Document:

Exhibit 10.2

SECURITIES PURCHASE AGREEMENT

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

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

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

ARTICLE
I.

DEFINITIONS

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

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

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

“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
other class of securities into which such securities may hereafter have been
reclassified or changed into.

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

“Company Counsel”
means Sichenzia Ross Friedman Ference LLP, with offices at 1065 Avenue of the
Americas, 21st Floor, New York, NY 10018.

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

“Debentures”
means, the 6% Convertible Debentures due, subject to the terms therein, two
years from their date of issuance, issued by the Company to the Purchasers
hereunder, in the form of Exhibit A.

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

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

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

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

“Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to
employees, officers, directors or consultants of the Company (including shares
of Common Stock issued pursuant to the exercise of such options) 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 or exchange of or conversion of any Securities
issued hereunder and/or securities exercisable or exchangeable for or
convertible into shares of Common Stock issued and outstanding on the date of
this Agreement, provided that such securities have not been amended since the
date of this Agreement to increase the number of such securities or to decrease
the exercise, exchange or conversion price of any such securities below $0.55
per share (subject to adjustment for reverse and forward stock splits and the
like), (c) securities issued pursuant to acquisitions or strategic transactions
approved by a majority of the disinterested directors, provided any such
issuance shall only be to a Person which is, itself or through its
subsidiaries, an operating company in a business synergistic with the business
of the Company and in which the Company receives benefits in addition to the

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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, or (d) shares of Common Stock
priced at no less than the Conversion Price in effect at the time of issuance,
together with warrants (on the baiss of no more than one warrant for each share
sold) having a term of six years or less, and an exercise price equal or
greater than the Warrants in an aggregate amount not exceeding $8,500,000
(including shares of Common Stock and Warrants issuable to the Lead Investor
upon the exercise of Lead Investor warrants).

“Filing Date”
shall have the meaning ascribed to such term in the Registration Rights
Agreement.

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

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

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

“Knowledge” means,
with respect to any person, the actual or constructive knowledge of such person
and, in the case of a corporation, the actual or constructive knowledge of its
executive officers and directors.

“Lead Investor”
means Gian Luigi Buitoni.

“Lead Investor
Warrants” means warrants delivered to the Lead Investor at Closing to
purchase up to 6,363,637 shares of common stock and warrants (on the basis of
one warrant for each share) for $0.55 per share until August 31, 2007, provided
the Company completes an aggregate of $5.0 million of equity financing (not
including the Debentures and Warrants) by May 14, 2007.

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

“LE” means Lehman
& Eilen LLP, Lead Investor’s counsel.

“Liens” means a
lien, charge, with respect to any asset, any mortgage, lien, pledge, charge,
security interest, or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
conditional sale or other retention agreement, any lease in the nature thereof,
any option or other agreement to sell or give a security interest in and any
filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).

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

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

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

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

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

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

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

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

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

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

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

“Required Minimum”
means, as of any date, the maximum aggregate number of shares of Common Stock
then issued or potentially issuable in the future pursuant to the Transaction
Documents, including any Underlying Shares issuable upon exercise or conversion
in full of all Warrants and Debentures (including Underlying Shares issuable as
payment of interest), ignoring any conversion or exercise limits set forth
therein, and assuming that the Conversion Price is at all times on and after
the date of determination 75% of the then Conversion Price on the Trading Day
immediately prior to the date of determination.

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

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

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

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

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

“Subscription Amount”
means, as to each Purchaser, the aggregate amount to be paid for Debentures and
Warrants purchased hereunder as specified below such Purchaser’s name on the
signature page of this Agreement and next to the heading “Subscription Amount”,
in United States Dollars and in immediately available funds.  Notwithstanding anything herein to the
contrary, in lieu of immediately available funds, a Purchaser may surrender any
debt obligations owed to it by the Company at the Closing.

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

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

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

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

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

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

“Transaction Documents”
means this Agreement, the Debentures, 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 issued and issuable upon conversion of the
Debentures and upon exercise of the Warrants and issued and issuable in lieu of
the cash payment of interest on the Debentures in accordance with the terms of
the Debentures.

“VWAP” means, for
any date, the price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the Trading Market on which the Common Stock is
then listed or quoted as reported by Bloomberg Financial L.P. (based on a
Trading Day from

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9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b)  if the Common Stock is not then listed or quoted on a Trading Market
and if prices for the Common Stock are then reported in the “Pink Sheets”
published by the Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price per
share of the Common Stock so reported; or (c) in all other cases, the fair
market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Purchasers and reasonably acceptable to
the Company.

“Warrants” means
collectively the Common Stock purchase warrants, in the form of Exhibit D
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 six years.

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

ARTICLE
II.

PURCHASE
AND SALE

2.1           Closing.  On the Closing Date, upon the terms and
subject to the conditions set forth herein, the Company agrees to sell, and
each Purchaser agrees to purchase, a Debenture in the principal amount equal to
such Purchaser’s Subscription Amount, and a Warrant as described in Section
2.2(a).  In no event will the aggregate
principal amount of the Debentures sold hereunder in combination with any other
agreements for debentures and warrants on the same terms and conditions as the
Debentures and Warrants prior to the Filing Date as permitted pursuant to
Section 4.14 exceed $2,200,000, without the consent of the Company and
Purchasers that have theretofore executed a counterpart of this Agreement.  Prior to or at the Closing, each Purchaser
shall deliver to the Company via wire transfer or a certified check to the
trust account of the Company’s Counsel set forth on Annex A hereto, immediately
available funds (or via surrender of existing debt obligations) equal to their
Subscription Amount, and the Company shall deliver to each Purchaser their
respective Debenture 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 Sections 2.2 and 2.3, the Closing shall occur at the offices of Lehman &
Eilen, LLP, 50 Charles Lindbergh Blvd., Suite 505, Uniondale, NY 11553, 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 at the above address the
following:

(i)            this Agreement duly
executed by the Company;

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

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(iii)          a Debenture with a principal amount equal to
such Purchaser’s Subscription Amount, registered in the name of such Purchaser;

(iv)          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 $0.55, with an exercise price
equal to $0.70 subject to adjustment therein;

(v)           a lock-up agreement, in the form of Exhibit
F attached hereto, duly executed by all (a) officers and directors and (b)
stockholders of the Company that beneficially own 10% or more of the
outstanding Common Stock as of the date hereof; and

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

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

(i)            this Agreement duly
executed by such Purchaser;

(ii)           such Purchaser’s Subscription Amount by wire
transfer to the account as set forth in Annex A; and

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

(c)           On the Closing Date,
the Company shall deliver the Lead Investor Warrant to the Lead Investor.

2.3           Closing Conditions.

(a)             The obligations of
the Company hereunder in connection with the Closing are subject to the
following conditions being met, any or all of which may be waived by the
Company:

(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 obligations of
each Purchaser hereunder in connection with the Closing are subject to the
following conditions being met, any or all of which may be waived by such
Purchaser in writing:

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(i)            the accuracy in all material respects 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 to such Purchaser 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;

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

(vi)          Each of L. David Tomei,
Samuil Umansky and Gabriele Cerrone (“Principal Executives”) shall have
resigned as officers and directors of the Company, except that Dr. Tomei shall
remain as a Consultant to the Company and President of the Company’s SpaXen
joint venture, Dr. Umansky shall remain as the Company’s Chief Scientific
Officer and Mr. Cerrone shall remain as a Consultant to the Company;

(vii)         The Principal Executives
shall have agreed to reduce their compensation from the Company by 30% in
exchange for an equity grant approved by a committee of independent directors
[or insert actual grant];

(viii)        The actions taken in
accordance with paragraphs (vi) and (vii) of this Section 2.2(b) do not result
in the acceleration of payments or vesting of options (except to the extent
that the resignation of Dr. Tomei and appointment of Gian Luigi Buitoni as
Chairman vests 200,000 options granted to Dr. Tomei April 12, 2006; and

(ix)           The remaining members of
the Board of Directors shall have appointed Gian Luigi Buitoni, Chairman of the
Board, with the temporary authority of CEO, and two additional nominees designated
by the Lead Investor

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on or before the Company’s next annual meeting of
shareholders (collectively, the “Investor Nominees”).

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).  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.  Except as described in Schedule 3.1, the
Company and each of the Subsidiaries, is an entity duly incorporated or
otherwise organized, validly existing and in good standing (unless such
Subsidiary is indicated to be “inactive” on Schedule 3.1(a) attached hereto and
which Subsidiaries have no material assets) 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 or
condition (financial or otherwise) of the Company and the Subsidiaries, taken
as a whole, or (iii) a material adverse effect on the Company’s ability to
perform in any material respect on a timely basis its obligations under any
Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”)
and no Proceeding has been instituted in any such jurisdiction revoking,
limiting or curtailing or seeking to revoke, limit or curtail such power and
authority or qualification.

(c)           Authorization; Enforcement.  The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
each of the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder.  The execution
and delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and

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thereby have been duly authorized by all necessary corporate action on
the part of the Company and no further action is required by the Company, its board
of directors or its stockholders in connection therewith other than in
connection with the Required Approvals. 
Each Transaction Document has been (or upon delivery will have been)
duly executed by the Company and, when delivered in accordance with the terms
hereof and thereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law..

(d)           No Conflicts.  The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the other transactions contemplated hereby and thereby do not and will not: (i)
conflict with or violate any provision of the Company’s or any Subsidiary’s
certificate or articles of incorporation, bylaws or other organizational or
charter documents, or (ii) conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, result
in the creation of any Lien upon any of the properties or assets of the Company
or any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both)
of, any agreement, credit facility, debt or other instrument (evidencing a
Company or Subsidiary debt or otherwise) or other understanding to which the
Company or any Subsidiary is a party or by which any property or asset of the
Company or any Subsidiary is bound or affected, or (iii) subject to the
Required Approvals and assuming the accuracy of the representations and
warranties in Section 3.2, 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 and any other filings
required pursuant to the Registration Rights Agreement, (iii) the notice and/or
application(s) to each applicable Trading Market for the issuance and sale of
the Debentures and Warrants and the listing of the Underlying Shares for
trading thereon in the time and manner required thereby and (iv) the filing of
Form D with the Commission and such filings as are required to be made under
applicable state securities laws (collectively, the “Required Approvals”).

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

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

(h)           SEC Reports; Financial Statements.  The Company has filed all reports, schedules,
forms, statements and other documents 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 and documents incorporated by
reference therein, being collectively

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referred to herein as the “SEC Reports”).  Except as set forth on Schedule 3.1(h),
each quarterly and annual report has been filed 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 (or if amended
or superseded, as of the date of such amendment or superseded filing), 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 (or
if amended or superseded, as of the date of such amendment or superseded
filing), contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.  The financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing.  Such financial statements have been prepared
in accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.

(i)            Material Changes.  Since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports or in Schedule 3.1(i), (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
materially altered its method of accounting, (iv) the Company has not declared
or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plans. 
Except for the issuance of the Securities contemplated by this Agreement
or as set forth on Schedule 3.1(i), no event, liability or development
has occurred or exists with respect to the Company or its Subsidiaries or their
respective business, properties, operations or financial condition, that would
be required to be disclosed by the Company under applicable federal securities
laws at the time this representation is made that has not been publicly
disclosed.

(j)            Litigation.  Except as disclosed in the SEC Reports or on
Schedule 3.1(j), 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,

 12
 

 

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, to the Company’s knowledge, any director or executive
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, to
the Company’s knowledge, any current or former director or executive officer of
the Company.  The Commission has not
issued any stop order or other order suspending the effectiveness of any
outstanding registration statement filed by the Company or any Subsidiary under
the Exchange Act or the Securities Act. 
None of the Company’s or its Subsidiaries’ employees is a member of a
union that relates to such employee’s relationship with the Company, and
neither the Company or any of its Subsidiaries is a party to a collective
bargaining agreement, and the Company and its Subsidiaries believe that their
relationships with their employees are good. 
To the knowledge of the Company (i) no executive officer of the Company
or any Subsidiary is, or is now expected to be, in violation of any material
term of any employment contract, confidentiality, disclosure or proprietary
information agreement or non-competition agreement, or any other contract or
agreement or any restrictive covenant, and (ii) the continued employment of
each such executive officer does not subject the Company or any of its
Subsidiaries to any liability with respect to any of the foregoing
matters.  The Company and its
Subsidiaries are in compliance with all U.S. federal, state, local and foreign
laws and regulations relating to employment and employment practices, terms and
conditions of employment and wages and hours, except where the failure to be in
compliance could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.

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

 13
 

 

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

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

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

(p)           Insurance.  The Company and the Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which the Company and the Subsidiaries are engaged, including, but not limited
to, directors and officers insurance coverage at least equal to the aggregate
Subscription Amount.  To the best
knowledge of the Company, 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.

 14
 

 

(q)           Transactions With Affiliates and
Employees.  Except as set forth in
the SEC Reports, none of the executive 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, executive 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 executive officer,
director or such employee or, to the knowledge of the Company, any entity in
which any executive officer, director, or any such employee has a substantial
interest or is an executive officer, director, trustee or partner, in each case
in excess of $60,000 other than (i) for payment of salary or consulting fees
for services rendered, (ii) reimbursement for expenses incurred on behalf of
the Company and (iii) for other employee benefits, including stock option
agreements under any stock option plan of the Company.

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

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

 15
 

 

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

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

(v)           Registration Rights.  Other than each of the Purchasers, except as
described in Schedule 3.1(v) no Person has any right to cause the Company to
effect the registration under the Securities Act of any securities of the
Company.

(w)          Listing and
Maintenance Requirements.  The Company
has not, in the 12 months preceding the date hereof, received notice from any
Trading Market on which the Common Stock is or has been listed or quoted to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in
compliance with all such listing and maintenance requirements.

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

(y)           Disclosure.  . 
..  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.

(z)            No Integrated
Offering. Assuming the accuracy of the Purchasers’ representations and
warranties set forth in Section 3.2, neither the Company, nor any of its
affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made

 16
 

 

any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would cause
this offering of the Securities to be integrated with prior offerings by the
Company for purposes of the Securities Act or any applicable shareholder
approval provisions, including, without limitation, under the rules and
regulations of any Trading Market on which any of the securities of the Company
are listed or designated.

(aa)         Solvency.  Based on the financial condition of the
Company as of the Closing Date after giving effect to the receipt by the
Company of the net proceeds from the sale of the Securities hereunder, (i) the
Company’s fair saleable value of its assets exceeds the amount that will be
required to be paid on or in respect of the Company’s existing debts and other
liabilities (including known contingent liabilities) as they mature; (ii) the
Company’s assets do not constitute unreasonably small capital to carry on its
business and as proposed to be conducted until February 28, 2007 including its
capital needs taking into account the particular capital requirements of the
business conducted by the Company; and (iii) the current cash flow of the
Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its debt
due on or before February 28,  2007.  The Company does not intend to incur debts
beyond its ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its debt).  Assuming the ability to raise $5 million
before May 14, 2007, the Company has no knowledge of any facts or circumstances
which lead it to believe that it will file for reorganization or liquidation
under the bankruptcy or reorganization laws of any jurisdiction within one year
from the Closing Date.  The SEC Reports
set forth as of the dates thereof all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or for which the Company or any
Subsidiary has commitments.  For the
purposes of this Agreement, “Indebtedness” shall mean (a) any
liabilities for borrowed money or amounts owed in excess of $50,000 (other than
trade accounts payable incurred in the ordinary course of business), (b) all
guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. 
Neither the Company nor any Subsidiary is in default with respect to any
Indebtedness, except as disclosed in Schedule 3.1(aa).

(bb)         Tax Status.             Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect or except as disclosed on Schedule 3.1(bb), the Company
and each Subsidiary has filed all necessary federal, state and foreign income
and franchise tax returns and has paid or accrued all taxes shown as due
thereon, and the Company has no knowledge of a tax deficiency which has been
asserted or threatened against the Company or any Subsidiary.

(cc)         No General
Solicitation. Neither the Company nor any person acting on behalf of the
Company has offered or sold any of the Securities by any form of general

 17
 

 

solicitation or general advertising.  The Company has offered the Securities for
sale only to the Purchasers and certain other “accredited investors” within the
meaning of Rule 501 under the Securities Act.

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

(ee)         Accountants.  The Company’s accountants are set forth on Schedule
3.1(ff) of the Disclosure Schedule. 
To the knowledge of the Company, such accountants, who the Company
expects will express their opinion with respect to the financial statements to
be included in the Company’s Annual Report on Form 10-KSB for the year ending
January 31, 2007 are a registered public accounting firm as required by the
Securities Act.

(ff)           Seniority.  As of the Closing Date, no indebtedness or
other equity of the Company is senior to the Debentures in right of payment,
whether with respect to interest or upon liquidation or dissolution, or
otherwise, other than indebtedness secured by purchase money security interests
(which is senior only as to underlying assets covered thereby) and capital
lease obligations (which is senior only as to the property covered thereby).

(gg)         No Disagreements with
Accountants and Lawyers.  There are
no disagreements of any kind presently existing, or reasonably anticipated by
the Company to arise, between the accountants and lawyers formerly or presently
employed by the Company and the Company is current with respect to any fees
owed to its accountants and lawyers, except as disclosed on Schedule 3.1(gg).

(hh)         Acknowledgment Regarding
Purchasers’ Purchase of Securities. 
The Company acknowledges and agrees that each of the Purchasers is
acting solely in the capacity of an arm’s length purchaser with respect to the
Transaction Documents and the transactions contemplated 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.

 18
 

 

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

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

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

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

 19
 

 

general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may
be limited by applicable law.

(b)           Own Account.  Such Purchaser understands that (i) the
Securities are “restricted securities” and that the offer and sale of the
Securities have not been registered under the Securities Act or any applicable
state securities law and (ii) the Securities must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration.  Such
Purchaser is acquiring the Securities as principal for its own account and not
with a view to or for distributing or reselling such Securities or any part
thereof in violation of the Securities Act or any applicable state securities law, has no present intention
of distributing any of such Securities in violation of the Securities Act or any applicable state securities law
and has no 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) in violation of the Securities Act or any applicable state securities law.  Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business. 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 or converts any Debentures it will be either: (i) an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under
the Securities Act, (ii) a “qualified institutional buyer” as defined in Rule
144A(a) under the Securities Act, or (iii) is not a “U.S. Person as defined in
Regulation S under the Securities Act and would qualify as an accredited
investor if such Purchaser was a U.S. Person. 
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)            Short Sales and
Confidentiality Prior To The Date Hereof. 
Other than the transaction contemplated hereunder, such Purchaser has
not directly or indirectly, nor has

 20
 

 

any Person acting on behalf of or pursuant to
any understanding with such Purchaser, executed any disposition, including
Short Sales, in the securities of the Company during the period commencing
from the time that such Purchaser first received a term sheet from the Company
or any other Person setting forth the material terms of the transactions
contemplated hereunder until the date hereof (“Discussion Time”).  Notwithstanding the foregoing, in the case of
a Purchaser that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchaser’s assets and the
portfolio managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser’s assets, the
representation set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement.  Other than to other Persons party to this
Agreement, such Purchaser has maintained the confidentiality of all disclosures
made to it in connection with this transaction (including the existence and
terms of this transaction).

(g)           Independent
Investigation.  Such Purchaser, in
acquiring the Securities, has relied solely upon an independent investigation
made by such Purchaser and his or her representatives, if any.  Prior to the date hereof, such Purchaser has
been given the opportunity to ask questions of, and receive answers from,
representatives of the Company regarding the Company’s management, finances,
and business.  Such Purchaser also has
received and carefully reviewed the SEC Reports and is knowledgeable about the
affairs of the Company.

(h)           No Government
Recommendation or Approval.  Such
Purchaser understands that no United States federal or state agency, or similar
agency of any other country, has reviewed, approved, passed upon, or made any
recommendation or endorsement of the Company or the purchase of the Securities.

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

ARTICLE
IV.

OTHER
AGREEMENTS OF THE PARTIES

4.1           Transfer
Restrictions.

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

 21

 

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
in the following form:

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

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

(c)   Certificates evidencing the
Underlying Shares shall not contain any legend (including the legend set forth
in Section 4.1(b) hereof): (i) while a registration statement (including the
Registration Statement) covering the resale of such security is effective under
the Securities Act, or (ii) following any sale of such Underlying Shares
pursuant to Rule 144, or (iii) if such Underlying Shares are eligible for sale
under Rule 144(k), or

 22
 

 

(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 portion of a Debenture or
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 three
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.  Certificates for Securities
subject to legend removal hereunder shall be transmitted by the transfer agent
of the Company to the Purchasers by crediting the account of the Purchaser’s
prime broker with the Depository Trust Company System..

(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.

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

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

4.3           Furnishing
of Information.  As long as the
Purchasers beneficially own 10% or more of the 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

 23
 

 

Company after
the date hereof pursuant to the Exchange Act. 
As long as the Purchasers beneficially own 10% or more of the
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 form of Notice of
Conversion included in the Debentures set forth the
totality of the procedures required of the Purchasers in order to exercise the
Warrants or convert the Debentures.  No
additional legal opinion or other information or instructions shall be required
of the Purchasers to exercise their Warrants or convert their Debentures.  The Company shall honor exercises of the
Warrants and conversions of the Debentures and shall deliver Underlying Shares
in accordance with the terms, conditions and time periods set forth in the
Transaction Documents.

4.6           Securities Laws
Disclosure; Publicity.  The Company
shall, by 5:30 p.m. Eastern time on the fourth Trading Day following the
Closing Date, file a Current Report on Form 8-K, reasonably acceptable to the
Purchasers acquiring 75% of the principal amount of Debentures at the Closing
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 Purchasers holding at least 75% of the principal amount of
Debenture then outstanding, 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.  Notwithstanding the foregoing, the Company
shall not publicly disclose the name of any Purchaser, or include the name of
any Purchaser in any filing with the Commission or any regulatory agency or
Trading Market, without the prior written consent of such Purchaser, except (i)
as required by federal securities law in connection with the registration
statement contemplated by the Registration Rights Agreement and (ii) to the
extent such disclosure is required by law or Trading Market regulations, in
which case the Company shall provide the Purchasers with prior notice of such
disclosure permitted under subclause (i) or (ii).

 24
 

 

4.7           Shareholder
Rights Plan.  No claim will be made
or enforced by the Company or, to the knowledge of the Company, any other
Person that any Purchaser is an “Acquiring Person” under any shareholder rights
plan or similar plan or arrangement in effect or hereafter adopted by the
Company, or that any Purchaser could be deemed to trigger the provisions of any
such plan or arrangement, by virtue of receiving Securities under the
Transaction Documents or under any other agreement between the Company and the
Purchasers. The Company shall conduct its business in a manner so that it will
not become subject to the Investment Company Act.

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

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

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

4.11         Indemnification of
Purchasers.   Subject to the
provisions of this Section 4.11, the Company will indemnify and hold each
Purchaser and its directors, officers, shareholders, members, partners,
employees and agents (and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such title or any
other title), each Person who controls such Purchaser (within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents, members, partners or employees (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title) of such controlling
person (each, a

 25
 

 

“Purchaser
Party”) harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of
or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against a Purchaser, or any
of them or their respective Affiliates, by any stockholder of the Company who
is not an Affiliate of such Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a
breach of such Purchaser’s representations, warranties or covenants under the
Transaction Documents or any agreements or understandings such Purchaser may
have with any such stockholder or any violations by the Purchaser of state or
federal securities laws or any conduct by such Purchaser which constitutes
fraud, gross negligence, willful misconduct or malfeasance).  If any action shall be brought against any
Purchaser Party in respect of which indemnity may be sought pursuant to this
Agreement, such Purchaser Party shall promptly notify the Company in writing,
and the Company shall have the right to assume the defense thereof with counsel
of its own choosing.  Any Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to
assume such defense and to employ counsel or (iii) in such action there is, in
the reasonable opinion of such separate counsel, a material conflict on any
material issue between the position of the Company and the position of such
Purchaser Party.  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.

4.12         Reservation
and Listing of Securities.

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

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

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

 26
 

 

as possible thereafter, (iii)
provide to the Purchasers evidence of such listing, and (iv) maintain the
listing of such Common Stock on any date at least equal to the Required Minimum
on such date on such Trading Market or another Trading Market.

4.13         Participation
in Future Financing.

(a)           From the date hereof
until the date that is the twelve month anniversary of the Closing Date, upon
any financing by the Company or any of its Subsidiaries of Common Stock or
Common Stock Equivalents (a “Subsequent Financing”), each Purchaser
shall have the right, subject to the terms and conditions of this Section 4.13,
to participate in up to an amount of the Subsequent Financing equal to 100% of
the Subsequent Financing (the “Participation Maximum”).

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

(c)           Any Purchaser desiring to
participate in such Subsequent Financing must provide written notice to the
Company by not later than 5:30 p.m. (New York City time) on the 5th Trading Day after the Pre-Notice was delivered
to all of the Purchasers that the Purchaser is willing to participate in the
Subsequent Financing, the amount of the Purchaser’s participation, and that the
Purchaser has such funds ready, willing, and available for investment on the
terms set forth in the Subsequent Financing Notice.  If the Company receives no notice from a
Purchaser as of such 5th Trading Day, such Purchaser shall be deemed to
have notified the Company that it does not elect to participate.

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

(e)           If by 5:30 p.m. (New
York City time) on the 5th Trading Day after the Pre-Notice was delivered
to all of the Purchasers, the Company receives responses to a Subsequent
Financing Notice from Purchasers seeking to purchase more than the aggregate
amount of the Participation Maximum, each such Purchaser shall have the right

 27
 

 

to purchase the greater of (a)
their Pro Rata Portion (as defined below) of the Participation Maximum and (b)
the difference between the Participation Maximum and the aggregate amount of
participation by all other Purchasers.  “Pro Rata Portion” is the
ratio of (x) the Subscription Amount of Securities purchased on the Closing
Date by a Purchaser participating under this Section 4.13 and (y) the sum of
the aggregate Subscription Amounts of Securities purchased on the Closing Date
by all Purchasers participating under this Section 4.13.

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

(g)           Notwithstanding the
foregoing, this Section 4.13 shall not apply in respect of an Exempt Issuance.

4.14         Subsequent
Equity Sales.

(a)           From the date hereof
until such time as no Purchaser holds any of the Securities, the Company shall
be prohibited from effecting or entering into an agreement to effect any Subsequent
Financing involving a “Variable Rate Transaction”.  The term “Variable Rate Transaction”
shall mean a transaction in which (i) the Company issues or sells any debt or
equity securities that are convertible into, exchangeable or exercisable for,
or include the right to receive additional shares of Common Stock either (A) at
a conversion, exercise or exchange rate or other price that is based upon
and/or varies with the trading prices of or quotations for the shares of Common
Stock at any time after the initial issuance of such debt or equity securities,
or (B) with a conversion, exercise or exchange price that is subject to being
reset at some future date after the initial issuance of such debt or equity
security or upon the occurrence of specified or contingent events directly or
indirectly related to the business of the Company or the market for the Common
Stock or (ii) enters into any agreement, including, but not limited to, an
equity line of credit, whereby the Company may sell securities at a future
determined price.

(b)           Notwithstanding the
foregoing, this Section 4.14 shall not apply in respect of (i) an Exempt
Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance,
and (ii) an issuance of debentures and warrants on the same terms and
conditions as the issuance of Debentures and Warrants hereunder for gross
proceeds of up to, in the aggregate, the difference between the gross proceeds
raised hereunder and $2,200,000 during the period commencing on the date hereof
and ending on the Filing Date.

4.15         Equal
Treatment of Purchasers.  No
consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all of the parties to the
Transaction Documents. Further, the Company shall not make any payment of
principal or

 28
 

 

interest on
the Debentures in amounts which are disproportionate to the respective
principal amounts outstanding on the Debentures at any applicable time.  For clarification purposes, this provision
constitutes a separate right granted to each Purchaser by the Company and
negotiated separately by each Purchaser, and is intended for the Company to treat
the Purchasers as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.

4.16         Short
Sales and Confidentiality After The Date Hereof.  Each Purchaser severally and not jointly with
the other Purchasers covenants that neither it nor any affiliates acting on its
behalf or pursuant to any understanding with it will execute any Short Sales
during the period after the Discussion Time and ending at the time that the
transactions contemplated by this Agreement are first publicly announced as
described in Section 4.6.  Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company as described in Section 4.6, such Purchaser will
maintain the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction).  Each Purchaser understands and acknowledges,
severally and not jointly with any other Purchaser, that the Commission
currently takes the position that coverage of short sales of shares of the
Common Stock “against the box” prior to the Effective Date of the Registration
Statement covering the Securities is a violation of Section 5 of the Securities
Act, as set forth in Item 65, Section 5 under Section A, of the Manual of
Publicly Available Telephone Interpretations, dated July 1997, compiled by the
Office of Chief Counsel, Division of Corporation Finance.  Notwithstanding the foregoing, no Purchaser
makes any representation, warranty or covenant hereby that it will not engage
in Short Sales in the securities of the Company
after the time that the transactions contemplated by this Agreement are first
publicly announced as described in Section 4.6. 
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser’s assets, the covenant set forth
above shall only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the Securities
covered by this Agreement.

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

4.18         Most
Favored Nation Provision.  If the Company
effects a Subsequent Financing at any time prior to the two year anniversary of
the Closing Date, each Purchaser may elect, in its sole discretion, to exchange
all or some of the Debentures then held by such Purchaser for additional
securities of the same class issued in a Subsequent Financing based on the
effective price at which such securities were sold in such Subsequent
Financing.  The Company shall provide
each Purchaser notice of any such Subsequent Financing in the manner provided
in Section 4.13.

 29
 

 

4.18         SPAXEN.               The Company agrees
that it will use its reasonable best efforts to promptly cause Dr. L. David
Tomei, under the supervision of a committee of three independent members of the
board of directors, including two of the Investor Nominees (or in the event
there is only one Investor Nominee, a committee consisting of the Lead Investor
and two independent directors, one of which is selected by the Lead Investor),
to undertake to restructure the corporate and/or licensing arrangements
relating to its SpaXen joint venture such that all technology and intellectual
property under the control of the Company and royalties payable by the Company
are commercially reasonable.

4.19        Appointment of Agent.  The Investors hereby appoint Gian Luigi Buitoni to act as their agent (“Agent”) for purposes of exercising any and all rights and remedies of the Investors hereunder. Such appointment shall continue until revoked in writing by a the holders of a the majority of the principal amount of the Debentures outstanding who shall appoint a new Agent; provided, that Buitoni may not be removed as Agent unless Buitoni shall then hold less than $25,000 principal amount of Debentures of the Company. The Agent shall have the rights, responsibilities and immunities set forth in Annex B hereto.

ARTICLE
V.

MISCELLANEOUS

5.1           Termination. 
This Agreement may be terminated by any Purchaser, as to such Purchaser’s
obligations hereunder only and without any effect whatsoever on the obligations
between the Company and the other Purchasers, by written notice to the other
parties, if the Closing has not been consummated on or before November 14,
2006; provided, however, 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.  At the Closing, the
Company has agreed to reimburse Gian Luigi Buitoni (the “Lead Investor”) the
non-accountable sum of $25,000, for its actual, reasonable, out-of-pocket legal
fees and expenses.  Accordingly, in lieu
of the foregoing payments, the aggregate amount that the Lead Investor is to
pay for the Securities at the Closing shall be reduced by $25,000 in lieu
thereof. The Company shall deliver, prior to the Closing, a completed and
executed copy of the Closing Statement, attached hereto as Annex A.  Except as expressly set forth in the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement.  The Company shall pay all transfer agent
fees, stamp taxes and other taxes and duties levied in connection with the
delivery of any Securities.

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

 30
 

 

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

5.5           Amendments;
Waivers.  No provision of this
Agreement may be waived, modified, supplemented or amended except in a written
instrument signed, in the case of an amendment, by the Company and each
Purchaser or, in the case of a waiver, by the party against whom enforcement of
any such 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           Headings.  The headings herein are for convenience only,
do not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.  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 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 4.11.

5.9           Governing
Law.  All questions concerning the
construction, validity, enforcement and interpretation of the Transaction
Documents shall be governed by and construed and enforced in accordance with
the internal laws of the State of New York, without regard to the principles of
conflicts of law thereof.  Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of
New York.  Each party hereby irrevocably

 31
 

 

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

 32

 

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

5.15         Remedies.  In addition to being entitled
to exercise all rights provided herein or granted by law, including recovery of
damages, each of the Purchasers and the Company will be entitled to specific
performance under the Transaction Documents. 
The parties agree that monetary damages may not be adequate compensation
for any loss incurred by reason of any breach of obligations 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.

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

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

 33
 

 

balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at such Purchaser’s election.

5.18         Independent Nature of Purchasers’ Obligations
and Rights.  The obligations of each Purchaser under any
Transaction Document are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the
performance 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 Documents.  Each Purchaser shall be entitled to independently
protect and enforce its rights, including without limitation the rights arising
out of this Agreement or out of the other Transaction Documents, and it shall
not be necessary for any other Purchaser to be joined as an additional party in
any proceeding for such purpose.  Each
Purchaser has been represented by its own separate legal counsel in their
review and negotiation of the Transaction Documents.  For reasons of administrative convenience
only, Purchasers and their respective counsel have chosen to communicate with
the Company through LE.  LE does not
represent all of the Purchasers but only the Lead Investor.  The Company has elected to provide all
Purchasers with the same terms and Transaction Documents for the convenience of
the Company and not because it was required or requested to do so by the
Purchasers.

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

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

(Signature
Pages Follow)

 34
 

 

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.

	
  XENOMICS, INC.

  	
   

  	
  Address for Notice:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
  Xenomics, Inc.

  	
   

  	
   

  
	
   

  	
  Name:  
  Frederick Larcombe

  	
   

  	
  420 Lexington Avenue, Suite 1701

  	
   

  	
   

  
	
   

  	
  Title:    
  Chief Financial Officer

  	
   

  	
  New York, NY 
  10170

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

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

  	
   

  	
  Sichenzia Ross Friedman Ference LLP

  	
   

  	
   

  
	
   

  	
   

  	
  1065 Avenue of the Americas, 21st Floor

  	
   

  	
   

  
	
   

  	
   

  	
  New York, NY 10018

  	
   

  	
   

  
							

 

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 35
 

 

[PURCHASER SIGNATURE PAGES TO XENOMICS SECURITIES
PURCHASE AGREEMENT]

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

	
  Name of Purchaser:

  	
   

  	
   

  
	
  Signature
  of Authorized Signatory of Purchaser:

  	
   

  	
   

  
	
  Name of
  Authorized Signatory:

  	
   

  	
   

  
	
  Title of
  Authorized Signatory:

  	
   

  	
   

  
	
  Email Address of
  Purchaser:

  	
   

  	
   

  
										

 

Address for Notice
of Purchaser:

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

Subscription Amount:

Cash:

Surrender of Prior Debt:

Warrant Shares:

EIN Number:  [PROVIDE THIS UNDER
SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

 36
 

 

Annex A

CLOSING STATEMENT

Pursuant
to the attached Securities Purchase Agreement, dated as of the date hereto, the
purchasers shall purchase up to $2,200,000 of Debentures and Warrants from
Xenomics, Inc. (the “Company”). 
All funds will be wired into a trust account maintained by Sichenzia
Ross Friedman Ference LLP, counsel to the Company as follows:

	
  

  	
  HSBC Bank USA

  
	
   

  	
  950 Third Avenue

  
	
   

  	
  New York, NY
  10022

  
	
   

  	
   

  
	
   

  	
  A/C of Sichenzia
  Ross Friedman Ference LLP, IOLA

  
	
   

  	
  A/C# 629034125

  
	
   

  	
  ABA# 021001088

  
	
   

  	
  REMARK: XENOMICS

  

All
funds will be disbursed in accordance with this Closing Statement.

Disbursement
Date: 
                  ,
2006

	
  I.   PURCHASE PRICE

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  

  	
  Gross Proceeds to be Received in Trust

  	
  $

  
	
   

  	
   

  	
   

  
	
  II. DISBURSEMENTS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  

  	
   

  	
  $

  
	
   

  	
   

  	
  $

  
	
  

  	
   

  	
  $

  
	
   

  	
   

  	
  $

  
	
  

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Total Amount Disbursed:

  	
   

  	
  $

  

 

	
  WIRE INSTRUCTIONS:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  To:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  To:

  	
   

  	
   

  
					

 37
 

 

ANNEX B

to

SECURITIES PURCHASE

AGREEMENT

 

THE AGENT

1.  Appointment.  The Investors (all capitalized
terms used herein and not otherwise defined shall have the respective meanings
provided in the Securities Purchase Agreement to which this Annex B is attached
(the “Agreement”)), by their acceptance of the benefits of the Agreement,
hereby designate Gian Luigi Buitoni (“Buitoni” or “Agent”) as the Agent to act
as specified herein and in the Agreement. 
Each Investor shall be deemed irrevocably to authorize the Agent to take
such action on its behalf under the provisions of the Agreement and any other
Transaction Document (as such term is defined in the Debentures) and to
exercise such powers and to perform such duties hereunder and thereunder as are
specifically delegated to or required of the Agent by the terms hereof and
thereof and such other powers as are reasonably incidental thereto.  The Agent may perform any of its duties hereunder
by or through its agents or employees.

2. Nature of Duties. 
The Agent shall have no duties or responsibilities under this Agreement
except those expressly set forth herein. 
Neither the Agent nor any of its partners, members, shareholders, officers,
directors, employees or agents shall be liable for any action taken or omitted
by it as such under the Agreement or hereunder or in connection herewith or
therewith, be responsible for the consequence of any oversight or error of
judgment or answerable for any loss, unless caused solely by its or their gross
negligence or willful conduct as determined by a final judgment (not subject to
further appeal) of a court of competent jurisdiction.  The duties of the Agent shall be mechanical
and administrative in nature; the Agent shall not have by reason of the
Agreement or any other Transaction Document a fiduciary relationship in respect
of the Company or any Subsidiary or any Investor; and nothing in the Agreement
or any other Transaction Document, expressed or implied, is intended to or
shall be so construed as to impose upon the Agent any obligations in respect of
the Agreement or any other Transaction Document except as expressly set forth
herein and therein.

3. Lack of Reliance on the
Agent.  Independently and
without reliance upon the Agent, each Investor, to the extent it deems
appropriate, has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of the Company and its
subsidiaries in connection with such Investor’s investment in the Company, the
transactions contemplated by the Transaction Documents, and the taking or not
taking of any action in connection therewith, and (ii) its own appraisal of the
creditworthiness of the Company and its subsidiaries, and the Agent shall have
no duty or responsibility, either initially or on a continuing basis, to
provide any Investor with any credit, market or other information with respect
thereto. The Agent shall not be responsible to the Company or any Investor for
any recitals, statements, information, representations or warranties herein or
in any document, certificate or other writing delivered in connection herewith,
or for the execution, effectiveness, genuineness, validity, enforceability,
perfection, collectibility, priority or sufficiency of the Agreement or any
other Transaction Document, or for the financial condition of the Company or be
required to make any inquiry concerning either the performance or observance of
any of the terms, provisions or conditions of the Agreement or any other
Transaction Document, or the financial condition of the Company, or the
existence or possible existence of any default or Event of Default under the
Agreement, the Debentures or any of the other Transaction Documents.

4. Certain Rights of the
Agent.  The Agent shall have
the right to take any action with respect to the Agreement, on behalf of all of
the Investors.  To the extent practical,
the Agent shall request instructions from the Investors with respect to any
material act or action (including failure to act) in connection with the
Agreement or any other Transaction Document, and shall be entitled to act or
refrain from acting in accordance with the instructions of Investors holding a
majority in principal amount of Debentures (based on then-outstanding principal
amounts of Debentures at the time of any such determination); if such
instructions are not provided despite the Agent’s request therefor, the Agent
shall be entitled to refrain from such act or taking such action, and if such
action is taken, shall be entitled to appropriate indemnification from the
Investors in respect of actions to be taken by the Agent; and the Agent shall
not incur liability to any person or entity by reason of so refraining.  Without limiting the foregoing, (a) no
Investor shall have any right of action whatsoever against the Agent as a
result of the Agent acting or refraining from acting hereunder in accordance
with the terms of the Agreement or any other Transaction

 38
 

 

Document, and the Company shall have no right to question
or challenge the authority of, or the instructions given to, the Agent pursuant
to the foregoing and (b) the Agent shall not be required to take any action
which the Agent believes (i) could reasonably be expected to expose it to
personal liability or (ii) is contrary to this Agreement, the Transaction
Documents or applicable law.

5.  Reliance.  The Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
writing, resolution, notice, statement, certificate, telex, teletype or
telecopier message, cablegram, radiogram, order or other document or telephone
message signed, sent or made by the proper person or entity, and, with respect
to all legal matters pertaining to the Agreement and the other Transaction
Documents and its duties thereunder, upon advice of counsel selected by it and
upon all other matters pertaining to this Agreement and the other Transaction
Documents and its duties thereunder, upon advice of other experts selected by
it.

6.  Indemnification.  To the extent that the Agent is not
reimbursed and indemnified by the Company, the Investors will jointly and
severally reimburse and indemnify the Agent, in proportion to their initially
purchased respective principal amounts of Debentures, from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against the Agent in performing its
duties hereunder or under the Agreement or any other Transaction Document, or
in any way relating to or arising out of the Agreement or any other Transaction
Document except for those determined by a final judgment (not subject to
further appeal) of a court of competent jurisdiction to have resulted solely
from the Agent’s own gross negligence or willful misconduct.  Prior to taking any action hereunder as
Agent, the Agent may require each Investor to deposit with it sufficient sums
as it determines in good faith is necessary to protect the Agent for costs and
expenses associated with taking such action.

7.  Resignation by the Agent.

(a)  The Agent may
resign from the performance of all its functions and duties under the Agreement
and the other Transaction Documents at any time by giving 30 days’ prior
written notice (as provided in the Agreement) to the Debtors and the
Investors.  Such resignation shall take
effect upon the appointment of a successor Agent pursuant to clauses (b) and
(c) below.

(b)  Upon any such
notice of resignation, the Investors, acting by a Majority in
Interest, shall appoint a successor Agent hereunder.

(c) If a successor Agent shall not have been so appointed
within said 30-day period, the Agent shall then appoint a successor Agent who
shall serve as Agent until such time, if any, as the Investors appoint a
successor Agent as provided above.  If a
successor Agent has not been appointed within such 30-day period, the Agent may
petition any court of competent jurisdiction or may interplead the Debtors and
the Investors in a proceeding for the appointment of a successor Agent, and all
fees, including, but not limited to, extraordinary fees associated with the
filing of interpleader and expenses associated therewith, shall be payable by
the Debtors on demand.

 39Exhibit
10.3

EXHIBIT
C

SUBSIDIARY GUARANTEE

SUBSIDIARY
GUARANTEE, dated as of November      , 2006 (this “Guarantee”),
made by each of the signatories hereto (together with any other entity that may
become a party hereto as provided herein, (the “Guarantors”), in favor
of the purchasers signatory (the “Purchasers”) to that certain
Securities Purchase Agreement, dated as of the date hereof, between Xenomics,
Inc., a Florida corporation (the “Company”) and the Purchasers.

W I T N E S
S E T H:

WHEREAS, pursuant to that certain Securities
Purchase Agreement, dated as of the date hereof, by and between the Company and
the Purchasers (the “Purchase Agreement”), the Company has agreed to
sell and issue to the Purchasers, and the Purchasers have agreed to purchase from
the Company the Company’s Convertible Debentures, due November      ,
2008 (the “Debentures”),
subject to the terms and conditions set forth therein; and

WHEREAS, each Guarantor will directly benefit
from the extension of credit to the Company represented by the issuance of the
Debentures; and

NOW, THEREFORE, in consideration of the
premises and to induce the Purchasers to enter into the Purchase Agreement and
to carry out the transactions contemplated thereby, each Guarantor hereby
agrees with the Purchasers as follows:

1.             Definitions. Unless otherwise defined herein, terms defined in the Purchase Agreement and used herein shall have the meanings given to them in the Purchase Agreement. The words “hereof,” “herein,” “hereto” and “hereunder” and words of similar import when used in this Guarantee shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and Section and Schedule references are to this Guarantee unless otherwise specified. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.  The following terms shall have the following meanings:

“Guarantee” means this Subsidiary
Guarantee, as the same may be amended, supplemented or otherwise modified from
time to time.

“Obligations” means the collective
reference to all obligations and undertakings of the Company of whatever
nature, monetary or otherwise, under the Transaction Documents or any other
future agreement or obligations undertaken by the Company to the Purchasers
arising out of the Transaction Documents, together with all reasonable
attorneys’ fees, disbursements and all

 1
 

 

other costs and
expenses of collection incurred by Purchasers in enforcing any of such
Obligations and/or this Guarantee.

2.             Guarantee.

(a)           Guarantee.

(i)                                     The
Guarantors hereby, jointly and severally, unconditionally and irrevocably,
guarantee to the Purchasers and their respective successors, indorsees,
transferees and assigns, the prompt and complete payment and performance by the
Company when due (whether at the stated maturity, by acceleration or otherwise)
of the Obligations.

(ii)                                  Anything
herein or in any other Transaction Document to the contrary notwithstanding,
the maximum liability of each Guarantor hereunder and under the other
Transaction Documents shall in no event exceed the amount which can be
guaranteed by such Guarantor under applicable federal and state laws, including
laws relating to the insolvency of debtors, fraudulent conveyance or transfer
or laws affecting the rights of creditors generally (after giving effect to the
right of contribution established in Section 2(b)).

(iii)                               Each
Guarantor agrees that the Obligations may at any time and from time to time
exceed the amount of the liability of such Guarantor hereunder without
impairing the guarantee contained in this Section 2 or affecting the rights and
remedies of the Purchasers hereunder.

(iv)                              The guarantee contained in this Section 2
shall remain in full force and effect until all the Obligations and the
obligations of each Guarantor under the guarantee contained in this Section 2
shall have been satisfied by payment in full.

(v)                                 No payment made by the Company, any of the
Guarantors, any other guarantor or any other Person or received or collected by
the Purchasers from the Company, any of the Guarantors, any other guarantor or
any other Person by virtue of any action or proceeding or any set-off or
appropriation or application at any time or from time to time in reduction of
or in payment of the Obligations shall be deemed to modify, reduce, release or
otherwise affect the liability of any Guarantor hereunder which shall,

 2
 

 

notwithstanding any such payment (other than any payment made by such
Guarantor in respect of the Obligations or any payment received or collected
from such Guarantor in respect of the Obligations), remain liable for the
Obligations up to the maximum liability of such Guarantor hereunder until the
Obligations are paid in full.

(vi)                              Notwithstanding anything to the contrary in
this Agreement, with respect to any defaulted non-monetary Obligations the
specific performance of which by the Guarantors is not reasonably possible
(e.g. the issuance of the Company’s Common Stock), the Guarantors shall only be
liable for making the Purchasers whole on a monetary basis for the Company’s
failure to perform such Obligations in accordance with the Transaction
Documents.

(b)           Right
of Contribution. Each Guarantor hereby agrees that to the extent that a
Guarantor shall have paid more than its proportionate share of any payment made
hereunder, such Guarantor shall be entitled to seek and receive contribution
from and against any other Guarantor hereunder which has not paid its
proportionate share of such payment. Each Guarantor’s right of contribution
shall be subject to the terms and conditions of Section 2(c). The provisions of
this Section 2(b) shall in no respect limit the obligations and liabilities of
any Guarantor to the Purchasers, and each Guarantor shall remain liable to the
Purchasers for the full amount guaranteed by such Guarantor hereunder.

(c)           No
Subrogation.  Notwithstanding any
payment made by any Guarantor hereunder or any set-off or application of funds
of any Guarantor by the Purchasers, no Guarantor shall be entitled to be
subrogated to any of the rights of the Purchasers against the Company or any
other Guarantor or any collateral security or guarantee or right of offset held
by the Purchasers for the payment of the Obligations, nor shall any Guarantor
seek or be entitled to seek any contribution or reimbursement from the Company
or any other Guarantor in respect of payments made by such Guarantor hereunder,
until all amounts owing to the Purchasers by the Company on account of the
Obligations are paid in full. If any amount shall be paid to any Guarantor on
account of such subrogation rights at any time when all of the Obligations
shall not have been paid in full, such amount shall be held by such Guarantor
in trust for the Purchasers, segregated from other funds of such Guarantor, and
shall, forthwith upon receipt by such Guarantor, be turned over to the
Purchasers in the exact form received by such Guarantor (duly indorsed by such
Guarantor to the Purchasers, if required), to be applied against the
Obligations, whether matured or unmatured, in such order as the Purchasers may
determine.

(d)           Amendments,
Etc. With Respect to the Obligations. Each Guarantor shall remain obligated
hereunder notwithstanding that, without any

 3
 

 

reservation of
rights against any Guarantor and without notice to or further assent by any
Guarantor, any demand for payment of any of the Obligations made by the
Purchasers may be rescinded by the Purchasers and any of the Obligations
continued, and the Obligations, or the liability of any other Person upon or
for any part thereof, or any collateral security or guarantee therefor or right
of offset with respect thereto, may, from time to time, in whole or in part, be
renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Purchasers, and the Purchase Agreement and the
other Transaction Documents and any other documents executed and delivered in
connection therewith may be amended, modified, supplemented or terminated, in
whole or in part, as the Purchasers may deem advisable from time to time, and
any collateral security, guarantee or right of offset at any time held by the
Purchasers for the payment of the Obligations may be sold, exchanged, waived,
surrendered or released. The Purchasers shall have no obligation to protect, secure,
perfect or insure any Lien at any time held by them as security for the
Obligations or for the guarantee contained in this Section 2 or any property
subject thereto.

(e)           Guarantee
Absolute and Unconditional. Each Guarantor waives any and all notice of the
creation, renewal, extension or accrual of any of the Obligations and notice of
or proof of reliance by the Purchasers upon the guarantee contained in this
Section 2 or acceptance of the guarantee contained in this Section 2; the
Obligations, and any of them, shall conclusively be deemed to have been
created, contracted or incurred, or renewed, extended, amended or waived, in
reliance upon the guarantee contained in this Section 2; and all dealings
between the Company and any of the Guarantors, on the one hand, and the
Purchasers, on the other hand, likewise shall be conclusively presumed to have
been had or consummated in reliance upon the guarantee contained in this
Section 2. Each Guarantor waives to the extent permitted by law diligence,
presentment, protest, demand for payment and notice of default or nonpayment to
or upon the Company or any of the Guarantors with respect to the Obligations,
except as provided in the Transaction Documents. Each Guarantor understands and
agrees that the guarantee contained in this Section 2 shall be construed as a
continuing, absolute and unconditional guarantee of payment without regard to
(a) the validity or enforceability of the Purchase Agreement or any other
Transaction Document, any of the Obligations or any other collateral security
therefor or guarantee or right of offset with respect thereto at any time or
from time to time held by the Purchasers, (b) any defense, set-off or
counterclaim (other than a defense of payment or performance or fraud or
misconduct by Purchasers) which may at any time be available to or be asserted
by the Company or any other Person against the Purchasers, or (c) any other
circumstance whatsoever (with or without notice to or knowledge of the Company
or such Guarantor) which constitutes, or might be construed to constitute, an
equitable or legal discharge of the Company for the Obligations, or of such
Guarantor under the guarantee contained in this Section 2, in bankruptcy or in
any other instance. When making any demand hereunder or otherwise pursuing its
rights and remedies hereunder against any Guarantor, the Purchasers may, but
shall be under no obligation to,

 4
 

 

make a similar
demand on or otherwise pursue such rights and remedies as they may have against
the Company, any other Guarantor or any other Person or against any collateral
security or guarantee for the Obligations or any right of offset with respect
thereto, and any failure by the Purchasers to make any such demand, to pursue
such other rights or remedies or to collect any payments from the Company, any
other Guarantor or any other Person or to realize upon any such collateral
security or guarantee or to exercise any such right of offset, or any release
of the Company, any other Guarantor or any other Person or any such collateral
security, guarantee or right of offset, shall not relieve any Guarantor of any
obligation or liability hereunder, and shall not impair or affect the rights
and remedies, whether express, implied or available as a matter of law, of the
Purchasers against any Guarantor. For the purposes hereof, “demand” shall
include the commencement and continuance of any legal proceedings.

(f)            Reinstatement.
The guarantee contained in this Section 2 shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned
by the Purchasers upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Company or any Guarantor, or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, the Company or any Guarantor or any substantial part of its
property, or otherwise, all as though such payments had not been made.

(g)           Payments.
Each Guarantor hereby guarantees that payments hereunder will be paid to the
Purchasers without set-off or counterclaim in U.S. dollars at the address set
forth or referred to in the Purchase Agreement.

3.             Representations and Warranties. Each Guarantor hereby makes the following representations and warranties to Purchasers as of the date hereof:

(a)           Organization
and Qualification. The Guarantor is
a corporation, duly incorporated, validly existing and in good standing under
the laws of the applicable jurisdiction set forth on Schedule 1, with the
requisite corporate power and authority to own and use its properties and
assets and to carry on its business as currently conducted. The Guarantor has
no subsidiaries other than those identified as such on the Disclosure Schedules
to the Purchase Agreement. The Guarantor is duly qualified to do business and
is in good standing as a foreign corporation 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, individually or in the aggregate, (x) adversely
affect the legality, validity or enforceability of any of this Guarantee in any
material respect, (y) have a material adverse effect on the results of
operations, assets, prospects, or financial condition of the Guarantor or (z)
adversely impair in any material respect the Guarantor’s ability to

 5
 

 

perform fully on a timely basis its obligations under this Guarantee (a “Material
Adverse Effect”).

(b)           Authorization; Enforcement.  The
Guarantor has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by this Guarantee, and otherwise to
carry out its obligations hereunder. The execution and delivery of this
Guarantee by the Guarantor and the consummation by it of the transactions
contemplated hereby have been duly authorized by all requisite corporate action
on the part of the Guarantor. This Guarantee has been duly executed and
delivered by the Guarantor and constitutes the valid and binding obligation of
the Guarantor enforceable against the Guarantor in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application.

(c)           No Conflicts. The execution, delivery and performance of this Guarantee by the
Guarantor and the consummation by the Guarantor of the transactions
contemplated thereby do not and will not (i) conflict with or violate any
provision of its Certificate of Incorporation or By-laws or (ii) conflict with,
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Guarantor is a party, or (iii) 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 Guarantor is
subject (including Federal and state securities laws and regulations), or by
which any material property or asset of the Guarantor is bound or affected,
except in the case of each of clauses (ii) and (iii), such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as could
not, individually or in the aggregate, have or result in a Material Adverse
Effect. The business of the Guarantor is not being conducted in violation of
any law, ordinance or regulation of any governmental authority, except for
violations which, individually or in the aggregate, do not have a Material
Adverse Effect.

(d)           Consents and Approvals. The Guarantor is not required to obtain any
consent, waiver, authorization or order of, or make any filing or registration
with, any court or other federal, state, local, foreign or other governmental
authority or other person in connection with the execution, delivery and
performance by the Guarantor of this Guarantee.

(e)           Purchase Agreement. The representations and warranties of the
Company set forth in the Purchase Agreement as they relate to such Guarantor,
each of which is hereby incorporated herein by reference, are true and correct
as of each time such representations are deemed to be made pursuant to such

 6
 

 

Purchase Agreement, and the Purchasers shall be entitled to rely on each
of them as if they were fully set forth herein, provided, that each reference
in each such representation and warranty to the Company’s knowledge shall, for
the purposes of this Section 3, be deemed to be a reference to such Guarantor’s
knowledge.

(f)            Foreign Law.  Each Guarantor has consulted
with appropriate foreign legal counsel with respect to any of the above
representations for which non-U.S. law is applicable. Such foreign counsel have
advised each applicable Guarantor that such counsel knows of no reason why any
of the above representations would not be true and accurate. Such foreign
counsel were provided with copies of this Subsidiary Guarantee and the
Transaction Documents prior to rendering their advice.

4.             Covenants.

(a)       Each
Guarantor covenants and agrees with the Purchasers that, from and after the
date of this Guarantee until the Obligations shall have been paid in full, such
Guarantor shall take, and/or shall refrain from taking, as the case may be,
each commercially reasonable action that is necessary to be taken or not taken,
as the case may be, so that no Event of Default is caused by the failure to
take such action or to refrain from taking such action by such Guarantor.

(b)       So long as
any of the Obligations are outstanding, each Guarantor will not directly or
indirectly on or after the date of this Guarantee:

i.              except with the prior written consent of the Lead Investor (as defined in the Securities Purchase Agreement), enter into, create, incur, assume or suffer to exist any indebtedness for borrowed money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom that is senior to, or pari passu with, in any respect, such Guarantor’s obligations hereunder;
ii.             enter into, create, incur, assume or suffer to exist any liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom that is senior to, in any respect, such Guarantor’s obligations hereunder, except for Permitted Liens;
iii.            amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of the Purchasers;
iv.            repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de  minimis number of shares of Common Stock or Common Stock Equivalents other than (i) as to the Conversion Shares to the extent permitted or required under the Transaction Documents, (ii) as

 7
 

 

otherwise permitted by the Transaction Documents or (iii) shares of Common Stock held by former employees of the Company which the Company is entitled to repurchase from such employees pursuant to contractual rights relating to their termination of employment, provided such repurchases do not exceed $50,000 in any 12 month period;
v.             enter into any agreement with respect to any of the foregoing; or
vi.            pay cash dividends on any equity securities of the Company.
5.             Miscellaneous.

(a)           Amendments
in Writing. None of the terms or provisions of this Guarantee may be
waived, amended, supplemented or otherwise modified except in writing by the
Purchasers and the Guarantor.

(b)           Notices.
All notices, requests and demands to or upon the Purchasers or any Guarantor
hereunder shall be effected in the manner provided for in the Purchase
Agreement; provided that any such notice, request or demand to or upon
any Guarantor shall be addressed to such Guarantor at its notice address set
forth on Schedule 5(b).

(c)           No
Waiver By Course Of Conduct;
Cumulative Remedies. The
Purchasers shall not by any act (except by a written instrument pursuant to
Section 5(a)), delay, indulgence, omission or otherwise be deemed to have
waived any right or remedy hereunder or to have acquiesced in any default under
the Transaction Documents or Event of Default. No failure to exercise, nor any
delay in exercising, on the part of the Purchasers, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Purchasers of any right or remedy hereunder on any
one occasion shall not be construed as a bar to any right or remedy which the
Purchasers would otherwise have on any future occasion. The rights and remedies
herein provided are cumulative, may be exercised singly or concurrently and are
not exclusive of any other rights or remedies provided by law.

(d)           Enforcement
Expenses; Indemnification.

(i)                                     Each Guarantor agrees to pay, or reimburse the
Purchasers for, all their costs and expenses incurred in collecting against
such Guarantor under the guarantee contained in Section 2 or otherwise
enforcing any rights under this Guarantee and the other Transaction Documents
to which

 8
 

 

such Guarantor is a party, including, without limitation, the reasonable
fees and disbursements of counsel to the Purchasers.

(ii)                                  Each Guarantor agrees to pay, and to save the
Purchasers harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other taxes which
may be payable or determined to be payable in connection with any of the
transactions contemplated by this Guarantee to the extent the Company would be
required to do so pursuant to the Purchase Agreement.

(iii)                               Each Guarantor agrees to pay, and to save the
Purchasers harmless from, any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever with respect to the execution, delivery,
enforcement, performance and administration of this Guarantee to the extent the
Company would be required to do so pursuant to the Purchase Agreement.

(iv)                              The agreements in this Section shall survive
repayment of the Obligations and all other amounts payable under the Purchase
Agreement and the other Transaction Documents.

(e)           Successor
and Assigns. This Guarantee shall be
binding upon the successors and assigns of each Guarantor and shall inure to
the benefit of the Purchasers and their respective successors and assigns;
provided that no Guarantor may assign, transfer or delegate any of its rights
or obligations under this Guarantee without the prior written consent of the
Purchasers.

(f)            Set-Off. Each Guarantor hereby irrevocably authorizes the Purchasers at any
time and from time to time while an Event of Default under any of the
Transaction Documents shall have occurred and be continuing, upon at least five
(5) days notice to such Guarantor or any other Guarantor to set-off and
appropriate and apply any and all deposits, credits, indebtedness or claims, in
any currency, in each case whether direct or indirect, absolute or contingent,
matured or unmatured, at any time held or owing by the Purchasers to or for the
credit or the account of such Guarantor, or any part thereof in such amounts as
the Purchasers may elect, against and on account of the obligations and
liabilities of such Guarantor to the Purchasers hereunder and claims of every
nature and description of the Purchasers against such Guarantor, in any
currency, whether arising hereunder, under the Purchase Agreement, any other
Transaction Document or otherwise, as the Purchasers may elect, whether or not
the Purchasers have made any demand for payment and although such obligations,

 9
 

 

liabilities and claims may be contingent or unmatured. Thereafter, the
Purchasers shall notify such Guarantor promptly of any such set-off and the
application made by the Purchasers of the proceeds thereof, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of the Purchasers under this Section are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which the Purchasers may have.

(g)           Counterparts. This Guarantee may be executed by one or more of the parties to this
Guarantee on any number of separate counterparts (including by telecopy), and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument.

(h)           Severability. Any provision of this Guarantee which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.

(i)            Section Headings. The Section headings used in this Guarantee
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.

(j)            Integration. This Guarantee and the other Transaction Documents represent the
agreement of the Guarantors and the Purchasers with respect to the subject
matter hereof and thereof, and there are no promises, undertakings,
representations or warranties by the Purchasers relative to subject matter
hereof and thereof not expressly set forth or referred to herein or in the
other Transaction Documents.

(k)           Governing Law. THIS GUARANTEE
SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW
OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY PRINCIPLES OF CONFLICTS OF LAWS.

(l)            Submission to Jurisdictional; Waiver. Each Guarantor hereby irrevocably and
unconditionally:

(i)                                     submits
for itself and its property in any legal action or proceeding relating to this
Guarantee and the other Transaction Documents to which it is a party, or for
recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the Courts of the State of New York, located
in New York County, New York, the courts of the United States of

 10
 

 

America for the
Southern District of New York, and appellate courts from any thereof;

(ii)                                  consents
that any such action or proceeding may be brought in such courts and waives any
objection that it may now or hereafter have to the venue of any such action or
proceeding in any such court or that such action or proceeding was brought in
an inconvenient court and agrees not to plead or claim the same;

(iii)                               agrees that service of process in any such
action or proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage prepaid, to
such Guarantor at its address referred to in the Purchase Agreement or at such
other address of which the Purchasers shall have been notified pursuant
thereto;

(iv)                              agrees that nothing herein shall affect the
right to effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction; and

(v)                                 waives, to the maximum extent not prohibited
by law, any right it may have to claim or recover in any legal action or
proceeding referred to in this Section any special, exemplary, punitive or
consequential damages.

(m)          Acknowledgements.  Each
Guarantor hereby acknowledges that:

(i)                                     it
has been advised by counsel in the negotiation, execution and delivery of this
Guarantee and the other Transaction Documents to which it is a party;

(ii)                                  the Purchasers have no fiduciary relationship
with or duty to any Guarantor arising out of or in connection with this
Guarantee or any of the other Transaction Documents, and the relationship
between the Guarantors, on the one hand, and the Purchasers, on the other hand,
in connection herewith or therewith is solely that of debtor and creditor; and

(iii)                               no joint venture is created hereby or by the
other Transaction Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Guarantors and the Purchasers.

 11

 

(n)           Additional Guarantors.  The
Company shall cause each of its subsidiaries formed or acquired on or
subsequent to the date hereof to become a Guarantor for all purposes of this
Guarantee by executing and delivering an Assumption Agreement in the form of Annex
1 hereto.

(o)           Release of Guarantors. Subject to Section 2.6, each Guarantor will
be released from all liability hereunder concurrently with the repayment in
full of all amounts owed under the Purchase Agreement, the Debentures and the
other Transaction Documents.

(p)           Seniority. The obligations of each of the Guarantors hereunder rank senior in
priority to any other unsecured Debt (as defined in the Debentures) of such
Guarantor.

(q)           Waiver of Jury Trial. EACH GUARANTOR
AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, THE PURCHASERS, HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM THEREIN.

 12
 

 

IN WITNESS WHEREOF, each of the undersigned has
caused this Guarantee to be duly executed and delivered as of the date first
above written.

	
   

  	
  XENOMICS, a California corporation

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Frederick Larcombe

  
	
   

  	
   

  	
  Title:

  	
  CFO

  
						

 13
 

 

SCHEDULE 1
GUARANTORS
The following are the names, notice addresses and jurisdiction of organization of each Guarantor.

	
  

  	
   

  	
   

  	
   

  	
  COMPANY

  	
   

  
	
   

  	
   

  	
  JURISDICTION OF

  	
   

  	
  OWNED BY

  	
   

  
	
   

  	
   

  	
  INCORPORATION

  	
   

  	
  PERCENTAGE

  	
   

  
	
  Xenomics

  	
   

  	
  California

  	
   

  	
  100

  	
  %

  

 14
 

 

Annex
1 to

SUBSIDIARY GUARANTEE

ASSUMPTION AGREEMENT, dated as of           ,
          made by                                              ,
a                      
corporation (the “Additional Guarantor”), in favor of the Purchasers
pursuant to the Purchase Agreement referred to below. All capitalized terms not
defined herein shall have the meaning ascribed to them in such Purchase
Agreement.

W I T N E S S E T H :

WHEREAS, Xenomics, Inc., a Florida corporation
(the “Company”) and the
Purchasers have entered into a Securities Purchase Agreement, dated as of
November      , 2006 (as amended, supplemented or
otherwise modified from time to time, the “Purchase Agreement”);

WHEREAS, in connection with the Purchase Agreement,
the Company and its Subsidiaries (other than the Additional Guarantor) have
entered into the Subsidiary Guarantee, dated as of November      ,
2006 (as amended, supplemented or otherwise modified from time to time, the “Guarantee”)
in favor of the Purchasers;

WHEREAS, the Purchase Agreement requires the
Additional Guarantor to become a party to the Guarantee; and

WHEREAS, the Additional Guarantor has agreed to
execute and deliver this Assumption Agreement in order to become a party to the
Guarantee;

NOW, THEREFORE, IT IS AGREED:

1.             Guarantee. By executing and delivering this Assumption Agreement, the Additional Guarantor, as provided in Section 5(n) of the Guarantee, hereby becomes a party to the Guarantee as a Guarantor thereunder with the same force and effect as if originally named therein as a Guarantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Guarantor thereunder. The information set forth in Annex 1-A hereto is hereby added to the information set forth in Schedule 1 to the Guarantee. The Additional Guarantor hereby represents and warrants that each of the representations and warranties contained in Section 3 of the Guarantee is true and correct on and as the date hereof as to such Additional Guarantor (after giving effect to this Assumption Agreement) as if made on and as of such date.
2.             Governing Law. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

 15
 

 

IN WITNESS WHEREOF, the undersigned has caused
this Assumption Agreement to be duly executed and delivered as of the date
first above written.

	
   

  	
  [ADDITIONALGUARANTOR]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 16

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