Document:

Exhibit
4.1

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

October    , 2006                  W-    

COMMON STOCK PURCHASE WARRANT

To Purchase               
Shares of Common Stock of

CALLISTO PHARMACEUTICALS, INC.

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

Section 1.               Definitions.  Capitalized
terms used and not otherwise defined herein shall have the meanings set forth
in that certain Securities Purchase Agreement (the “Purchase Agreement”),
dated September    , 2006, among the Company and the purchasers
signatory thereto.

Section
2.               Exercise.

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

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

b)            Exercise Price.  The exercise price of the Common Stock under
this Warrant shall be $0.75, subject to adjustment hereunder (the “Exercise
Price”).

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

(A) = the VWAP on the Trading Day immediately
preceding the date of such election;

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

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

d)            Exercise
Limitations.

i.      Holder’s
Restrictions.  The Holder shall not
have the right to exercise any portion of this Warrant, pursuant to Section
2(c) or otherwise, to the extent that after giving effect to such issuance
after exercise, the Holder (together with the Holder’s affiliates), as set
forth on the applicable Notice of Exercise, would beneficially own in excess of
4.99% of the number of shares of the Common Stock outstanding immediately after
giving effect to such issuance.  For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by the Holder and its
affiliates shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which the determination of such
sentence is being made.  Except as set forth in the preceding sentence,
for purposes of this Section 2(d), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act, it being acknowledged by
Holder that the Company is not representing to Holder that such calculation is
in compliance with Section 13(d) of the Exchange Act and Holder is solely
responsible for any schedules required to be filed in accordance
therewith.   To the extent that the
limitation contained in this Section 2(d) applies, the determination of whether
this Warrant is exercisable (in relation to other securities owned by the
Holder) and of

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

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

e)             Mechanics
of Exercise.

i.      Authorization
of Warrant Shares.  The Company covenants
that all Warrant Shares which may be issued upon the exercise of the

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

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

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

iv.    No Fractional
Shares or Scrip.  No fractional
shares or scrip representing fractional shares shall be issued upon the
exercise of this Warrant.  As to any
fraction of a share which Holder would otherwise be

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entitled to purchase upon such exercise, the Company shall pay a cash
adjustment in respect of such final fraction in an amount equal to such
fraction multiplied by the Exercise Price.

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

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

Section
3.               Certain Adjustments.

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

b)            Subsequent
Equity Sales. Other than pursuant to an Exempt Issuance, for the twelve
(12) month period beginning on the effective date of the Registration Statement
registering the resale of the Warrant Shares by the Holder, if the Company
shall sell or grant any option to purchase or otherwise dispose of or issue any
Common Stock or Common Stock Equivalents entitling any Person to acquire shares
of Common

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Stock, at an effective price per share less than the then Exercise
Price (such lower price, the “Base Share Price” and such issuances
collectively, a “Dilutive Issuance”), as adjusted hereunder (if the
holder of the Common Stock or Common Stock Equivalents so issued shall at any
time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which is issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price
per share which is less than the Exercise Price, such issuance shall be deemed
to have occurred for less than the Exercise Price), then, the Exercise Price
shall be reduced then to an amount equal to the Base Share Price. Such
adjustment shall be made whenever such Common Stock or Common Stock Equivalents
are issued.  The Company shall notify the
Holder in writing, no later than the Trading Day following the issuance of any
Common Stock or Common Stock Equivalents subject to this section, indicating
therein the applicable issuance price, or of applicable reset price, exchange
price, conversion price and other pricing terms (such notice the “Dilutive
Issuance Notice”).  For purposes of
clarification, whether or not the Company provides a Dilutive Issuance Notice
pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance,
after the date of such Dilutive Issuance the Holder is entitled to receive a
number of Warrant Shares based upon the Base Share Price regardless of whether
the Holder accurately refers to the Base Share Price in the Notice of Exercise.

c)             Pro
Rata Distributions.  If the Company,
at any time prior to the Termination Date, shall distribute to all holders of
Common Stock (and not to Holders of the Warrants) evidences of its indebtedness
or assets or rights or warrants to subscribe for or purchase any security other
than the Common Stock, then in each such case the Exercise Price shall be
adjusted by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the VWAP determined
as of the record date mentioned above, and of which the numerator shall be such
VWAP on such record date less the then per share fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith.  In either case the adjustments shall be
described in a statement provided to the Holders of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock.  Such
adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.

d)            Calculations.
All calculations under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. The number of shares of Common
Stock outstanding at any given time shall not includes shares of Common Stock
owned or held by or for the account of the Company, and the description of any
such shares of Common Stock shall be considered on issue or sale of Common
Stock.  For purposes of this Section 3,
the number of shares of Common Stock deemed to be issued and outstanding as of
a given date shall be the sum of the number of shares of Common Stock
(excluding treasury shares, if any) issued and outstanding.

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e)             Notice
to Holders.

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

ii.     Notice
to Allow Exercise by Holder. If (A) the Company shall declare a dividend
(or any other distribution) on the Common Stock; (B) the Company shall declare
a special nonrecurring cash dividend on or a redemption of the Common Stock;
(C) the Company shall authorize the granting to all holders of the Common Stock
rights or warrants to subscribe for or purchase any shares of capital stock of
any class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company; then, in
each case, the Company shall cause to be mailed to the Holder at its last
addresses as it shall appear upon the Warrant Register of the Company, at least
10 calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or warrants, or
if a record is not to be taken, the date as of which the holders of the Common
Stock of record to be entitled to such dividend, distributions, redemption,
rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is
expected to become effective or close, and the date as of which it is expected
that holders of the Common Stock of record shall be entitled to exchange their
shares of the Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or share
exchange; provided, that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.  The Holder is entitled to exercise this
Warrant during the 10-day period commencing the date of such notice to the
effective date of the event triggering such notice.

f)             Reorganizations, Etc.  In case,
at any time during the Exercise Period, of any capital reorganization, of any
reclassification of the stock of the Company (other than a change in par value
or from par value to no par value or from no par value to par value or as a
result of a stock dividend or subdivision, split-up or combination of shares),
or the consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the continuing
operation and which

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does not result in any change or reclassification
in the Warrant Shares) or of the sale of all or substantially all the
properties and assets of the Company as an entirety to any other corporation,
the Company, at its sole discretion, shall have the right and option to (A)
provide 10 days prior written notice of such event to the Holder and this
Warrant shall terminate and be of no further force and effect on and after the
effective date of such capital reorganization or reclassification or the
consummation of such consolidation, sale or merger; or (B) provide that this Warrant
shall, after such reorganization, reclassification, consolidation, merger or
sale, be exercisable for the kind and number of shares of stock or other
securities or property of the Company or of the corporation resulting from such
consolidation or surviving such merger or to which such properties and assets
shall have been sold to which such holder would have been entitled if he, she
or it had held the Warrant Shares issuable upon the exercise hereof immediately
prior to such reorganization, reclassification, consolidation, merger or sale.

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

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

Section
4.               Transfer of Warrant.

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

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

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

d)            Transfer
Restrictions. If, at the time of the surrender of this Warrant in
connection with any transfer of this Warrant, the transfer of this Warrant
shall not be registered pursuant to an effective registration statement under
the Securities Act and under applicable state securities or blue sky laws, the
Company may require, as a condition of allowing such transfer (i) that the
Holder or transferee of this Warrant, as the case may be, furnish to the
Company a written opinion of counsel (which opinion shall be in form, substance
and scope customary for opinions of counsel in comparable transactions) to the
effect that such transfer may be made without registration under the Securities
Act and under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company an investment letter in
form and substance acceptable to the Company and (iii) that the transferee be
an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7),
or (a)(8) promulgated under the Securities Act or a qualified institutional
buyer as defined in Rule 144A(a) under the Securities Act.

Section
5.               Miscellaneous.

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

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

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

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

e)             Authorized
Shares.

The Company
covenants that during the period the Warrant is outstanding, it will reserve
from its authorized and unissued Common Stock a sufficient number of shares to
provide for the issuance of the Warrant Shares upon the exercise of any
purchase rights under this Warrant.  The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant.  The Company will take all such reasonable
action as may be necessary to assure that such Warrant Shares may be issued as
provided herein without violation of any applicable law or regulation, or of
any requirements of the Trading Market upon which the Common Stock may be
listed.

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

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

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

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

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

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

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

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

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

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

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

 11
 

 

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

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

 12
 

 

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

 

Dated:  October    , 2006

	
   

  	
  CALLISTO PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 13

 

 

 

NOTICE OF EXERCISE

TO:         CALLISTO
PHARMACEUTICALS, INC.

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

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

o
in lawful money of the United States; or

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

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

The
Warrant Shares shall be delivered to the following:

 

 

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

[SIGNATURE OF HOLDER]

	
  Name of Investing Entity:

  	
   

  
	
  Signature
  of Authorized Signatory of Investing Entity:

  	
   

  
	
  Name of
  Authorized Signatory:

  	
   

  
	
  Title of
  Authorized Signatory:

  	
   

  
	
  Date:

  	
   

  
						

 

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information. 

Do not use this form to exercise the warrant.)

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

                                                                                                           
whose address is

                                                                                                                                                  .

	
  

  	
  Dated:

  	
   

  	
  ,

  	
   

  	
   

  
	
   

  
	
   

  	
   

  
	
   

  	
  Holder’s
  Signature:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Holder’s
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Signature Guaranteed: 

  	
   

  	
   

  	
   

  
											

 

 

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

SECURITIES
PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”)
is dated as of October 23, 2006, by and among Callisto Pharmaceuticals, Inc., a
Delaware corporation (the “Company”), and the purchasers identified on
the signature pages hereto (each, including its successors and assigns, a “Purchaser”
and collectively the “Purchasers”).

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

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

ARTICLE I

DEFINITIONS

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

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

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

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

“Certificate of Designation” means the Certificate of Designation Designating Series A Convertible Preferred Stock to be filed prior to the Closing by the Company with the Secretary of State of Delaware, in the form of Exhibit A attached hereto.

 

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

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

“Commission”
means the Securities and Exchange Commission.

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

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

“Company
Counsel” means Sichenzia Ross Friedman Ference LLP.

 “Conversion Price” shall have the
meaning ascribed to such term in the Certificate of Designation.

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

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

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

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

 2
 

 

Company receives benefits
in addition to the investment of funds, but shall not include a transaction in
which the Company is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in securities.

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

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

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

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

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

“Preferred Stock” means the up to 400,000 shares of the Company’s Series A Convertible Preferred Stock issued hereunder having the rights, preferences and privileges set forth in the Certificate of Designation.

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

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

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

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

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

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

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

 3
 

 

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

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

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

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

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

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

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

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

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

“Warrants”
means collectively the Common Stock purchase warrants, in the form of Exhibit C
delivered to the Purchasers at the Closing in accordance with Section 2.2(a)
hereof, which Warrants shall be exercisable immediately and have a term of
exercise equal to 5 years.

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

 4
 

 

ARTICLE
II

PURCHASE AND SALE

2.1           Closing.  On the Closing Date, upon the terms and
subject to the conditions set forth herein, concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company agrees to sell,
and each Purchaser agrees to purchase in the aggregate, severally and not
jointly, up to $4,000,000 of shares of Preferred Stock with an aggregated
Stated Value equal to such Purchaser’s Subscription Amount and Warrants as
determined by pursuant to Section 2.2(a)(iii). 
The aggregate number of shares of Preferred Stock sold hereunder shall
be up to 400,000.  Each Purchaser shall
deliver to the Company via wire transfer or a certified check immediately
available funds equal to their Subscription Amount and the Company shall
deliver to each Purchaser their respective shares of Preferred Stock and
Warrants as determined pursuant to Section 2.2(a) and the other items set forth
in Section 2.2 issuable at the Closing. 
Upon satisfaction of the conditions set forth in Section 2.2, the
Closing shall occur at the offices of Company Counsel, or such other location
as the parties shall mutually agree.

2.2                                                         Deliveries.

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

(i)                                     this
Agreement duly executed by the Company;

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

(iii)                               a
Warrant registered in the name of such Purchaser to purchase up to a number of
shares of Common Stock equal to 100% of such Purchaser’s Subscription Amount
divided by the Conversion Price immediately prior to the Closing Date, with an
exercise price equal to $0.75, subject to adjustment therein;

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

(v)                                 a
certificate, dated the Closing Date, duly executed by an officer of the Company
to the effect that the conditions specified in Sections 2.3(b)(i) and
2.3(b)(ii) have been satisfied.

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

(i)                                     this
Agreement duly executed by such Purchaser;

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

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

 5
 

 

2.3                                                         Closing
Conditions.

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

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

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

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

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

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

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

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

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

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

 6
 

 

case, in the reasonable judgment of each
Purchaser, makes it impracticable or inadvisable to purchase the Preferred
Stock at the Closing.

ARTICLE
III

REPRESENTATIONS
AND WARRANTIES

3.1           Representations
and Warranties of the Company. 
Except as set forth under the corresponding section of the disclosure
schedules delivered to the Purchasers concurrently herewith (the “Disclosure
Schedules”) which Disclosure Schedules shall be deemed a part hereof, the
Company hereby makes the representations and warranties set forth below to each
Purchaser.

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

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

(c)           Authorization;
Enforcement.  The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and otherwise to
carry out its obligations thereunder.  The
execution and delivery of each of the Transaction Documents by the Company and
the consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and no further
action is

 7
 

 

required by the Company in connection
therewith other than in connection with the Required Approvals.  Each Transaction Document has been (or upon
delivery will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with
its terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.

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

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

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

 8
 

 

Underlying Shares at least equal to the
Actual Minimum on the date hereof.  The
Company has not, and to the knowledge of the Company, no Affiliate of the
Company has sold, offered for sale or solicited offers to buy or otherwise
negotiated in respect of any security (as defined in Section 2 of the
Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers, or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.

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

(h)           SEC Reports;
Financial Statements.  The Company
has filed all reports required to be filed by it under the Securities Act and
the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the
two years preceding the date hereof (or such shorter period as the Company was
required by law to file such material) (the foregoing materials, including the
exhibits thereto, being collectively referred to herein as the “SEC Reports”)
on a timely basis or has received a valid extension of such time of filing and
has filed any such SEC Reports prior to the expiration of any such extension.  As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the Commission
promulgated thereunder, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact 

 9
 

 

required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.  The
financial statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing.  Such financial statements have
been prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.

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

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

 10
 

 

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

(l)            Compliance.  Except as set forth in the SEC Reports or on
Schedule 3.1(l), neither the Company nor any Subsidiary (i) is in material
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other material
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been waived),
(ii) is in violation of any order of any court, arbitrator or governmental
body, or (iii) is or has been in violation of any statute, rule or regulation
of any governmental authority, including without limitation all foreign,
federal, state and local laws applicable to its business except in each case as
could not have a Material Adverse Effect.

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

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

(o)           Patents and
Trademarks.  The Company and the
Subsidiaries have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
licenses and other similar rights that are necessary or material for use in
connection with their respective businesses as described in the SEC Reports and
which the failure to so have could have a Material Adverse Effect
(collectively, the “Intellectual Property Rights”).  Neither the Company nor any Subsidiary has
received a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any Person.
To the

 11
 

 

knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights of
others.

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

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

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

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

 12
 

 

on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement.

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

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

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

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

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

 13
 

 

shareholder
approval provisions, including, without limitation, under the rules and
regulations of any exchange or automated quotation system on which any of the
securities of the Company are listed or designated. 

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

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

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

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

(a)           Organization;
Authority.  Such Purchaser is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by such

 14
 

 

Purchaser of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate or similar
action on the part of such Purchaser. 
Each Transaction Document to which it is a party has been duly executed
by such Purchaser, and when delivered by such Purchaser in accordance with the
terms hereof, will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may
be limited by applicable law.

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

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

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

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

(f)            Certain
Trading Activities.  Such Purchaser has not, directly or indirectly,

 15
 

 

nor has any Person acting on behalf of or pursuant to
any understanding with such Purchaser, engaged in (i) any Short Sales (defined
below) involving the Company’s securities during the 30 Trading Days
immediately preceding the date hereof or (ii) any transactions in any
securities of the Company following the date on which such Purchaser was aware
of this Transaction (other than this Transaction); provided, however, that the
restrictions contained in this Section 3.2(f) shall not apply after the date
that the Company publicly discloses the consummation of the transactions
contemplated hereby.  For purposes of this Section, “Short Sales” include,
without limitation, all types of direct and indirect stock pledges, forward
sale contracts, options, puts, calls, short sales, swaps and similar arrangements (including on a total return
basis), and sales and other transactions
through non-US broker dealers or foreign regulated brokers having the effect of
hedging the securities or investment made under this Agreement.

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

(h)           Regulation S.        The Purchaser is not acquiring the
Securities for the account or benefit of, directly or indirectly, any U.S.
Person.  The Purchaser is not a U.S.
Person. The Purchaser is acquiring the Securities for investment only and not
with a view to resale or distribution and, in particular, it has no intention
to distribute either directly or indirectly any of the Securities in the United
States or to U.S. Persons.  The Purchaser
acknowledges that the Purchaser has not acquired the Securities as a result of,
and will not itself engage in, any “directed selling efforts” (as defined in
Regulation S under the 1933 Act) in the United States in respect of the
Securities which would include any activities undertaken for the purpose of, or
that could reasonably be expected to have the effect of, conditioning the
market in the United States for the resale of the Securities; provided,
however, that the Purchaser may sell or otherwise dispose of the Securities
pursuant to registration of the Securities pursuant to the 1933 Act and any
applicable state and provincial securities laws or under an exemption from such
registration requirements and as otherwise provided herein.

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

 16

ARTICLE
IV

OTHER AGREEMENTS OF THE PARTIES

4.1           Transfer Restrictions.

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

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

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

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

 17
 

 

subject to
registration pursuant to the Registration Rights Agreement, the preparation and
filing of any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.

(c)           Certificates evidencing
the Underlying Shares shall not contain any legend (including the legend set
forth in Section 4.1(b) hereof): (i) while a registration statement (including
the Registration Statement) covering the resale of such security is effective
under the Securities Act, or (ii) following any sale of such Underlying Shares
pursuant to Rule 144, or (iii) if such Underlying Shares are eligible for sale
under Rule 144(k), or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company shall cause
its counsel to issue a legal opinion to the Company’s transfer agent promptly
after the Effective Date if required by the Company’s transfer agent to effect
the removal of the legend hereunder. If all or any shares of Preferred Stock or
any portion of a Warrant is converted or exercised (as applicable) at a time
when there is an effective registration statement to cover the resale of the
Underlying Shares, or if such Underlying Shares may be sold under Rule 144(k)
or if such legend is not otherwise required under applicable requirements of
the Securities Act (including judicial interpretations thereof) then such
Underlying Shares shall be issued free of all legends.  The Company agrees that following the
Effective Date or at such time as such legend is no longer required under this
Section 4.1(c), it will, no later than five Trading Days following the delivery
by a Purchaser to the Company or the Company’s transfer agent of a certificate
representing Underlying Shares, as applicable, issued with a restrictive legend
(such third Trading Day, the “Legend Removal Date”), deliver or cause to
be delivered to such Purchaser a certificate representing such shares that is
free from all restrictive and other legends. 
The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in this Section.

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

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

 18
 

 

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

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

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

4.6           Securities
Laws Disclosure; Publicity.  The
Company agrees that no later than one Trading Day after the Closing Date it
shall issue a press release announcing the Closing. Within four Trading Days
after the Closing Date, the Company shall issue a Current Report on Form 8-K
disclosing the material terms of the transactions contemplated hereby, and
shall attach the Transaction Documents thereto. 
The Company and each Purchaser shall consult with each other in issuing
any other press releases with respect to the transactions contemplated hereby,
and neither the Company nor any Purchaser shall issue any such press release or
otherwise make any such public statement without the prior consent of the
Company, with respect to any press release of any Purchaser, or without the
prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public statement or
communication.

4.7           Non-Public
Information.  The Company covenants
and agrees that neither it nor any other Person acting on its behalf will
provide any Purchaser or its agents or counsel with any information that the
Company believes constitutes material non-public information, unless prior
thereto such Purchaser shall have executed a written agreement regarding the
confidentiality and

 19
 

 

use of such
information.  The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.

4.8           Use of Proceeds.  Except as set forth on Schedule 4.8
attached hereto, the Company shall use the net proceeds from the sale of the
Securities hereunder for working capital purposes.

4.9           Indemnification of
Purchasers.   Subject to the
provisions of this Section 4.9, the Company will indemnify and hold the
Purchasers and their directors, officers, shareholders, partners, employees and
agents (each, a “Purchaser Party”) harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses
(collectively, “Losses”), including all judgments, amounts paid in settlements,
court costs and reasonable attorneys’ fees and costs of investigation that any
such Purchaser Party may suffer or incur as a result of or relating to (a) any
breach of any of the representations, warranties, covenants or agreements made
by the Company in this Agreement or in the other Transaction Documents or (b)
any action instituted against a Purchaser, or any of them or their respective
Affiliates, by any stockholder of the Company who is not an Affiliate of such
Purchaser, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of such
Purchaser’s representation, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser may have with any
such stockholder or any violations by the Purchaser of state or federal
securities laws or any conduct by such Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance). 
If any action shall be brought against any Purchaser Party in respect of
which indemnity may be sought pursuant to this Agreement, such Purchaser Party
shall promptly notify the Company in writing, and the Company shall have the
right to assume the defense thereof with counsel of its own choosing.  Any Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action the Purchaser Party reasonable concludes that,
either (x) one or more defenses are available to the Purchaser Party that are not
available to the Company or (y) a conflict or potential conflict exists between
the Company, on the one hand, and such Purchaser Party, on the other hand, that
would make such separate representation advisable.  The Company will not be liable to any Purchaser
Party under this Agreement (i) for any settlement by a Purchaser Party effected
without the Company’s prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to any Purchaser Party’s breach of
any of the representations, warranties, covenants or agreements made by the
Purchasers in this Agreement or in the other Transaction Documents.

4.10         Contribution.  If the indemnification provided for in this
Article IV from the Company is unavailable to a Purchaser Party hereunder in
respect of any Losses referred to herein, then the Company, in lieu of
indemnifying such Purchaser Party, shall contribute to the amount paid or
payable by such Purchaser Party as a result of such Losses in such proportion
as is appropriate to reflect the relative fault of the Company and Purchaser
Party in connection with the actions which resulted in such Losses, as well as
any other relevant equitable considerations.

 20
 

 

The relative
faults of the Company and such Purchaser Party shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
the Company or such Purchaser Party, and the parties relative intent,
knowledge, access to information and opportunity to correct or prevent such
action.  The amount paid or payable by a
party as a result of the Losses referred to above shall be deemed to include
any legal or other fees, charges or expenses reasonably incurred by such party
in connection with any investigation or proceeding.

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

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

ARTICLE V

MISCELLANEOUS

5.1           Termination.  This Agreement may be terminated by any Purchaser,
by written notice to the other parties, if the Closing has not been consummated
on or before October      , 2006; provided that no
such termination will affect the right of any party to sue for any breach by
the other party (or parties).

5.2           Fees
and Expenses.  Except as expressly
set forth in the Transaction Documents to the contrary, each party shall pay
the fees and expenses of its advisers, counsel, accountants and other experts,
if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this
Agreement.  The Company shall pay all
transfer agent fees, stamp taxes and other taxes and duties levied in
connection with the issuance of any Securities.

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

 21
 

 

exhibits and
schedules.

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

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

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

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

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

5.9           Governing Law.  All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof.  Each party agrees that all
legal proceedings concerning the interpretations, enforcement and defense of
the transactions contemplated by this Agreement and

 22
 

 

any other
Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of
New York.  Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting
in the City of New York, borough of Manhattan for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the
enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or inconvenient venue for such
proceeding.  Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of process
and notice thereof.  Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law.  The parties
hereby waive all rights to a trial by jury. 
If either party shall commence an action or proceeding to enforce any
provisions of the Transaction Documents, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its attorneys’
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.

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

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

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

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

 23
 

 

circumstances
shall also pay any reasonable third-party costs associated with the issuance of
such replacement Securities.

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

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

 

[SIGNATURE PAGE FOLLOWS]

 24
 

 

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

 

	
  CALLISTO PHARMACEUTICALS, INC.

  	
  Address for Notice:

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  Callisto Pharmaceuticals, Inc.

  
	
   

  	
  Name: Gary Jacob,
  Ph.D.

  	
  420 Lexington Avenue, Suite 1609

  
	
   

  	
  Title: Chief
  Executive Officer

  	
  New York, NY 10170

  
				

 

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

Jeffrey J. Fessler, Esq.

Sichenzia Ross Friedman
Ference LLP

1065 Avenue of the Americas

New York, New York 10018

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 25
 

 

[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE
AGREEMENT]

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

	
  Name of Investing Entity:

  	
   

  	
   

  
	
  Signature
  of Authorized Signatory of Investing Entity:

  	
   

  	
   

  
	
  Name of
  Authorized Signatory:

  	
   

  	
   

  
	
  Title of
  Authorized Signatory:

  	
   

  	
   

  
	
  Email Address of
  Authorized Signatory:

  	
   

  	
   

  
	
  Tax ID number of
  Investing Entity:

  	
   

  	
   

  
													

 

Address for Notice
of Investing Entity:

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

Subscription Amount:

Shares of Preferred
Stock:

Warrant Shares:

[SIGNATURE PAGES CONTINUE]

 26
 

 

 

Annex A

CLOSING STATEMENT

Pursuant
to the attached Securities Purchase Agreement, dated as of the date hereto, the
purchasers shall purchase up to $        
of Preferred Stock and Warrants from Callisto Pharmaceuticals, Inc. (the “Company”).  All funds will be disbursed in accordance
with this Closing Statement.

Disbursement
Date:      , 2006

	
   

  	
   

  	
   

  	
   

  
	
  I.  PURCHASE
  PRICE

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Gross Proceeds to be Received

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  II.  DISBURSEMENTS

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total Amount Disbursed:

  	
   

  	
  $

  	
   

  	
   

  

 

 

WIRE
INSTRUCTIONS:

	
  To: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  To:

  	
   

  	
   

  

 

 27

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