any right under this Agreement shall be considered
      valid unless in writing and signed by the party giving such waiver, and no
      such
      waiver shall be deemed a waiver of any subsequent breach or default or right,
      whether of the same or similar nature or otherwise.

     

    (f) This
      Agreement shall be binding upon and inure to the benefit of each party hereto
      and its successors and assigns.

     

    (g) This
      Agreement shall be construed in accordance with the laws of the State of New
      York, except to the extent the validity, perfection or enforcement of a security
      interest hereunder in respect of any particular Collateral which are pursuant
      to
      mandatory choice of law rules governed by a jurisdiction other than the State
      of
      New York in which case such law shall govern. 

     

    (h) This
      Agreement may be executed in any number of counterparts, each of which when
      so
      executed shall be deemed to be an original, and all of which taken together
      shall constitute one and the same Agreement. In the event that any signature
      is
      delivered by facsimile transmission, such signature shall create a valid binding
      obligation of the party executing (or on whose behalf such signature is
      executed) the same with the same force and effect as if such facsimile signature
      were the original thereof.

     

    (i) To
      the
      fullest extent permitted by applicable law, each Debtor shall remain obligated
      hereunder notwithstanding that, any demand for payment of any of the Obligations
      made by any Secured Party may be rescinded by such Secured Party and any of
      the
      Obligations continued, and the Obligations or any collateral security or
      guarantee therefor or right of offset with respect thereto, may, from time
      to
      time, in whole or in part, be renewed, extended, amended, modified, accelerated,
      compromised, waived, surrendered or released by the Collateral Agent or any
      Secured Party, and the Note, Warrant and/or Purchase Agreement and any other
      documents executed and delivered in connection therewith may be amended,
      modified, supplemented or terminated, in whole or in part, as the Collateral
      Agent (or the requisite Lenders) may deem advisable from time to time, and
      any
      collateral security, guarantee or right of offset at any time held by any
      Secured Party for the payment of the Obligations may be sold, exchanged, waived,
      surrendered or released. 

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Security & Guaranty
      Agreement to be duly executed on the day and year first above
      written.

     

    

     

    DEBTORS:

    

     

    ALTEON
      INC.

     

    

    By:
      _/s/
      Noah Berkowitz___________

    Name:
      Noah Berkowitz

    Title:
      President

    

    

    HAPTOGUARD,
      INC.

    

    

    By:
      _/s/
      Noah Berkowitz_______________

    Name:
      Noah Berkowitz

    Title:
      President

    

    

    COLLATERAL
      AGENT:

    

    

    BAKER
      BROS. ADVISORS, LLC

    

    

    By: /s/
      Felix Baker__________

    Name:
      Felix Baker, Ph.D.

    Title:
      Managing Member

    

    

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    SCHEDULE
      A

     

    Places
      of Business of the Company:

     

    6
      Campus
      Drive

    Parsippany,
      New Jersey 07054

    

     

    Locations
      Where Collateral is Located or Stored:

     

    6
      Campus
      Drive

    Parsippany,
      New Jersey 07054

    

     

    The
      Company is currently in negotiations to move its principal place of business
      from the Parsippany address to office space located at 221 West Grand Avenue,
      Montvale, NJ.

    

     

    

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      B

     

    Existing
      Liens

     

    None.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    SCHEDULE
      C

     

    

     

    List
      of
      Intellectual Property

     

    Copyrights

     

    None.

     

    Copyright
      Licenses

     

    None.

     

    

     

    Patents

     

    See
      attached for list of issued patents and patent applications of Alteon and
      HaptoGuard

     

    

     

    Patent
      Licenses

     

    
      	 	
              1.

            	
              Exclusive
                License Agreement dated as of September 28, 2004 by and between Oxis
                International, a Delaware corporation (“Oxis”) and HaptoGuard, as amended
                on March 22, 2005 and further amended on July 19, 2006.
                

            

    

     

    
      	 	
              2.

            	
              License
                and Research Agreement dated as of July 12, 2004 by and between BIO-RAP
                Technologies, Ltd., an Israeli corporation on its own behalf and
                on behalf
                of the Rappaport Family Institute for Research in the Medical Sciences
                and
                HaptoGaurd. 

            

    

     

    

     

    Trademarks

     

    See
      attached for list of registered trademarks of Alteon.

     

    HaptoGuard
      has no trademarks.

     

    

     

    Trademark
      Licenses

     

    None.

    

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    

     

    SCHEDULE
      D

    

    EXISTING
      LICENSES WHERE DEBTORS ARE LICENSORS

    

    

    License
      Agreement dated as of June 15, 2005 by and between Alteon and Avon Products,
      Inc., a New York Corporation. 

     

    
      
        
        

      

      
        18

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