Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of November
22, 2004, among eMerge Interactive, Inc., a Delaware corporation (the
“Company”), and the investors identified on the signature pages hereto (each, an
“Investor” and collectively, the “Investors”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act (as defined below) and Rule 506
promulgated thereunder, the Company desires to issue and sell to each Investor,
and each Investor, severally and not jointly, desires to purchase from the
Company certain 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 the Investors agree
as follows:

 

ARTICLE I.

DEFINITIONS

 

1.1 Definitions. In addition to the terms defined elsewhere in this Agreement,
for all purposes of this Agreement, the following terms shall have the meanings
indicated in this Section 1.1:

 

“Action” means any action, suit, inquiry, notice of violation, proceeding
(including any partial proceeding such as a deposition) or investigation pending
or threatened in writing against or affecting the Company or any of its
properties before or by any court, arbitrator, governmental or administrative
agency, regulatory authority (federal, state, county, local or foreign), stock
market, stock exchange or trading facility.

 

“Additional Investment Rights” means the additional investment rights in the
form of Exhibit C, which are issuable to the Investors on the Closing Date.

 

“Additional Investment Right Shares” means the shares of Common Stock issuable
upon exercise of Additional Investment Rights.

 

“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.

 

“Business Day” means any day except Saturday, Sunday and any day which shall be
a federal legal holiday or a day on which banking institutions in the State of
New York are authorized or required by law or other governmental action to
close.

 

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“Closing” means the closing of the purchase and sale of the Securities pursuant
to Article II.

 

“Closing Date” means the Business Day immediately following the date on which
all the conditions set forth in Sections 5.1 and 5.2 hereof satisfied.

 

“Commission” means the Securities and Exchange Commission.

 

“Common Stock” means the Class A common stock of the Company, par value $0.008
per share, and any securities into which such common stock may hereafter be
reclassified.

 

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

 

“Company Counsel” means Hunton & Williams LLP.

 

“Effective Date” means the date that the Registration Statement required by
Section 2(a) of the Registration Rights Agreement is first declared effective by
the Commission.

 

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

 

“Investment Amount” means, with respect to each Investor, the investment amount
indicated below such Investor’s name on the signature page of this Agreement.

 

“Lien” means any lien, charge, encumbrance, security interest, right of first
refusal or other restrictions of any kind.

 

“Per Unit Purchase Price” equals $1.60.

 

“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.

 

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

 

“Registration Statement” means a registration statement meeting the requirements
set forth in the Registration Rights Agreement and covering the resale by the
Investors of the Shares, the Warrant Shares and the Additional Investment Right
Shares.

 

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“Registration Rights Agreement” means the Registration Rights Agreement, dated
as of the date of this Agreement, among the Company and the Investors, in the
form of Exhibit B hereto.

 

“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.

 

“Securities” means the Shares, the Additional Investment Rights, the Additional
Investment Right Shares, the Warrants and the Warrant Shares.

 

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

 

“Shares” means the shares of Common Stock issued or issuable to the Investors
pursuant to this Agreement.

 

“Short Sales” include, without limitation, all “short sales” as defined in Rule
3b-3 of the Exchange Act and Rule 200 promulgated under Regulation SHO under the
Exchange Act and all types of direct and indirect stock pledges, forward sale
contracts, options, puts, calls, short sales, swaps and similar arrangements
(including on a total return basis), and sales and other transactions through
non-US broker dealers or foreign regulated brokers.

 

“Steelhead Investments Ltd.” means Steelhead Investments Ltd. and its Affiliates
and managed funds.

 

“Subsidiary” means any “significant subsidiary” as defined in Rule 1-02(w) of
the Regulation S-X promulgated by the Commission under the Exchange Act.

 

“Trading Day” means (i) a day on which the Common Stock is traded on a Trading
Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not
listed on a Trading Market (other than the OTC Bulletin Board), a day on which
the Common Stock is traded in the over-the-counter market, as reported by the
OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading
Market, a day on which the Common Stock is quoted in the over-the-counter market
as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding to its functions of reporting prices);
provided, that in the event that the Common Stock is not listed or quoted as set
forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

 

“Trading Market” means whichever of the New York Stock Exchange, the American
Stock Exchange, the NASDAQ National Market, the NASDAQ SmallCap Market or OTC
Bulletin Board on which the Common Stock is listed or quoted for trading on the
date in question.

 

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

 

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“Warrants” means the common stock purchase warrants in the form of Exhibit A,
which are issuable to the Investors at the Closing.

 

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

 

ARTICLE II.

PURCHASE AND SALE

 

2.1 Closing. Subject to the terms and conditions set forth in this Agreement, at
the Closing the Company shall issue and sell to each Investor, and each Investor
shall, severally and not jointly, purchase from the Company, the Shares and the
Warrants representing such Investor’s Investment Amount. The Closing shall take
place at the offices of Bryan Cave LLP, 1290 Avenue of the Americas, New York,
NY 10104 on the Closing Date or at such other location or time as the parties
may agree.

 

2.2 Closing Deliveries. (a) At the Closing, the Company shall deliver or cause
to be delivered to each Investor the following:

 

(i) a certificate evidencing a number of Shares equal to such Investor’s
Investment Amount divided by the Per Unit Purchase Price, registered in the name
of such Investor;

 

(ii) a Warrant, registered in the name of such Investor, pursuant to which such
Investor shall have the right to acquire the number of shares of Common Stock
equal to the product of (a) .35 and (b) the quotient obtained by dividing such
Investor’s Investment Amount by the Per Unit Purchase Price;

 

(iii) an Additional Investment Right, registered in the name of such Investor,
pursuant to which such Investor shall have the right to acquire Additional
Investment Right Shares equal to the product of (a) .50 and (b) the quotient
obtained by dividing such Investor’s Investment Amount by the Per Unit Purchase
Price;

 

(iv) the legal opinion of Company Counsel, in agreed form, addressed to the
Investors; and

 

(v) the Registration Rights Agreement, duly executed by the Company.

 

(b) At the Closing, each Investor shall deliver or cause to be delivered to the
Company the following:

 

(i) its Investment Amount, in United States dollars and in immediately available
funds, by wire transfer to an account designated in writing by the Company for
such purpose; and

 

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(ii) the Registration Rights Agreement, duly executed by such Investor.

 

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 Investors
concurrently herewith (the parties agreeing that a disclosure in a particular
section of the disclosure schedule shall only modify and qualify the specific
representations and warranties therein specified in such section) the Company
hereby makes the following representations and warranties to each Investor:

 

(a) Subsidiaries. The Company has no direct or indirect Subsidiaries.

 

(b) Organization and Qualification. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, 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
Company is not in violation of any of the provisions of its certificate of
incorporation or bylaws. The Company is duly qualified to conduct 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, have
or reasonably be expected to result in (i) a material and adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material and adverse effect on the results of operations, assets, prospects,
business or condition (financial or otherwise) of the Company, taken as a whole,
or (iii) an adverse impairment to the Company’s ability to perform on a timely
basis its obligations under any Transaction Document (any of (i), (ii) or (iii),
a “Material Adverse Effect”).

 

(c) Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
each of the Transaction Documents and otherwise to carry out its obligations
thereunder. The execution and delivery of each of the Transaction Documents by
the Company and the consummation by it of the transactions contemplated thereby
have been duly authorized by all necessary action on the part of the Company and
no further action is required by the Company in connection therewith. Each
Transaction Document has been (or upon delivery will have been) duly executed by
the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except 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.

 

(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions

 

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contemplated thereby do not and will not (i) conflict with or violate any
provision of the Company’s certificate of incorporation or bylaws, 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, 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 debt or otherwise) or other understanding or
agreement to which the Company is a party or by which any property or asset of
the Company is bound or affected, 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 Company is subject (including
federal and state securities laws and regulations), or by which any property or
asset of the Company is bound or affected; except in the case of each of clauses
(ii) and (iii), such as could not, individually or in the aggregate, 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) the filing with the Commission of one or more Registration Statements in
accordance with the requirements Registration Rights Agreement, (ii) filings
required by state securities laws, (iii) the filing of a Notice of a Sale of
Securities on Form D with the Commission under Regulation D of the Securities
Act, (iv) the filings required in accordance with Section 4.5, and (v) those
that have been made or obtained prior to the date of this Agreement.

 

(f) Issuance of the Securities. The Securities have been duly authorized and,
when issued and paid for in accordance with the Transaction Documents, will be
duly and validly issued, fully paid and nonassessable, free and clear of all
Liens, other than restrictions on transfer under applicable securities laws. The
Company has reserved from its duly authorized capital stock the maximum number
of shares of Common Stock issuable pursuant to this Agreement, the Additional
Investment Rights and the Warrants in order to issue the Shares, the Additional
Investment Right Shares and the Warrant Shares (as applicable).

 

(g) Capitalization. The number of shares and type of all authorized, issued and
outstanding capital stock of the Company, and all shares of Common Stock
reserved for issuance under the Company’s various option and incentive plans, is
set forth in Schedule 3.1(g). Except as set forth in Schedule 3.1(g), no
securities of the Company are entitled to preemptive or similar rights, and 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 disclosed in Schedule 3.1(g), there are no outstanding
options, warrants, scrip rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. Except as set

 

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forth in Schedule 3.1(g), the issue and sale of the Securities will not,
immediately or with the passage of time, obligate the Company to issue shares of
Common Stock or other securities to any Person (other than the Investors) 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.

 

(h) SEC Reports; Financial Statements. The Company has filed all reports
required to be filed by it under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the twelve months
preceding the date hereof (the foregoing materials being collectively referred
to herein as the “SEC Reports” and, together with the Schedules to this
Agreement (if any), the “Disclosure Materials”) on a timely basis or has timely
filed a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension. As of their respective
dates, the SEC Reports complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
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 fairly present in all material
respects the financial position of the Company as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial, year-end
audit adjustments.

 

(i) Material Changes. Since the date of the latest audited financial statements
included within the SEC Reports, except as specifically disclosed in the SEC
Reports, (i) there has been no event, occurrence or development that has had or
that could reasonably be expected to result in a Material Adverse Effect, (ii)
the Company has not incurred any liabilities (contingent or otherwise) other
than (A) trade payables, accrued expenses and other liabilities incurred in the
ordinary course of business consistent with past practice and (B) liabilities
not required to be reflected in the Company’s financial statements pursuant to
GAAP or required to be disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting or the identity of its
auditors, (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. The Company
does not have pending before the Commission any request for confidential
treatment of information.

 

(j) Litigation. There is no Action which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or the
Securities or (ii) except as specifically disclosed in the SEC Reports or on
Schedule 3.1(j), could, if there were

 

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an unfavorable decision, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect. Neither the Company nor any
director or officer thereof is or has been the subject of any Action involving a
claim of violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty, except as specifically disclosed in the SEC
Reports. There has not been, and to the knowledge of the Company, there is not
pending or contemplated, any investigation by the Commission involving the
Company or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company under the
Exchange Act or the Securities Act.

 

(k) Labor Relations. No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company.

 

(l) Compliance. The Company (i) is not 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 under), nor has the
Company received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other material
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been waived),
(ii) is not in violation of any order of any court, arbitrator or governmental
body, or (iii) is not and has not been in violation of any statute, rule or
regulation of any governmental authority, including without limitation all
foreign, federal, state and local laws relating to taxes, environmental
protection, occupational health and safety, product quality and safety and
employment and labor matters, except in each case as could not, individually or
in the aggregate, have or reasonably be expected to result in a Material Adverse
Effect. The Company is in compliance with the applicable requirements of the
Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations
thereunder, except where such noncompliance could not have or reasonably be
expected to result in a Material Adverse Effect.

 

(m) Regulatory Permits. The Company possesses all certificates, authorizations
and permits issued by the appropriate federal, state, local or foreign
regulatory authorities necessary to conduct its business as described in the SEC
Reports, except where the failure to possess such permits would not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect (“Material Permits”), and the Company has not received
any notice of proceedings relating to the revocation or modification of any
Material Permit.

 

(n) Title to Assets. The Company owns no real property and has good and
defensible title in all personal property owned by it that is material to its
business, 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. Any
real property and facilities held under lease by the Company are held by them
under valid, subsisting and enforceable leases of which the Company is in
compliance, except as could not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect.

 

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(o) Patents and Trademarks. The Company has, or has rights to use, all patents,
patent applications, trademarks, trademark applications, service marks, trade
names, copyrights, licenses and other similar rights that are necessary or
material for use in connection with their respective businesses as described in
the SEC Reports and which the failure to so have could, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse Effect
(collectively, the “Intellectual Property Rights”). Except as set forth on
Schedule 3.1(o), the Company has not received a written notice that the
Intellectual Property Rights used by the Company violates or infringes upon the
rights of any Person. Except as set forth in the SEC Reports, 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.

 

(p) Insurance. The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the business in which the Company is engaged. The Company has
no reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.

 

(q) Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge
of the Company, none of the employees of the Company is presently a party to any
transaction with the Company (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.

 

(r) Internal Accounting Controls. 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 is made known to the
certifying officers by others within the Company. The Company’s certifying
officers have evaluated the effectiveness of the Company’s disclosure controls
and procedures as of a date within 90 days prior to the filing date of the Form
10-Q for the Company’s most recently ended fiscal quarter (such date, the
“Evaluation Date”). The Company presented in its most recently filed Form 10-K
or Form 10-Q 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 control over financial reporting (as such term
is defined in Exchange Act rules 13a-15(f) and 15d-15(f)) or, to the Company’s
knowledge, in other factors that could significantly affect the Company’s
internal control over financial reporting.

 

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(s) Solvency. Based on the financial condition of the Company as of the Closing
Date (and assuming that the Closing shall have occurred), (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 for
the current fiscal year as now conducted and as proposed to be conducted
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid. 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).

 

(t) Certain Fees. Except as described in Schedule 3.1(t), no brokerage or
finder’s fees or commissions are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by
this Agreement. The Investors shall have no obligation with respect to any fees
or with respect to any claims (other than such fees or commissions owed by an
Investor pursuant to written agreements executed by such Investor which fees or
commissions shall be the sole responsibility of such Investor) made by or on
behalf of other Persons for fees of a type contemplated in this Section that may
be due in connection with the transactions contemplated by this Agreement.

 

(u) Certain Registration Matters. Assuming the accuracy of the Investors’
representations and warranties set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Shares, Warrants
and Additional Investment Rights, and the offer of the Warrant Shares and
Additional Investment Right Shares, by the Company to the Investors under the
Transaction Documents. The Company is eligible to register the resale of its
Common Stock for resale by the Investors under Form S-3 promulgated under the
Securities Act. Except as described in Schedule 3.1(u), the Company has not
granted or agreed to grant to any Person any rights (including “piggy-back”
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority that have not been satisfied.

 

(v) Listing and Maintenance Requirements. Except as specified in the SEC
Reports, the Company has not, in the two years preceding the date hereof,
received notice from any Trading Market to the effect that the Company is not in
compliance with the listing or maintenance requirements thereof. The Company is,
and has no reason to believe that it will not in the foreseeable future continue
to be, in compliance with the listing and maintenance requirements for continued
listing of the Common Stock on the Trading Market. The issuance and sale of the
Securities under the Transaction Documents does not contravene the rules and
regulations of the Trading Market on which the Common Stock is currently listed
or quoted (including Rule 4350 of the Nasdaq Stock Market if the Trading Market
is the Nasdaq National

 

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or Nasdaq SmallCap Market), and no approval of the shareholders of the Company
thereunder is required for the Company to issue and deliver to the Investors the
maximum number of Securities contemplated by Transaction Documents, including
such as may be required pursuant to Nasdaq Rule 4350.

 

(w) Investment Company. The Company is not, and is not an Affiliate of, an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.

 

(x) Application of Takeover Protections. The Company has 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
Certificate of Incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to the Investors as a
result of the Investors and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including without
limitation the Company’s issuance of the Securities and the Investors’ ownership
of the Securities.

 

(y) No Additional Agreements. The Company does not have any agreement or
understanding with any Investor with respect to the transactions contemplated by
the Transaction Documents other than as specified in the Transaction Documents.

 

(z) Disclosure. Except for the existence of this Agreement, the Company confirms
that neither it nor any Person acting on its behalf has provided any of the
Investors or their agents or counsel with any information that the Company
believes constitutes material, non-public information. The Company understands
and confirms that the Investors will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company. All disclosure
provided to the Investors regarding the Company, its business and the
transactions contemplated hereby, furnished by or on behalf of the Company
(including the Company’s representations and warranties set forth in this
Agreement) are true and correct 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.

 

3.2 Representations and Warranties of the Investors. Each Investor hereby, for
itself and for no other Investor, represents and warrants to the Company as
follows:

 

(a) Organization; Authority. Such Investor is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the applicable
Transaction Documents and otherwise to carry out its obligations thereunder. The
execution, delivery and performance by such Investor of the transactions
contemplated by this Agreement has been duly authorized by all necessary
corporate or, if such Investor is not a corporation, such partnership, limited
liability company or other applicable like action, on the part of such Investor.
Each of this Agreement and the Registration Rights Agreement has been duly
executed by such Investor, and when delivered by such Investor

 

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in accordance with terms hereof, will constitute the valid and legally binding
obligation of such Investor, enforceable against it 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.

 

(b) Investment Intent. Such Investor is acquiring the Securities as principal
for its own account for investment purposes only and not with a view to or for
distributing or reselling such Securities or any part thereof, without
prejudice, however, to such Investor’s right at all times to sell or otherwise
dispose of all or any part of such Securities in compliance with applicable
federal and state securities laws. Subject to the immediately preceding
sentence, nothing contained herein shall be deemed a representation or warranty
by such Investor to hold the Securities for any period of time.

 

(c) Investor Status. At the time such Investor was offered the Securities, it
was, and at the date hereof it is, and on the Closing Date and on each date
which it exercises its Warrants and Additional Investment Rights, it will be, an
“accredited investor” as defined in Rule 501(a) under the Securities Act. Such
Investor is not a registered broker-dealer under Section 15 of the Exchange Act.
Such Investor is acquiring the Securities hereunder in the ordinary course of
its business. Such Investor does not have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the Securities.

 

(d) General Solicitation. Such Investor 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.

 

(e) Access to Information. Such Investor acknowledges that it has reviewed the
disclosure materials and has been afforded (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Shares and the merits and risks of investing in the Securities;
(ii) access to information about the Company and its financial condition,
results of operations, business, properties, management and prospects sufficient
to enable it to evaluate its investment; and (iii) the opportunity to obtain
such additional information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment. Neither such inquiries nor any other
investigation conducted by or on behalf of such Investor or its representatives
or counsel shall modify, amend or affect such Investor’s right to rely on the
truth, accuracy and completeness of the Disclosure Materials and the Company’s
representations and warranties contained in the Transaction Documents.

 

(f) Limited Ownership. The purchase by such Investor of the Securities issuable
to it at the Closing (including the underlying shares of Common Stock that would
be issuable in respect of such Securities and including any Securities issuable
under the terms of the Additional Investment Rights issued or issuable to such
Investor) will not result in such Investor

 

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(individually or together with other Person with whom such Investor has
identified, or will have identified, itself as part of a “group” in a public
filing made with the Commission involving the Company’s securities) acquiring,
or obtaining the right to acquire, in excess of 19.999% of the Common Stock or
the voting power of the Company on a post transaction basis that assumes that
the Closing shall have occurred. Such Investor does not presently intend to,
alone or together with others, make a public filing with the Commission to
disclose that it has (or that it together with such other Persons have)
acquired, or obtained the right to acquire, as a result of the Closing (when
added to any other securities of the Company that it or they then own or have
the right to acquire), in excess of 19.999% of the Common Stock or the voting
power of the Company on a post transaction basis that assumes that the Closing
shall have occurred.

 

(g) Experience of Investor. Each Investor, 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 Investor 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.

 

(h) Independent Investment Decision. Such Investor has independently evaluated
the merits of its decision to purchase Securities pursuant to this Agreement,
such decision has been independently made by such Investor and such Investor
confirms that it has only relied on the advice of its own business and/or legal
counsel and not on the advice of any other Investor’s business and/or legal
counsel in making such decision. If such Investor is other than Steelhead
Investments Ltd., such Investor represents and warrants that Bryan Cave LLP has
not acted as its legal counsel in connection with the transactions contemplated
by this Agreement.

 

(i) Certain Trading Activities. Such Investor has not directly or indirectly,
nor has any Person acting on behalf of or pursuant to any understanding with
such Investor, engaged in any transactions in the securities of the Company
(including, without limitations, any Short Sales involving the Company’s
securities) since the time that such Investor was first contacted by the Company
or Roth Capital Partners, LLC regarding this investment in the Company. Such
Investor covenants that neither it nor any Person acting on its behalf or
pursuant to any understanding with it will engage in any transactions in the
securities of the Company (including Short Sales) prior to the time that the
transactions contemplated by this Agreement are publicly disclosed or if doing
so would be a violation of applicable securities laws.

 

(j) Waiver of Participation Rights. If such Investor is a party to (or a
transferee of securities issued pursuant to) that certain Securities Purchase
Agreement dated January 22, 2004 (the “Purchase Agreement”) by and among the
Company and the other parties thereto, then such Investor acknowledges and
agrees that the rights of such Investor to purchase the Securities are set forth
in the Transaction Documents and such Investor hereby waives any and all
participation rights under Section 4.4 of the Purchase Agreement that such
Investor may have with respect to the offer and sale of the Securities by the
Company as well as warrants to purchase 150,000 shares of Common Stock that may
be issued to Roth Capital Partners, LLC as a placement agent fee

 

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The Company acknowledges and agrees that each Investor 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 Transfers of Securities.

 

(a) Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of the Securities other than
pursuant to an effective registration statement, to the Company, to an Affiliate
of an Investor, the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor, 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.

 

(b) Certificates evidencing the Securities will contain the following legend,
until such time as they are not required under Section 4.1(c):

 

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

 

(c) Certificates evidencing the Shares, Warrant Shares and Additional Investment
Right Shares shall not contain any legend (including the legend set forth in
Section 4.1(b)): (i) following the Effective Date, or (ii) following a sale of
such Shares, Warrant Shares or Additional Investment Right Shares pursuant to
Rule 144, or (iii) while such Shares, Warrant Shares or Additional Investment
Right Shares are eligible for sale under Rule 144(k) (provided that the Investor
provides the Company with such certifications as it may reasonably request to
establish Rule 144(k) status), or (iv) if such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the Commission).
Following such time as restrictive legends are not required to be placed on

 

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certificates representing Securities, the Company will, no later than three
Trading Days following the delivery by an Investor to the Company or the
Company’s transfer agent of a certificate representing Shares, Warrant Shares or
Additional Investment Right Shares containing a restrictive legend, deliver or
cause to be delivered to such Investor a certificate representing such Shares or
Warrant 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.

 

4.2 Furnishing of Information. As long as any Investor owns the Securities and
the Company is required under the rules and regulations of the Exchange Act to
file periodic reports with the Commission, the Company covenants to timely file
(or obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act. As long as any Investor owns Securities, if the
Company is not required to file reports pursuant to such laws, it will prepare
and furnish to the Investors and make publicly available in accordance with Rule
144(c) such information as is required for the Investors to sell such the
Shares, Warrant Shares and the Additional Investment Right Shares 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 Shares, Warrant Shares and
Additional Investment Right Shares without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144.

 

4.3 Integration. The Company shall not, and shall use its best efforts to ensure
that no Affiliate of the Company shall, 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 Investors, or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market.

 

4.4 Subsequent Registrations; Subsequent Placements.

 

(a) From the Closing Date through and including the Effective Date, the Company
will not (i) directly or indirectly, offer, sell or grant any option to purchase
(or announce any offer, sale, grant or any option to purchase) any of its Common
Stock or Common Stock Equivalents, or (ii) file a registration statement (other
than on a Form S-8 and pursuant to the Registration Rights Agreement) with the
Commission with respect to any securities of the Company (the “Blockout
Period”).

 

(b) Prior to the 181st day following the Effective Date (the “Participation
Period”), the Company will not, directly or indirectly, offer, sell, grant any
option to purchase, or otherwise dispose of (or announce any offer, sale, grant
or any option to purchase or other disposition of) any of Common Stock or Common
Stock Equivalents, including without limitation, pursuant to a private
placement, an equity line of credit or a shelf registration statement in
accordance with Rule 415 under the Securities Act, (such offer, sale, grant,
disposition or announcement being referred to as “Subsequent Placement”) except
in

 

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accordance with Section 4.4(d) below. An Investors’ rights under Section 4.4(b)
are not transferable or assignable with any transfer or assignment of Securities
(other than to Affiliates of such investor or successors in interest to all of
the business of such Investor).

 

(c) The Participation Period set forth in the preceding paragraph (b) shall be
extended for the number of Trading Days during such period in which (i) trading
in the Common Stock is suspended by any Trading Market or the Commission, or
(ii) following the Effective Date, the Registration Statement is not effective
or the prospectus included in the Registration Statement may not be used by the
Investors for the resale of the shares underlying the Warrants.

 

(d) Subject to Section 4.4(e), prior to the end of the Participation Period, the
Company will not, directly or indirectly, effect any Subsequent Placement unless
the Company shall have first complied with this Section 4.4(d).

 

(i) The Company shall deliver to each Investor a written notice (the “Offer”) of
any proposed or intended issuance or sale or exchange of the securities being
offered (the “Offered Securities”) in a Subsequent Placement, which Offer shall
(x) identify and describe the Offered Securities, (y) describe the price and
other terms upon which the Offered Securities are to be issued, sold or
exchanged, and the number or amount of the Offered Securities to be issued, sold
or exchanged and (z) offer to issue and sell to or exchange with each Investor
(A) a pro rata portion of fifty percent (50%) of the Offered Securities, based
on such Investor’s pro rata portion of the aggregate Investment Amount paid by
the Investors for all of the Shares purchased hereunder (the “Basic Amount”),
and (B) with respect to each Investor that elects to purchase its Basic Amount,
any additional portion of the Offered Securities attributable to the Basic
Amounts of other Investors as such Investor shall indicate it will purchase or
acquire should the other Investors subscribe for less than their Basic Amounts
(the “Undersubscription Amount”).

 

(ii) To accept an Offer, in whole or in part, an Investor must deliver a written
notice to the Company prior to the end of the fifth (5) Trading Day from the
delivery of the Offer, setting forth the portion of the Investor’s Basic Amount
that such Investor elects to purchase and, if such Investor shall elect to
purchase all of its Basic Amount, the Undersubscription Amount, if any, that
such Investor elects to purchase (in either case, the “Notice of Acceptance”).
If the Basic Amounts subscribed for by all Investors are less than the total of
all of the Basic Amounts, then each Investor who has set forth an
Undersubscription Amount in its Notice of Acceptance shall be entitled to
purchase, in addition to the Basic Amounts subscribed for, the Undersubscription
Amount it has subscribed for; provided, however, that if the Undersubscription
Amounts subscribed for exceed the difference between the total of all the Basic
Amounts and the Basic Amounts subscribed for (the “Available Undersubscription
Amount”), each Investor who has subscribed for any Undersubscription Amount
shall be entitled to purchase that portion of the Available Undersubscription
Amount as the Basic Amount of such Investor bears to the total Basic Amounts of
all Investors that have subscribed for Undersubscription Amounts, subject to
rounding by the Board of Directors the extent its deems reasonably necessary.

 

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(iii) The Company shall have ten (10) Trading Days from the expiration of the
period set forth in Section 4.4(d)(ii) above to issue, sell or exchange all or
any part of such Offered Securities as to which a Notice of Acceptance has not
been given by the Investors (the “Refused Securities”), but only to the offerees
described in the Offer and only upon terms and conditions (including, without
limitation, unit prices and interest rates) that are not more favorable to the
acquiring Person or Persons than those set forth in the Offer.

 

(iv) In the event the Company shall propose to sell less than all the Refused
Securities (any such sale to be in the manner and on the terms specified in
Section 4.4(d)(iii) above), then each Investor may, at its sole option and in
its sole discretion, reduce the number or amount of the Offered Securities
specified in its Notice of Acceptance to an amount that shall be not less than
the number or amount of to Offered Securities that the Investor elected to
purchase pursuant to Section 4.4(d)(ii) above multiplied by a fraction, (i) the
numerator of which shall be the number or amount of Offered Securities the
Company actually proposes to issue, sell or exchange (including prior to such
reduction) and (ii) the denominator of which shall be the original amount of the
Offered Securities. In the event that any Investor so elects to reduce the
number or amount of Offered Securities specified in its Notice of Acceptance,
the Company may not issue, sell or exchange more than the reduced number or
amount of the Offered Securities unless and until such securities have again
been offered to the Investors in accordance with Section 4.4(d)(i) above.

 

(v) Upon the closing of the issuance, sale or exchange of all or less than all
of the Refused Securities, each Investor shall acquire from the Company, and the
Company shall issue to each such Investor, the number or amount of Offered
Securities specified in such Investor’s Notices of Acceptance, as reduced
pursuant to Section 4.4(d) the Investors have so elected, upon the terms and
conditions specified in the Offer. The purchase by the Investors of any Offered
Securities is subject in all cases to the preparation, execution and delivery by
the Company and the Investors of a purchase agreement relating to such Offered
Securities reasonably satisfactory in form and substance to the Investors and
the Company and their respective counsel.

 

(e) Notwithstanding anything to contrary contained in this Section 4.4, the
right of participation set forth in this Section 4.4 shall not apply to direct
or indirect issuances or offerings of Common Stock or Common Stock Equivalents
(i) pursuant to Company stock option plans, or any similar stock option plan,
stock purchase right or arrangement approved by the Company’s Board of
Directors, (ii) pursuant to restricted stock grants approved by the Company’s
Board of Directors, (iii) upon exercise of warrants, options, or other rights
outstanding as of the date of this Agreement (but not as to any amendments or
other modifications to the number of Common Stock issuable thereunder, the terms
set forth therein, or the exercise price set forth therein), (iv) issued in
connection with equipment leases or real property leases, provided that not more
than $250,000 of securities is so issuable and such leases are otherwise on
customary terms; (v) issued as a dividend or distribution on the Common Stock or
in connection with the subdivision of outstanding shares of Common Stock into a
larger number of shares or (vi) as part of the purchase price of the acquisition
of another corporation or entity by the Company by consolidation, merger,
purchase of all or substantially all of the assets,

 

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or other reorganization in which the Company acquires, in a single transaction
or a series of related transactions, all or substantially all of the assets of
such other corporation or entity; provided, that such transaction is not
primarily a financing transaction.

 

4.5 Securities Laws Disclosure; Publicity. By 8:45 a.m. (New York City time) on
the Business Day immediately following the date of this Agreement, the Company
shall issue a press release reasonably acceptable to the Investors disclosing
the entering into of the transactions contemplated hereby and on such day file a
Current Report on Form 8-K disclosing the material terms of the transactions
contemplated hereby and will file as exhibits thereto all of the Transaction
Documents. The Company will issue a press release on the Closing Date to
disclose the Closing. In addition, the Company will make such other filings and
notices in the manner and time required by the Commission and the Trading Market
on which the Common Stock is listed. Notwithstanding the foregoing, the Company
shall not publicly disclose the name of any Investor, or include the name of any
Investor in any filing with the Commission (other than the Registration
Statement and any exhibits to filings made in respect of this transaction in
accordance with periodic filing requirements under the Exchange Act) or any
regulatory agency or Trading Market, without the prior written consent of such
Investor, except to the extent such disclosure is required by law or Trading
Market regulations, in which case the Company shall provide the Investors with
prior notice of such disclosure.

 

4.6 Indemnification of Investors. In addition to the indemnity provided in the
Registration Rights Agreement, the Company will indemnify and hold the Investors
and their directors, officers, shareholders, partners, employees and agents
(each, an “Investor 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 (collectively, “Losses”) that any such Investor
Party may suffer or incur as a result of or relating to any misrepresentation,
breach or inaccuracy of any representation, warranty, covenant or agreement made
by the Company in any Transaction Document. In addition to the indemnity
contained herein, the Company will reimburse each Investor Party for its
reasonable documented 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.

 

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

 

4.8 Use of Proceeds. 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 and
accrued expenses 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 Action.

 

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ARTICLE V.

CONDITIONS PRECEDENT

 

5.1 Conditions Precedent to the Obligations of the Investors to Purchase
Securities. The obligation of each Investor to acquire Securities at the Closing
is subject to the satisfaction or waiver by such Investor, at or before the
Closing, of each of the following conditions:

 

(a) Representations and Warranties. The representations and warranties of the
Company contained herein shall be true and correct in all material respects as
of the date when made and as of the Closing as though made on and as of such
date;

 

(b) Performance. The Company shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by it at or
prior to the Closing;

 

(c) No Injunction. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by the Transaction
Documents;

 

(d) Adverse Changes. Since the date of execution of this Agreement, no event or
series of events shall have occurred that reasonably would be expected to have
or result in a (i) an adverse effect on the legality, validity or enforceability
of any Transaction Document, or (ii) a material and adverse effect on the
results of operations, assets, business or condition (financial or otherwise) of
the Company, taken as a whole;

 

(e) No Suspensions of Trading in Common Stock; Listing. Trading in the Common
Stock shall not have been suspended by the Commission or any Trading Market
(except for any suspensions of trading of not more than one Trading Day solely
to permit dissemination of material information regarding the Company) at any
time since the date of execution of this Agreement, and the Common Stock shall
have been at all times since such date listed for trading on a Trading Market;

 

(f) Nasdaq Listing. The Nasdaq Stock Market shall have waived application of the
15 day prior notice contained in NASD Marketplace Rule 4310(c)(17)(D) or such
timeframe shall have expired without objection;

 

(g) Waivers. The Company shall have received the waivers of all participation
rights referenced in Schedule 3.1(g); and

 

(h) Timing. The Closing shall have occurred no later than December 10, 2004.

 

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5.2 Conditions Precedent to the Obligations of the Company to sell Securities.
The obligation of the Company to sell Securities at the Closing is subject to
the satisfaction or waiver by the Company, at or before the Closing, of each of
the following conditions:

 

(a) Representations and Warranties. The representations and warranties of each
Investor contained herein shall be true and correct in all material respects as
of the date when made and as of the Closing Date as though made on and as of
such date;

 

(b) Performance. Each Investor shall have performed, satisfied and complied in
all material respects with all covenants, agreements and conditions required by
the Transaction Documents to be performed, satisfied or complied with by such
Investor at or prior to the Closing;

 

(c) No Injunction. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by the Transaction
Documents;

 

(d) Nasdaq Listing. The Nasdaq Stock Market shall have waived application of the
15 day prior notice contained in NASD Marketplace Rule 4310(c)(17)(D) or such
timeframe shall have expired without objection; and

 

(e) Timing. The Closing shall have occurred no later than December 10, 2004.

 

ARTICLE VI.

MISCELLANEOUS

 

6.1 Fees and Expenses. At the Closing, the Company shall reimburse HBK $25,000
in connection with its diligence and legal fees concerning the transactions
contemplated by the Transaction Documents (HBK may deduct such amount from the
portion of its Investment Amount deliverable to the Company at the Closing), it
being understood that Bryan Cave LLP has only rendered legal advice to Steelhead
Investments Ltd., and not to the Company or any Investor in connection with the
transactions contemplated hereby, and that each of the Company and each Investor
has relied for such matters on the advice of its own respective counsel. Except
as specified in the immediately preceding sentence, 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 the Transaction Documents.
The Company shall pay all stamp and other taxes and duties levied in connection
with the sale of the Securities. Each Investor and the Company 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 the Transaction Documents.
The Company shall pay all stamp and other taxes and duties levied in connection
with the sale of the Securities.

 

6.2 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.

 

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6.3 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
specified in this Section 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 specified in
this Section 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 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 follows:

 

If to the Company:    eMerge Interactive, Inc.      10305 102nd Terrace     
Sebastian, Florida 32958      Attention: Chief Financial Officer      (772)
581-9741 (phone)      (772) 581-8171 (facsimile) With a copy to:    Hunton &
Williams LLP      Riverfront Plaza, East Tower      Richmond, Virginia
23219-4074      Attention: Gary E. Thompson, Esq.      (804) 788-8787 (phone)  
   (804) 343-4574 (facsimile) If to an Investor:    To the address set forth
under such Investor’s name on the signature pages hereof;

 

or such other address as may be designated in writing hereafter, in the same
manner, by such Person.

 

6.4 Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed by the Company and the Investors holding a
majority of then outstanding Shares, except that a waiver will be effective if
pertaining to a matter particular to a single Investor (which shall include any
waiver of the conditions set forth in Section 5) if provided in writing by such
Investor, or if pertaining to a waiver by the Company, if provided in writing by
the Company. 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.

 

6.5 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.

 

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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. This Agreement shall be construed as if
drafted jointly by the parties, and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement or any of the Transaction Documents.

 

6.6 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 the Investors. Any Investor may assign any
or all of its rights under this Agreement to any Person to whom such Investor
assigns or transfers any Securities, provided such transfer complies with
Section 4.1 and such transferee agrees in writing to be bound, with respect to
the transferred Securities, by the provisions hereof that apply to the
“Investors.”

 

6.7 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 4.8 (as to each Investor
Party).

 

6.8 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement 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 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, employees or agents) shall be commenced exclusively in the state and
federal courts sitting in the City of New York, Borough of Manhattan (the “New
York Courts”). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts 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 the any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such New York Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such 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. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby. If either party shall
commence a Proceeding to enforce any provisions of a Transaction Document, then
the prevailing party in such Proceeding shall be reimbursed by the other party
for its attorney’s fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Proceeding.

 

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6.9 Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery of the Securities.

 

6.10 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.

 

6.11 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.

 

6.12 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Investor 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 Investor 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.

 

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

 

6.14 Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Investors
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.

 

6.15 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Investor pursuant to any Transaction Document or an Investor
enforces or

 

23

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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.

 

6.16 Independent Nature of Investors’ Obligations and Rights. The obligations of
each Investor under any Transaction Document are several and not joint with the
obligations of any other Investor, and no Investor shall be responsible in any
way for the performance of the obligations of any other Investor under any
Transaction Document. The decision of each Investor to purchase Securities
pursuant to the Transaction Documents has been made by such Investor
independently of any other Investor. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents. Each Investor shall be entitled to independently protect and enforce
its rights, including without limitation the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investors and not because it was required or
requested to do so by any Investor.

 

6.17 Limitation of Liability. Notwithstanding anything herein to the contrary,
the Company acknowledges and agrees that the liability of an Investor arising
directly or indirectly, under any Transaction Document of any and every nature
whatsoever shall be satisfied solely out of the assets of such Investor, and
that no trustee, officer, other investment vehicle or any other Affiliate of
such Investor or any investor, shareholder or holder of shares of beneficial
interest of such a Investor shall be personally liable for any liabilities of
such Investor.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOLLOW]

 

24

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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.

 

EMERGE INTERACTIVE, INC. /s/    ROBERT E. DRURY        

Name:

  Robert E. Drury

Title:

  Chief Financial Officer

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOR INVESTORS FOLLOW]

 

25

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IN WITNESS WHEREOF, the parties have executed this Securities Purchase Agreement
as of the date first written above.

 

OMICRON MASTER TRUST

By:

 

Omicron Capital L.P., as advisor

By:

 

Omicron Capital Inc., its general partner

By:       /s/    BRIAN DALY        

Name:

      Brian Daly

Title:

      CFO

For:

      Bruce Bernstein

Title:

      Managing Partner

Investment Amount:

 

$1,000,000.00

 

Registered Office

   Omicron Master Trust     

c/o Winchester Global Trust Company

    

Williams House

    

20 Reid Street

    

Hamilton HM 11

    

Bermuda

    

Telephone: (441) 292-1018

    

Facsimile: (441) 298-5031

    

ARTICLE VII. Tax ID: 98-6053436

Mailing Address:

   Omicron Capital, L.P.     

650 Fifth Avenue, 24th Flr

    

New York, NY 10019

 

CRANSURE CAPITAL, LP By:       /s/    MICHAEL D. KOREN        

Name:

      Michael D. Koren

Title:

      President - Downsview Capital         The General Partner

Investment Amount:

 

$1,500,000

Address for Notice:

 

666 Dundee Road, Suite 1901

Northbrook, IL 60062

 

STEELHEAD INVESTMENTS LTD. By:       /s/    DAVID C. HALEY        

Name:

      David C. Haley

Title:

      Authorized Signatory

Investment Amount:

 

$1,500,000

Address for Notice:    

Steelhead Investments Ltd.

c/o Investment Manager

300 Crescent Court, Suite 700

Dallas, Texas 75201

Telephone: 214-758-6107

Telecopy: 214-758-1207

Attention: General Counsel

 

26

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EXHIBIT A

 

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES 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.

 

EMERGE INTERACTIVE, INC.

 

WARRANT

 

Warrant No. [    ]

  Date of Original Issuance: [    ], 2004

 

eMerge Interactive, Inc., a Delaware corporation (the “Company”), hereby
certifies that, for value received, [            ] or its registered assigns
(the “Holder”), is entitled to purchase from the Company up to a total of
[    ]1 shares of Class A common stock, par value $0.008 per share (the “Common
Stock”), of the Company (each such share, a “Warrant Share” and all such shares,
the “Warrant Shares”) at an exercise price equal to $2.00 per share (as adjusted
from time to time as provided in Section 9, the “Exercise Price”), at any time
and from time to time from and after the six month anniversary of the Date of
Original Issuance and through and including [            ], 2009 (the
“Expiration Date”), and subject to the following terms and conditions:

 

1. Definitions. In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein shall have the meanings
given to such terms in the Securities Purchase Agreement, dated as of November
22, 2004, to which the Company and the original Holder are parties (the
“Purchase Agreement”).

 

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

--------------------------------------------------------------------------------

1 A number of shares as equals 35% of the number of shares issued to Holder at
closing.

 

--------------------------------------------------------------------------------

3. Registration of Transfers. This Warrant is subject to the transfer
restrictions in the Purchase Agreement. The Company shall register the transfer
of any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and signed,
to the Company at its address specified herein. The Holder agrees that it may
not transfer this Warrant as to more than the number of Warrant Shares then
outstanding as shown on the most updated Exercise Log, and any purported
transfer in excess of such number of Warrant Shares shall have no effect. Upon
any such registration or transfer, a new Warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new Warrant, a “New Warrant”),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of a Warrant.

 

4. Exercise and Duration of Warrants. This Warrant shall be exercisable by the
registered Holder at any time and from time to time on or after the six month
anniversary of the Date of Original Issuance and through and including the
Expiration Date. At 6:30 p.m., New York City time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void and
of no value. The Company may not call or redeem all or any portion of this
Warrant without the prior written consent of the Holder.

 

5. Delivery of Warrant Shares.

 

(a) To effect exercises hereunder, the Holder shall not be required to
physically surrender this Warrant unless the aggregate Warrant Shares
represented by this Warrant is being exercised. Upon delivery of the Exercise
Notice to the Company (with the attached Warrant Shares Exercise Log) at its
address for notice set forth herein and upon payment of the Exercise Price
multiplied by the number of Warrant Shares that the Holder intends to purchase
hereunder, the Company shall promptly (but in no event later than three Trading
Days after the Date of Exercise (as defined herein)) issue and deliver to the
Holder, a certificate for the Warrant Shares issuable upon such exercise, which,
unless otherwise required by the Purchase Agreement, shall be free of
restrictive legends. The Company shall, upon request of the Holder and
subsequent to the date on which a registration statement covering the resale of
the Warrant Shares has been declared effective by the Securities and Exchange
Commission, use its best efforts to deliver Warrant Shares hereunder
electronically through the Depository Trust Corporation or another established
clearing corporation performing similar functions, if available, provided, that,
the Company may, but will not be required to change its transfer agent if its
current transfer agent cannot deliver Warrant Shares electronically through the
Depository Trust Corporation. A “Date of Exercise” means the date on which the
Holder shall have delivered to Company: (i) the Exercise Notice (with the
Warrant Exercise Log attached to it), appropriately completed and duly signed
and (ii) if such Holder is not utilizing the cashless exercise provisions set
forth in this Warrant, payment of the Exercise Price for the number of Warrant
Shares so indicated by the Holder to be purchased. The Company shall file a
registration statement covering the Warrant Shares and shall use its best
efforts to keep such registration statement continuously effective, in each case
in accordance with the terms of the Registration Rights Agreement, dated as of
the date hereof, between the original Holder and the Company.

 

2

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(b) If by the third Trading Day after a Date of Exercise the Company fails to
deliver the required number of Warrant Shares in the manner required pursuant to
Section 5(a), then the Holder will have the right to rescind such exercise.

 

(c) If by the third Trading Day after a Date of Exercise the Company fails to
deliver the required number of Warrant Shares in the manner required pursuant to
Section 5(a), and if after such third Trading Day and prior to the receipt of
such Warrant Shares, the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the Warrant Shares which the Holder anticipated receiving upon such
exercise (a “Buy-In”), then the Company shall (1) pay either cash or issue
additional registered shares of Common Stock, at the Company’s option, to the
Holder the amount by which (x) the Holder’s total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased
exceeds (y) the amount obtained by multiplying (A) the number of Warrant Shares
that the Company was required to deliver to the Holder in connection with the
exercise at issue by (B) the closing bid price of the Common Stock at the time
of the obligation giving rise to such purchase obligation, with the number of
additional registered shares of Common Stock determined by dividing the above
noted amount by the closing price of the Common Stock at the time of the
obligation, and (2) at the option of the Holder, either reinstate the portion of
the Warrant and equivalent number of Warrant Shares for which such exercise was
not honored or deliver to the Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its exercise and
delivery obligations hereunder. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In.

 

(d) The Company’s obligations to issue and deliver Warrant Shares in accordance
with the terms hereof are absolute and unconditional, irrespective of any action
or inaction by the Holder to enforce the same, any waiver or consent with
respect to any provision hereof, the recovery of any judgment against any Person
or any action to enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the Holder or any
other Person of any obligation to the Company or any violation or alleged
violation of law by the Holder or any other Person, and irrespective of any
other circumstance which might otherwise limit such obligation of the Company to
the Holder in connection with the issuance of Warrant Shares. Nothing herein
shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing shares of Common Stock upon
exercise of the Warrant as required pursuant to the terms hereof.

 

6. Charges, Taxes and Expenses. Issuance and delivery of certificates for shares
of Common Stock upon exercise of this Warrant shall be made without charge to
the Holder for any issue or transfer tax, withholding tax, transfer agent fee or
other incidental tax or expense in respect of the issuance of such certificates,
all of which taxes and expenses shall be paid by the Company; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the registration of any certificates for
Warrant Shares or Warrants in a name other than that of the Holder. The Holder
shall be responsible for all other tax liability that may arise as a result of
holding or transferring this Warrant or receiving Warrant Shares upon exercise
hereof.

 

3

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7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity (which shall not include a surety bond), if requested.
Applicants for a New Warrant under such circumstances shall also comply with
such other reasonable regulations and procedures and pay such other reasonable
third-party costs as the Company may prescribe. If a New Warrant is requested as
a result of a mutilation of this Warrant, then the Holder shall deliver such
mutilated Warrant to the Company as a condition precedent to the Company’s
obligation to issue the New Warrant.

 

8. Reservation of Warrant Shares. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company covenants
that all Warrant Shares so issuable and deliverable shall, upon issuance and the
payment of the applicable Exercise Price in accordance with the terms hereof, be
duly and validly authorized, issued and fully paid and nonassessable.

 

9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable
upon exercise of this Warrant are subject to adjustment from time to time as set
forth in this Section 9.

 

(a) Stock Dividends and Splits. If the Company, at any time while this Warrant
is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes
a distribution on any class of capital stock that is payable in shares of Common
Stock, (ii) subdivides outstanding shares of Common Stock into a larger number
of shares, or (iii) combines outstanding shares of Common Stock into a smaller
number of shares, then in each such case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common
Stock outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after such
event. Any adjustment made pursuant to clause (i) of this paragraph shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clause (ii) or (iii) of this paragraph shall become
effective immediately after the effective date of such subdivision or
combination. If any event requiring an adjustment under this paragraph occurs
during the period that an Exercise Price is calculated hereunder, then the
calculation of such Exercise Price shall be adjusted appropriately to reflect
such event.

 

(b) Fundamental Transactions. If, at any time while this Warrant is outstanding,
(1) the Company effects any merger or consolidation of the Company with or into
another Person, (2) the Company effects any sale of all or substantially all of
its assets in one or a series of related transactions, (3) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to

 

4

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tender or exchange their shares for other securities, cash or property, or (4)
the Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities, cash or property (in any such case, a
“Fundamental Transaction”), then the Holder shall have the right to require the
repurchase of this Warrant for a purchase price, payable in cash or registered
shares of Common Stock, at the Company’s option, within five Trading Days after
such request (or, if later, on the effective date of the Fundamental
Transaction) equal to the Black Scholes value of the remaining unexercised
portion of this Warrant on the date of such request. The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity to comply with the provisions
of this paragraph (c).

 

(c) Subsequent Equity Sales.

 

(i) If the Company or any subsidiary thereof, as applicable with respect to
Common Stock Equivalents (as defined below), at any time while this Warrant is
outstanding, shall issue any securities of the Company or any Subsidiary which
entitle the holder thereof to acquire Common Stock at any time, including
without limitation, any debt, preferred stock, rights, options, warrants or any
other instrument that is at any time convertible into or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock or other
securities that entitle the holder to receive, directly or indirectly, Common
Stock (“Common Stock Equivalents”) entitling any Person to acquire shares of
Common Stock, at a price per share less than the Exercise Price (if the holder
of the Common Stock or Common Stock Equivalent so issued shall at any time,
whether by operation of purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due to warrants,
options or rights issued in connection with such issuance, be entitled to
receive shares of Common Stock at a price less than the Exercise Price, such
issuance shall be deemed to have occurred for less than the Exercise Price),
then, at the option of the Holder for such exercises as it shall indicate, the
Exercise Price shall be adjusted to mirror the conversion, exchange or purchase
price for such Common Stock or Common Stock Equivalents (including any reset
provisions thereof) at issue. Such adjustment shall be made whenever such Common
Stock or Common Stock Equivalents are issued. The Company shall notify the
Holder in writing, no later than the Trading Day following the issuance of any
Common Stock or Common Stock Equivalent subject to this section, indicating
therein the applicable issuance price, or of applicable reset price, exchange
price, conversion price and other pricing terms. Notwithstanding the foregoing,
no adjustment will be made under this Section 9(d) in respect of:

 

(A) Any grant of an option or warrant for Common Stock or issuance of any shares
of Common Stock upon the exercise of any options or warrants to employees,
officers and directors of or consultants to the Company pursuant to any stock
option plan, employee stock purchase plan or similar plan or incentive or
consulting arrangement approved by the Company’s board of directors;

 

(B) Any restricted stock awards approved by the Company’s Board of Directors;

 

5

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(C) Any Common Stock or Common Stock Equivalents issued in connection with
equipment leases or real property leases, provided that not more than $250,000
of securities is so issuable and such leases are otherwise on customary terms;

 

(D) Any Common Stock issued as a dividend or distribution on the Company’s
Common Stock or in a transaction described in Section 9(a);

 

(E) Any Common Stock or Common Stock Equivalents issued as part of the purchase
price of the acquisition of another corporation or entity by the Company by
consolidation, merger, purchase of all or substantially all of the assets, or
other reorganization in which the Company acquires, in a single transaction or a
series of related transactions, all or substantially all of the assets of such
other corporation or entity; provided, that such transaction is not primarily a
financing transaction; or

 

(F) Any rights or agreements to purchase Common Stock Equivalents outstanding on
the date hereof and as specified in Schedule 3.1(g) to the Purchase Agreement
(but not as to any amendments or other modifications to the number of Common
Stock issuable thereunder, the terms set forth therein, or the exercise price
set forth therein).

 

(ii) If, at any time while this Warrant is outstanding, the Company or any
Subsidiary issues Common Stock Equivalents at a price per share that floats or
resets or otherwise varies or is subject to adjustment based on market prices of
the Common Stock (a “Floating Price Security”), then for purposes of applying
the preceding paragraph in connection with any subsequent exercise, the Exercise
Price will be determined separately on each Exercise Date and will be deemed to
equal the lowest price per share at which any holder of such Floating Price
Security is entitled to acquire shares of Common Stock on such Exercise Date
(regardless of whether any such holder actually acquires any shares on such
date).

 

(d) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise
Price pursuant to paragraph (a) of this Section, the number of Warrant Shares
that may be purchased upon exercise of this Warrant shall be increased or
decreased proportionately, so that after such adjustment the aggregate Exercise
Price payable hereunder for the adjusted number of Warrant Shares shall be the
same as the aggregate Exercise Price in effect immediately prior to such
adjustment.

 

(e) Calculations. All calculations under this Section 9 shall be made to the
nearest cent or the nearest 1/100th of a share, as applicable. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.

 

(f) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to
this Section 9, the Company at its expense will promptly compute such adjustment
in accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment, including a statement of the adjusted Exercise Price and
adjusted number or type of Warrant Shares or other securities issuable upon
exercise of this Warrant (as applicable), describing the transactions giving
rise to such adjustments and showing in detail the facts upon which such

 

6

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adjustment is based. Upon written request, the Company will promptly deliver a
copy of each such certificate to the Holder and to the Company’s Transfer Agent.

 

(g) Notice of Corporate Events. If the Company (i) declares a dividend or any
other distribution of cash, securities or other property in respect of its
Common Stock, including without limitation any granting of rights or warrants to
subscribe for or purchase any capital stock of the Company or any Subsidiary,
(ii) authorizes or approves, enters into any agreement contemplating or solicits
stockholder approval for any Fundamental Transaction or (iii) authorizes the
voluntary dissolution, liquidation or winding up of the affairs of the Company
(but only to the extent such disclosure would not result in the dissemination of
material, non-public information to the Holder), then the Company shall deliver
to the Holder a notice describing the material terms and conditions of such
transaction, at least 10 calendar days prior to the applicable record or
effective date on which a Person would need to hold Common Stock in order to
participate in or vote with respect to such transaction, and the Company will
take all steps reasonably necessary in order to insure that the Holder is given
the practical opportunity to exercise this Warrant prior to such time so as to
participate in or vote with respect to such transaction; provided, however, that
the failure to deliver such notice or any defect therein shall not affect the
validity of the corporate action required to be described in such notice.

 

10. Payment of Exercise Price. The Holder may pay the Exercise Price in one of
the following manners:

 

(a) Cash Exercise. The Holder may deliver immediately available funds; or

 

(b) Cashless Exercise. If an Exercise Notice is delivered after the
Effectiveness Date (as defined in the Registration Rights Agreement among the
original Holder and the Company in connection with this Warrant) and a
registration statement permitting the Holder to resell the Warrant Shares is not
then effective or the prospectus forming a part thereof is not then available to
the Holder for the resale of the Warrant Shares, then and only then, the Holder
may notify the Company in an Exercise Notice of its election to utilize cashless
exercise, in which event the Company shall issue to the Holder the number of
Warrant Shares determined as follows:

 

X = Y [(A-B)/A]

 

where:

 

X = the number of Warrant Shares to be issued to the Holder.

 

Y = the number of Warrant Shares with respect to which this Warrant is being
exercised.

 

A = the average of the closing prices for the five Trading Days immediately
prior to (but not including) the Exercise Date.

 

B = the Exercise Price.

 

7

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For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have commenced, on
the date this Warrant was originally issued.

 

11. Limitations on Exercise.

 

(a) Notwithstanding anything to the contrary contained herein, the number of
shares of Common Stock that may be acquired by the Holder upon any exercise of
this Warrant (or otherwise in respect hereof) shall be limited to the extent
necessary to insure that, following such exercise (or other issuance), the total
number of shares of Common Stock then beneficially owned by such Holder and its
Affiliates and any other Persons whose beneficial ownership of Common Stock
would be aggregated with the Holder’s for purposes of Section 13(d) of the
Exchange Act, does not exceed 4.999% of the total number of issued and
outstanding shares of Common Stock (including for such purpose the shares of
Common Stock issuable upon such exercise). For such purposes, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder. This provision shall
not restrict the number of shares of Common Stock which a Holder may receive or
beneficially own in order to determine the amount of securities or other
consideration that such Holder may receive in the event of a Fundamental
Transaction as contemplated in Section 9 of this Warrant. By written notice to
the Company, the Holder may waive the provisions of this Section but any such
waiver will not be effective until the 61st day after such notice is delivered
to the Company.

 

(b) Notwithstanding anything to the contrary contained herein, the number of
shares of Common Stock that may be acquired by the Holder upon any exercise of
this Warrant (or otherwise in respect hereof) shall be limited to the extent
necessary to insure that, following such exercise (or other issuance), the total
number of shares of Common Stock then beneficially owned by such Holder and its
Affiliates and any other Persons whose beneficial ownership of Common Stock
would be aggregated with the Holder’s for purposes of Section 13(d) of the
Exchange Act, does not exceed 9.999% of the total number of issued and
outstanding shares of Common Stock (including for such purpose the shares of
Common Stock issuable upon such exercise). For such purposes, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder. This provision shall
not restrict the number of shares of Common Stock which a Holder may receive or
beneficially own in order to determine the amount of securities or other
consideration that such Holder may receive in the event of a Fundamental
Transaction as contemplated in Section 9 of this Warrant. This restriction may
not be waived.

 

(c) Notwithstanding anything to the contrary contained herein, if (i) the
Company elects to pay the Buy-In penalty pursuant to clause (1) of the first
sentence of Section 5(c) in shares of registered Common Stock or (ii) the Holder
exercises its right to require the Company to repurchase this Warrant pursuant
to Section 9(b) and the Company elects to pay the purchase price in shares of
registered Common Stock, in no event shall the aggregate number of

 

8

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shares of Common Stock acquired by the Holder pursuant to the foregoing
provisions exceed [            ]2 in the aggregate.

 

12. No Fractional Shares. No fractional shares of Warrant Shares will be issued
in connection with any exercise of this Warrant and in lieu thereof, any
fractional shares shall be rounded down to the nearest whole.

 

13. Notices. Any and all notices or other communications or deliveries hereunder
(including, without limitation, any Exercise Notice) shall be in writing and
shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section prior to 5:30 p.m. (New York City
time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day or
later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the Trading
Day following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be: (i) if to
the Company, to eMerge Interactive, Inc., Attn: Chief Financial Officer,
Facsimile No.: (772) 581-8171, or (ii) if to the Holder, to the address or
facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section.

 

14. Warrant Agent. The Company shall serve as warrant agent under this Warrant.
Upon 30 days’ notice to the Holder, the Company may appoint a new warrant agent.
Any corporation into which the Company or any new warrant agent may be merged or
any corporation resulting from any consolidation to which the Company or any new
warrant agent shall be a party or any corporation to which the Company or any
new warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor warrant agent under this
Warrant without any further act. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed (by first class
mail, postage prepaid) to the Holder at the Holder’s last address as shown on
the Warrant Register.

 

15. Miscellaneous.

 

(a) This Warrant shall be binding on and inure to the benefit of the parties
hereto and their respective successors and assigns. Subject to the preceding
sentence, nothing in this Warrant shall be construed to give to any Person other
than the Company and the Holder any legal or equitable right, remedy or cause of
action under this Warrant. This Warrant may be amended only in writing signed by
the Company and the Holder and their successors and assigns.

 

(b) All questions concerning the construction, validity, enforcement and
interpretation of this Warrant 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

--------------------------------------------------------------------------------

2 The Holder’s pro rata share of 900,000 shares of Common Stock based on such
Holder’s Investment Amount under the Purchase Agreement

 

9

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law thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of this Warrant and the transactions
herein contemplated (“Proceedings”) (whether brought against a party hereto or
its respective Affiliates, employees or agents) shall be commenced exclusively
in the state and federal courts sitting in the City of New York, Borough of
Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any New York Court, or that such Proceeding has been commenced
in an improper or inconvenient forum. Each party hereto hereby irrevocably
waives personal service of process and consents to process being served in any
such 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 Warrant 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. Each party hereto hereby irrevocably waives, to
the fullest extent permitted by applicable law, any and all right to trial by
jury in any legal proceeding arising out of or relating to this Warrant or the
transactions contemplated hereby. If either party shall commence a Proceeding to
enforce any provisions of this Warrant, then the prevailing party in such
Proceeding shall be reimbursed by the other party for its attorney’s fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such Proceeding.

 

(c) The headings herein are for convenience only, do not constitute a part of
this Warrant and shall not be deemed to limit or affect any of the provisions
hereof.

 

(d) In case any one or more of the provisions of this Warrant shall be invalid
or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.

 

(e) Subject to the provisions of Section 9 of this Warrant, prior to exercise of
this Warrant, the holder hereof shall not, by reason of by being a holder
hereof, be entitled to any rights of a stockholder with respect to the Warrant
Shares, including (without limitation) the right to vote such Warrant Shares,
receive dividends or other distributions thereon, exercise preemptive rights or
be notified of stockholder meetings, and such holder shall not be entitled to
any notice or other communication concerning the business or affairs of the
Company.

 

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

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

 

10

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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
its authorized officer as of the date first indicated above.

 

EMERGE INTERACTIVE, INC.

By:

   

Name:

   

Title:

   

 

11

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EMERGE INTERACTIVE, INC.

WARRANT ORIGINALLY ISSUED [            ], 2004

 

EXERCISE NOTICE

 

To eMerge Interactive, Inc.:

 

The undersigned hereby irrevocably elects to purchase                     
shares of Common Stock pursuant to the above captioned Warrant, and, if such
Holder is not utilizing the cashless exercise provisions set forth in the
Warrant, encloses herewith $             in cash, certified or official bank
check or checks or other immediately available funds, which sum represents the
aggregate Exercise Price (as defined in the Warrant) for the number of shares of
Common Stock to which this Exercise Notice relates, together with any applicable
taxes payable by the undersigned pursuant to the Warrant.

 

By its delivery of this Exercise Notice, the undersigned represents and warrants
to the Company that in giving effect to the exercise evidenced hereby the Holder
will not beneficially own in excess of the number of shares of Common Stock
(determined in accordance with Section 13(d) of the Securities Exchange Act of
1934) permitted to be owned under Section 11(a) and (b) of this Warrant to which
this notice relates.

 

The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of

 

    

PLEASE INSERT SOCIAL SECURITY OR

TAX IDENTIFICATION NUMBER

 

(Please print name and address)

 

12

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Warrant Shares Exercise Log

 

Date

--------------------------------------------------------------------------------

 

Number of Warrant

Shares Available to be

Exercised

--------------------------------------------------------------------------------

 

Number of Warrant Shares

Exercised

--------------------------------------------------------------------------------

 

Number of

Warrant Shares

Remaining to

be Exercised

--------------------------------------------------------------------------------

 

13

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EMERGE INTERACTIVE, INC.

WARRANT ORIGINALLY ISSUED [            ], 2004

FORM OF ASSIGNMENT

 

[To be completed and signed only upon transfer of Warrant]

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
                     the right represented by the above-captioned Warrant to
purchase                      shares of Common Stock to which such Warrant
relates and appoints                      attorney to transfer said right on the
books of the Company with full power of substitution in the premises.

 

Dated:                                     ,             

 

 

(Signature must conform in all respects to name of

holder as specified on the face of the Warrant)

 

Address of Transferee

   

 

In the presence of:

 

__________________________

 

14

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EXHIBIT B

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “Agreement”) is made and entered into
as of                     , 2004, by and among eMerge Interactive, Inc., a
Delaware corporation (the “Company”), and the investors signatory hereto (each a
“Investor” and collectively, the “Investors”).

 

This Agreement is made pursuant to the Securities Purchase Agreement, dated as
of November 22, 2004, among the Company and the investor parties hereto (the
“Purchase Agreement”).

 

The Company and the Investors hereby agree as follows:

 

1. Definitions. Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in
the Purchase Agreement. As used in this Agreement, the following terms shall
have the respective meanings set forth in this Section 1:

 

“Effective Date” means the date that the Registration Statement filed pursuant
to Section 2(a) or 2(b) is first declared effective by the Commission.

 

“Effectiveness Date” means (a) with respect to the initial Registration
Statement required to be filed pursuant to Section 2(a), the earlier of: (a)(i)
the 90th day following the Closing Date and (ii) the fifth Trading Day following
the date on which the Company is notified by the Commission that the initial
Registration Statement will not be reviewed or is no longer subject to further
review and comments, and (b) with respect to any additional Registration
Statements that may be required pursuant to Section 2(b), the 90th day following
the date on which the Company first knows, or reasonably should have known, that
such additional Registration Statement is required under such Section.

 

“Effectiveness Period” shall have the meaning set forth in Section 2(a).

 

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

 

“Filing Date” means (a) with respect to the initial Registration Statement
required to be filed pursuant to Section 2(a), the 30th day following the
Closing Date, and (b) with respect to any additional Registration Statements
that may be required pursuant to Section 2(b), the 30th day following the date
on which the Company first knows, or reasonably should have known, that such
additional Registration Statement is required under such Section.

 

“Holder” or “Holders” means the holder or holders, as the case may be, from time
to time of Registrable Securities.

 

“Indemnified Party” shall have the meaning set forth in Section 5(c).

 

--------------------------------------------------------------------------------

“Indemnifying Party” shall have the meaning set forth in Section 5(c).

 

“Losses” shall have the meaning set forth in Section 5(a).

 

“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.

 

“Prospectus” means the prospectus included in a Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.

 

“Registrable Securities” means: (i) the Shares, (ii) the Warrant Shares, (iii)
the Additional Investment Right Shares, and (iv) any securities issued or
issuable upon any stock split, dividend or other distribution, recapitalization
or similar event with respect to any of the securities referenced in (i), (ii)
or (iii) above.

 

“Registration Statement” means the initial registration statement required to be
filed in accordance with Section 2(a) and any additional registration
statement(s) required to be filed under Section 2(b), including (in each case)
the Prospectus, amendments and supplements to such registration statements or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference or deemed to be incorporated by
reference in such registration statements.

 

“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.

 

“Rule 415” means Rule 415 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.

 

“Rule 424” means Rule 424 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.

 

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

 

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

 

2

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“Trading Market” means whichever of the New York Stock Exchange, the American
Stock Exchange, the NASDAQ National Market or the NASDAQ SmallCap Market, on
which the Common Stock is listed or quoted for trading on the date in question.

 

“Warrants” means the Warrants issued or issuable pursuant to the Purchase
Agreement and to any placement agent identified in Schedule 3.1(t) to the
Purchase Agreement in accordance with the terms of the engagement or similar
agreements between the Company and any such agents.

 

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

 

2. Registration.

 

(a) On or prior to the Filing Date, the Company shall prepare and file with the
Commission a Registration Statement covering the resale of all Registrable
Securities not already covered by an existing and effective Registration
Statement for an offering to be made on a continuous basis pursuant to Rule 415.
The Registration Statement shall be on Form S-3 (except if the Company is not
then eligible to register for resale the Registrable Securities on Form S-3, in
which case such registration shall be on another appropriate form for such
purpose) and shall contain (except if otherwise required pursuant to written
comments received from the Commission upon a review of such Registration
Statement) the “Plan of Distribution” attached hereto as Annex A. The Company
shall cause the Registration Statement to be declared effective under the
Securities Act as soon as possible but, in any event, no later than the
Effectiveness Date, and shall use its best efforts to keep the Registration
Statement continuously effective under the Securities Act until the date which
is the earlier of (i) five years after the Effective Date, (ii) such time as all
of the Registrable Securities have been publicly sold by the Holders, or (iii)
such time as all of the Registrable Securities may be sold pursuant to Rule
144(k) (the “Effectiveness Period”).

 

(b) If for any reason the Commission does not permit all of the Shares and all
Warrant Shares to be included in the Registration Statement filed pursuant to
Section 2(a), or for any other reason any Registrable Securities are not
included in a Registration Statement filed under this Agreement, then the
Company shall prepare and file as soon as possible after the date on which the
Commission shall indicate as being the first date or time that such filing may
be made, but in any event by its Filing Date, an additional Registration
Statement covering the resale of all Registrable Securities not already covered
by an existing and effective Registration Statement for an offering to be made
on a continuous basis pursuant to Rule 415, on Form S-3 (except if the Company
is not then eligible to register for resale the Registrable Securities on Form
S-3, in which case such registration shall be on another appropriate form for
such purpose). Each such Registration Statement shall contain (except if
otherwise required pursuant to written comments received from the Commission
upon a review of such Registration Statement) the “Plan of Distribution”
attached hereto as Annex A. The Company shall use its best efforts to cause each
such Registration Statement to be declared effective under the Securities Act as
soon as possible but, in any event, no later than its Effectiveness Date, and
shall use its best efforts to keep such Registration Statement continuously
effective under the Securities Act during its entire Effectiveness Period.

 

3

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(c) If: (i) a Registration Statement is not filed on or prior to its Filing Date
(if the Company files a Registration Statement without affording the Holders the
opportunity to review and comment on the same as required by Section 3(a)
hereof, the Company shall not be deemed to have satisfied this clause (i)), or
(ii) a Registration Statement is not declared effective by the Commission on or
prior to its required Effectiveness Date, or (iii) after its Effective Date,
without regard for the reason thereunder or efforts therefore, such Registration
Statement ceases for any reason to be effective and available to the Holders as
to all Registrable Securities to which it is required to cover at any time prior
to the expiration of its Effectiveness Period, for an aggregate of 20 Trading
Days for all such events (any such failure or breach being referred to as an
“Event,” and for purposes of clauses (i), and (ii) or for purposes of clause
(iii) the date on which such twenty Trading Day period is exceeded, being
referred to as “Event Date”), then, in addition to any other rights available to
the Holders under the Transaction Documents or under applicable law, (x) on each
such Event Date the Company shall pay to each Holder an amount in cash, as
partial liquidated damages and not as a penalty, equal to 1.0% of the aggregate
Investment Amount of such Holder pursuant to the Purchase Agreement; and (y) on
each monthly anniversary of each such Event Date thereof (if the applicable
Event shall not have been cured by such date) until the applicable Event is
cured, the Company shall pay to each Holder an amount in cash, as partial
liquidated damages and not as a penalty, equal to 2.0% of the aggregate
Investment Amount paid by such Holder pursuant to the Purchase Agreement. If the
Company fails to pay any liquidated damages pursuant to this Section in full
within seven days after the date payable, the Company will pay interest thereon
at a rate of 12% per annum (or such lesser maximum amount that is permitted to
be paid by applicable law) to the Holder, accruing daily from the date such
liquidated damages are due until such amounts, plus all such interest thereon,
are paid in full. The parties agree that the Company will not be liable for
liquidated damages under this Section in respect of the Warrant Shares or the
Additional Investment Right Shares. The liquidated damages pursuant to the terms
hereof shall apply on a pro rata basis for any portion of a month prior to the
cure of an Event other than with respect to the initial Event Date thereof.

 

3. Registration Procedures

 

In connection with the Company’s registration obligations hereunder, the Company
shall:

 

(a) Not less than four Trading Days prior to the filing of a Registration
Statement or any related Prospectus or any amendment or supplement thereto, the
Company shall furnish to the Holders copies of the “Selling Stockholders”
section of such document, the “Plan of Distribution” and any risk factor
contained in such document that addresses specifically this transaction or the
Selling Stockholders, as proposed to be filed which documents will be subject to
the review of such Holders. The Company shall not file a Registration Statement
or any such Prospectus or any amendments or supplements thereto that does not
contain the disclosure containing such Holder as a “Selling Stockholder” as
provided to the Company by such Holder in connection therewith; provided,
however, that notwithstanding any provision in this Agreement, all periods under
Section 2 of this Agreement shall be tolled for each day more than two Trading
Days that the Company does not receive a fully completed Selling Holder
Questionnaire in the form attached to this Agreement as Annex B following the
Company’s delivery to the Holder of the Registration Statement, related
Prospectus or information request.

 

4

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(b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to each Registration Statement and the Prospectus
used in connection therewith as may be necessary to keep such Registration
Statement continuously effective as to the applicable Registrable Securities for
its Effectiveness Period and prepare and file with the Commission such
additional Registration Statements in order to register for resale under the
Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424; (iii)
respond as promptly as reasonably possible to any comments received from the
Commission with respect to each Registration Statement or any amendment thereto
and, as promptly as reasonably possible provide the Holders true and complete
copies of all correspondence from and to the Commission relating to such
Registration Statement that would not result in the disclosure to the Holders of
material and non-public information concerning the Company; and (iv) comply in
all material respects with the provisions of the Securities Act and the Exchange
Act with respect to the Registration Statements and the disposition of all
Registrable Securities covered by each Registration Statement.

 

(c) Notify the Holders as promptly as reasonably possible (and, in the case of
(i)(A) below, not less than three Trading Days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
Trading Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to a Registration Statement is proposed
to be filed; (B) when the Commission notifies the Company whether there will be
a “review” of such Registration Statement and whenever the Commission comments
in writing on such Registration Statement (the Company shall provide true and
complete copies thereof and all written responses thereto to each of the Holders
that pertain to the Holders as a Selling Stockholder or to the Plan of
Distribution, but not information which the Company believes would constitute
material and non-public information); and (C) with respect to each Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the Commission or any other Federal or state governmental
authority for amendments or supplements to a Registration Statement or
Prospectus or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of a Registration
Statement covering any or all of the Registrable Securities or the initiation of
any Proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (v) of the occurrence of any event or passage of time that makes
the financial statements included in a Registration Statement ineligible for
inclusion therein or any statement made in such Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to such
Registration Statement, Prospectus or other documents so that, in the case of
such Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.

 

(d) Use its best efforts to avoid the issuance of, or, if issued, obtain the
withdrawal of (i) any order suspending the effectiveness of a Registration
Statement, or (ii) any

 

5

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suspension of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the earliest practicable
moment.

 

(e) Furnish to each Holder, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto and all exhibits to the extent
requested by such Person (including those previously furnished) promptly after
the filing of such documents with the Commission.

 

(f) Promptly deliver to each Holder, without charge, as many copies of each
Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons may reasonably request. The
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders in connection with the
offering and sale of the Registrable Securities covered by such Prospectus and
any amendment or supplement thereto.

 

(g) Prior to any public offering of Registrable Securities, use its best efforts
to register or qualify or cooperate with the selling Holders in connection with
the registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of all jurisdictions within the United States
reasonably requested by any Holder proposing to sell securities in such
jurisdiction, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the Registration
Statements; provided, that the Company shall not be required to qualify
generally to do business in any jurisdiction where it is not then so qualified
or subject the Company to any material tax in any such jurisdiction where it is
not then so subject.

 

(h) Cooperate with the Holders to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be delivered to a
transferee pursuant to the Registration Statements, which certificates shall be
free, to the extent permitted by the Purchase Agreement, of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any such Holders may request.

 

(i) Upon the occurrence of any event contemplated by Section 3(c)(v), as
promptly as reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to the affected Registration Statements or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, no Registration Statement nor any Prospectus will
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.

 

4. Registration Expenses. All fees and expenses incident to the performance of
or compliance with this Agreement by the Company shall be borne by the Company
whether or not any Registrable Securities are sold pursuant to a Registration
Statement. The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings required to

 

6

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be made with any Trading Market on which the Common Stock is then listed for
trading, and (B) in compliance with applicable state securities or Blue Sky
laws), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is reasonably requested by the holders of a
majority of the Registrable Securities included in the Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.

 

5. Indemnification.

 

(a) Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents, investment advisors, partners, members and
employees of each of them, each Person who controls any such Holder (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, reasonable costs of preparation and reasonable attorneys’ fees) and
expenses (collectively, “Losses”), as incurred, arising out of or relating to
any untrue or alleged untrue statement of a material fact contained in any
Registration Statement, any Prospectus or any form of prospectus or in any
amendment or supplement thereto or in any preliminary prospectus, or arising out
of or relating to any omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements therein (in the case of
any Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that (1) such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder’s proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement thereto
(it being understood that the Holder has approved Annex A hereto for this
purpose) or (2) in the case of an occurrence of an event of the type specified
in Section 3(c)(ii)-(v), the use by such Holder of an outdated or defective
Prospectus after the Company has notified such Holder in writing that the
Prospectus is outdated or defective and prior to the receipt by such Holder of
an Advice or an amended or supplemented Prospectus, but only if and to the
extent that following the receipt of the Advice or the amended or supplemented
Prospectus the misstatement or omission giving rise to such Loss would have been
corrected. The Company shall notify the Holders promptly of the institution,
threat or assertion of any Proceeding of which the Company is aware in
connection with the transactions contemplated by this Agreement.

 

7

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(b) Indemnification by Holders. Each Holder shall, severally and not jointly,
indemnify and hold harmless the Company, its directors, officers, agents and
employees, each Person who controls the Company (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act), and the directors,
officers, agents or employees of such controlling Persons, to the fullest extent
permitted by applicable law, from and against all Losses, as incurred, arising
solely out of or based solely upon: (x) such Holder’s failure to comply with the
prospectus delivery requirements of the Securities Act or (y) any untrue
statement of a material fact contained in any Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent that, (1) such
untrue statements or omissions are based solely upon information regarding such
Holder furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder or such
Holder’s proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement (it being understood that the Holder has approved
Annex A hereto for this purpose), such Prospectus or such form of Prospectus or
in any amendment or supplement thereto or (2) in the case of an occurrence of an
event of the type specified in Section 3(c)(ii)-(v), the use by such Holder of
an outdated or defective Prospectus after the Company has notified such Holder
in writing that the Prospectus is outdated or defective and prior to the receipt
by such Holder of an Advice or an amended or supplemented Prospectus, but only
if and to the extent that following the receipt of the Advice or the amended or
supplemented Prospectus the misstatement or omission giving rise to such Loss
would have been corrected. In no event shall the liability of any selling Holder
hereunder be greater in amount than the dollar amount of the net proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.

 

(c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought
or asserted against any Person entitled to indemnity hereunder (an “Indemnified
Party”), such Indemnified Party shall promptly notify the Person from whom
indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying
Party shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to the Indemnified Party and the payment of all fees and
expenses incurred in connection with defense thereof; provided, that the failure
of any Indemnified Party to give such notice shall not relieve the Indemnifying
Party of its obligations or liabilities pursuant to this Agreement, except (and
only) to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have proximately and materially adversely prejudiced the
Indemnifying Party.

 

An Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
expenses; (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
by counsel that a

 

8

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conflict of interest is likely to exist if the same counsel were to represent
such Indemnified Party and the Indemnifying Party (in which case, if such
Indemnified Party notifies the Indemnifying Party in writing that it elects to
employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.

 

All fees and expenses of the Indemnified Party (including reasonable fees and
expenses to the extent incurred in connection with investigating or preparing to
defend such Proceeding in a manner not inconsistent with this Section) shall be
paid to the Indemnified Party, as incurred, within ten Trading Days of written
notice thereof to the Indemnifying Party (regardless of whether it is ultimately
determined that an Indemnified Party is not entitled to indemnification
hereunder; provided, that the Indemnifying Party may require such Indemnified
Party to undertake to reimburse all such fees and expenses to the extent it is
finally judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).

 

(d) Contribution. If a claim for indemnification under Section 5(a) or 5(b) is
unavailable to an Indemnified Party (by reason of public policy or otherwise),
then each Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions, statements or omissions that resulted in such Losses as well
as any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or relates to information supplied by,
such Indemnifying Party or Indemnified Party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in Section 5(c), any reasonable attorneys’ or other reasonable fees or expenses
incurred by such party in connection with any Proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.

 

The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise

 

9

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been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.

 

The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.

 

6. Miscellaneous

 

(a) Remedies. In the event of a breach by the Company or by a Holder, of any of
their obligations under this Agreement, each Holder or the Company, as the case
may be, in addition to being entitled to exercise all rights granted by law and
under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.

 

(b) No Piggyback on Registrations. Except as and to the extent specified in
Schedule 3.1(u) to the Purchase Agreement, neither the Company nor any of its
security holders (other than the Holders in such capacity pursuant hereto) may
include securities of the Company in a Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.
Except as and to the extent specified in Schedule 3.1(u) of the Purchase
Agreement, the Company has not previously entered into any agreement granting
any registration rights with respect to any of its securities to any Person
which have not been fully satisfied.

 

(c) Compliance. Each Holder covenants and agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement.

 

(d) Discontinued Disposition. Each Holder agrees by its acquisition of such
Registrable Securities that, upon receipt of a notice from the Company of the
occurrence of any event of the kind described in Section 3(c), such Holder will
forthwith discontinue disposition of such Registrable Securities under the
Registration Statement until such Holder’s receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement or until it is
advised in writing (the “Advice”) by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement. The
Company may provide appropriate stop orders to enforce the provisions of this
paragraph.

 

(e) Piggy-Back Registrations. If at any time during the Effectiveness Period
there is not an effective Registration Statement covering all of the Registrable
Securities and the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the

 

10

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Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Holder written notice of such
determination and, if within fifteen days after receipt of such notice, any such
Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
holder requests to be registered, subject to customary underwriter cutbacks
applicable to all holders of registration rights.

 

(f) Amendments and Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed by the Company and the Investors
holding a majority of the Registrable Securities. 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.

 

(g) 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 (i) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified in this Section prior to 5:30 p.m. (New York City time) on a
Trading Day, (ii) the Trading Day after the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile telephone number
specified in this Agreement later than 5:30 p.m. (New York City time) on any
date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the
Trading Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) 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 follows:

 

If to the Company:    eMerge Interactive, Inc.      10305 102nd Terrace     
Sebastian, Florida 32958      Attention: Chief Financial Officer      (772)
581-9741 (phone)      (772) 581-8171 (facsimile) With a copy to:    Hunton &
Williams LLP      Riverfront Plaza, East Tower      Richmond, Virginia
23219-4074      Attention: Gary E. Thompson, Esq.      (804) 788-8787 (phone)  
   (804) 343-4574 (facsimile) If to a Investor:    To the address set forth
under such Investor’s name on the signature pages hereto.

 

11

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If to any other Person who is then the registered Holder:    To the address of
such Holder as it appears in the stock transfer books of the Company

 

or such other address as may be designated in writing hereafter, in the same
manner, by such Person.

 

(h) Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns of each of the parties and
shall inure to the benefit of each Holder. The Company may not assign its rights
or obligations hereunder without the prior written consent of each Holder. Each
Holder may assign its respective rights hereunder in the manner and to the
Persons as permitted under the Purchase Agreement.

 

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

 

(j) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement 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 Proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement (whether brought
against a party hereto or its respective Affiliates, employees or agents) shall
be commenced exclusively in the state and federal courts sitting in the City of
New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any Proceeding, any claim that it is not
personally subject to the jurisdiction of any New York Court, or that such
Proceeding has been commenced in an improper or inconvenient forum. Each party
hereto hereby irrevocably waives personal service of process and consents to
process being served in any such 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. Each party
hereto hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any Proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby. If either
party shall commence a Proceeding to enforce any provisions of this Agreement,
then the prevailing party in such Proceeding shall be reimbursed by the other
party for its attorney’s fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Proceeding.

 

12

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(k) Cumulative Remedies. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law.

 

(l) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their reasonable efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.

 

(m) Headings. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.

 

(n) Independent Nature of Investors’ Obligations and Rights. The obligations of
each Investor hereunder is several and not joint with the obligations of any
other Investor hereunder, and no Investor shall be responsible in any way for
the performance of the obligations of any other Investor hereunder. The decision
of each Investor to purchase Securities pursuant to the Transaction Documents
has been made independently of any other Investor. Nothing contained herein or
in any other agreement or document delivered at any closing, and no action taken
by any Investor pursuant hereto or thereto, shall be deemed to constitute the
Investors as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Investors are in any way acting in
concert with respect to such obligations or the transactions contemplated by
this Agreement. Each Investor acknowledges that no other Investor has acted as
agent for such Investor in connection with making its investment hereunder and
that no Investor will be acting as agent of such Investor in connection with
monitoring its investment in the Securities or enforcing its rights under the
Transaction Documents. Each Investor shall be entitled to protect and enforce
its rights, including without limitation the rights arising out of this
Agreement, and it shall not be necessary for any other Investor to be joined as
an additional party in any Proceeding for such purpose.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES TO FOLLOW]

 

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.

 

EMERGE INTERACTIVE, INC. By:    

Name:

   

Title:

   

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES OF INVESTOR TO FOLLOW]

 

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.

 

[INVESTOR]

By:

       

Name:

       

Title:

   

Address for Notice:

Facsimile No.:

Attn:

 

15

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Annex A

 

Plan of Distribution

 

The Selling Stockholders and any of their pledgees, donees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:

 

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

 

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

 

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

 

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

 

  • privately negotiated transactions;

 

  • to cover short sales made after the date that this Registration Statement is
declared effective by the Securities and Exchange Commission;

 

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

 

  • a combination of any such methods of sale; and

 

  • any other method permitted pursuant to applicable law.

 

The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.

 

Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.

 

The Selling Stockholders may from time to time pledge or grant a security
interest in some or all of the Shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell shares of Common Stock from time to time under this prospectus,
or under an amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933 amending the list of selling

 

16

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stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.

 

Upon the Company being notified in writing by a Selling Stockholder that any
material arrangement has been entered into with a broker-dealer for the sale of
Common Stock through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing (i) the name of each such Selling Stockholder and of
the participating broker-dealer(s), (ii) the number of shares involved, (iii)
the price at which such the shares of Common Stock were sold, (iv) the
commissions paid or discounts or concessions allowed to such broker-dealer(s),
where applicable, (v) that such broker-dealer(s) did not conduct any
investigation to verify the information set out or incorporated by reference in
this prospectus, and (vi) other facts material to the transaction. In addition,
upon the Company being notified in writing by a Selling Stockholder that a donee
or pledge intends to sell more than 500 shares of Common Stock, a supplement to
this prospectus will be filed if then required in accordance with applicable
securities law.

 

The Selling Stockholders also may transfer the shares of Common Stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus.

 

The Selling Stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Discounts, concessions, commissions and
similar selling expenses, if any, that can be attributed to the sale of
Securities will be paid by the Selling Stockholder and/or the purchasers.

 

Each Selling Stockholder has represented and warranted to the Company that, at
the time it acquired the securities subject to this Registration Statement, it
did not have any agreement or understanding, directly or indirectly, with any
person to distribute any of such securities. The Company has advised each
Selling Stockholder that it may not use shares registered on this Registration
Statement to cover short sales of our Common Stock made prior to the date on
which this Registration Statement was declared effective by the Securities and
Exchange Commission.

 

The Company is required to pay all fees and expenses incident to the
registration of the shares, but the Company will not receive any proceeds from
the sale of the Common Stock. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.

 

17

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Annex B

 

EMERGE INTERACTIVE, INC.

 

Selling Securityholder Notice and Questionnaire

 

The undersigned beneficial owner of common stock (the “Common Stock”), of eMerge
Interactive, Inc. (the “Company”) understands that the Company has filed or
intends to file with the Securities and Exchange Commission (the “Commission”) a
Registration Statement for the registration and resale of the Registrable
Securities, in accordance with the terms of the Registration Rights Agreement,
dated as of                     , 2004 (the “Registration Rights Agreement”),
among the Company and the Investors named therein. A copy of the Registration
Rights Agreement is available from the Company upon request at the address set
forth below. All capitalized terms used and not otherwise defined herein shall
have the meanings ascribed thereto in the Registration Rights Agreement.

 

The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1. Name.

 

  (a) Full Legal Name of Selling Securityholder

 

                                                                               
                                        
                                        
                                        
                                        

 

  (b) Full Legal Name of Registered Holder (if not the same as (a) above)
through which Registrable Securities Listed in Item 3 below are held:

 

                                                                               
                                        
                                        
                                        
                                        

 

  (c) Full Legal Name of Natural Control Person (which means a natural person
who directly or indirectly alone or with others has power to vote or dispose of
the securities covered by the questionnaire):

 

                                                                               
                                        
                                        
                                        
                                        

 

2. Address for Notices to Selling Securityholder:

 

                                                                               
                                        
                                        
                                        
                                                            

 

                                                                               
                                        
                                        
                                        
                                                            

 

                                                                               
                                        
                                        
                                        
                                                            

 

Telephone:

 

                                                                               
                                        
                                        
                                                                      

Fax:

                                        
                                        
                                        
                                        
                                                                      

Contact Person:

 

                                                                               
                                        
                                        
                                                                      

 

18

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3. Beneficial Ownership of Registrable Securities:

 

Type and Principal Amount of Registrable Securities beneficially owned:

 

                                                                               
                                        
                                        
                                        
                                        

 

                                                                               
                                        
                                        
                                        
                                        

 

                                                                               
                                        
                                        
                                        
                                        

 

4. Broker-Dealer Status:

 

  (a) Are you a broker-dealer?

 

Yes ¨    No ¨

 

  Note: If yes, the Commission’s staff has indicated that you should be
identified as an underwriter in the Registration Statement.

 

  (b) Are you an affiliate of a broker-dealer?

 

Yes ¨    No ¨

 

  (c) If you are an affiliate of a broker-dealer, do you certify that you bought
the Registrable Securities in the ordinary course of business, and at the time
of the purchase of the Registrable Securities to be resold, you had no
agreements or understandings, directly or indirectly, with any person to
distribute the Registrable Securities?

 

Yes ¨    No ¨

 

  Note: If no, the Commission’s staff has indicated that you should be
identified as an underwriter in the Registration Statement.

 

5. Beneficial Ownership of Other Securities of the Company Owned by the Selling
Securityholder.

 

Except as set forth below in this Item 5, the undersigned is not the beneficial
or registered owner of any securities of the Company other than the Registrable
Securities listed above in Item 3.

 

Type and Amount of Other Securities beneficially owned by the Selling
Securityholder:

 

                                                                               
                                        
                                        
                                        
                                        

 

                                                                               
                                        
                                        
                                        
                                        

 

                                                                               
                                        
                                        
                                        
                                        

 

19

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6. Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates,
officers, directors or principal equity holders (owners of 5% of more of the
equity securities of the undersigned) has held any position or office or has had
any other material relationship with the Company (or its predecessors or
affiliates) during the past three years.

 

State any exceptions here:

 

                                                                               
                                        
                                        
                                        
                                        

 

                                                                               
                                        
                                        
                                        
                                        

 

The undersigned agrees to promptly notify the Company of any inaccuracies or
changes in the information provided herein that may occur subsequent to the date
hereof and prior to the Effective Date for the Registration Statement.

 

By signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 6 and the inclusion of such
information in the Registration Statement and the related prospectus. The
undersigned understands that such information will be relied upon by the Company
in connection with the preparation or amendment of the Registration Statement
and the related prospectus.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this
Notice and Questionnaire to be executed and delivered either in person or by its
duly authorized agent.

 

Dated:

         

Beneficial Owner:

   

            By:                

Name:

               

Title:

   

 

PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND
RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

[                    ]

 

20

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EXHIBIT C

 

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES 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.

 

EMERGE INTERACTIVE, INC.

 

ADDITIONAL INVESTMENT RIGHT

 

Date of Original Issuance:[            ], 2004

 

eMerge Interactive, Inc., a Delaware corporation (the “Company”), hereby
certifies that, for value received, [    ] or its registered assigns (the
“Holder”), is entitled to purchase from the Company up to a total number of
shares of Common Stock (as defined below) (such shares, the “Additional
Investment Right Shares”) as equals the product of (1) .50 and (2) the quotient
obtained by dividing (a) $[    ]1 by (b)$1.60. This Additional Investment Right
(“Additional Investment Right”) may be exercised from time to time and at any
time in whole or in part prior to the Expiration Date and is subject to the
terms and conditions set forth below.

 

1. Definitions. As used in this Additional Investment Right, the following terms
shall have the respective definitions set forth in this Section. Capitalized
terms that are used and not defined in this Additional Investment Right that are
defined in the Purchase Agreement (as defined below) shall have the respective
definitions set forth in the Purchase Agreement.

 

(a) “Business Day” means any day except Saturday, Sunday and any day which shall
be a federal legal holiday in the United States or a day on which banking
institutions in the State of New York are authorized or required by law or other
government action to close.

 

(b) “Closing Price” means on any particular date: (a) the closing sales price
per share of Common Stock on such date on any of the New York Stock Exchange,
American Stock Exchange, NASDAQ National Market or NASDAQ SmallCap Market on
which the Common Stock is then listed or quoted (as reported by Bloomberg L.P.
for regular session

--------------------------------------------------------------------------------

1 The Holder’s Investment Amount under the Purchase Agreement.

 

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trading on such day), or if there is no such price on such date, then the
closing sales price on such trading markets on the date nearest preceding such
date (as reported by Bloomberg L.P. for the closing sales price for regular
session trading on such day), or (b) if the shares of Common Stock are not then
listed or quoted on any of the New York Stock Exchange, American Stock Exchange,
NASDAQ National Market or NASDAQ SmallCap Market, the closing sales price for a
share of Common Stock on the OTC Bulletin Board (as reported by Bloomberg L.P.
for 5:00 P.M. (New York time), or (c) if the shares of Common Stock are not then
reported by the OTC Bulletin Board or the National Quotation Bureau Incorporated
(or similar organization or agency succeeding to its functions of reporting
prices), then the average of the “Pink Sheet” quotes for the relevant conversion
period, as determined in good faith by the Holder, or (d) if the shares of
Common Stock are not then publicly traded the fair market value of a share of
Common Stock as determined by an appraiser selected in good faith by the Holders
of this Additional Investment Right.

 

(c) “Common Stock” means the Class A common stock of the Company, $0.008 par
value per share, and any securities into which such common stock may be
hereafter reclassified.

 

(d) “Expiration Date” means the 180th Trading Day after the Effective Date,
subject to extension in accordance with Section 4(a).

 

(e) “Exercise Price” means the Per Unit Purchase Price, subject to adjustment in
accordance with Section 9 hereof.

 

(f) “Purchase Agreement” means the Securities Purchase Agreement dated as of
November 22, 2004 to which the Company and the original Holder are parties.

 

(g) “Trading Day” means (i) a day on which the Common Stock is traded on a
Trading Market, or (ii) if the Common Stock is not listed on a Trading Market, a
day on which the Common Stock is traded in the over-the-counter market, as
reported by the OTC Bulletin Board, or (iii) if the Common Stock is not quoted
on the OTC Bulletin Board, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices); provided, that in the event that the Common Stock is not
listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day
shall mean a Business Day.

 

2. Registration of Additional Investment Right. The Company shall register this
Additional Investment Right, upon records to be maintained by the Company for
that purpose (the “Additional Investment Right Register”), in the name of the
record Holder hereof from time to time. The Holder agrees that it may not
transfer this Additional Investment Right as to more than the number of
Additional Investment Right Shares then outstanding as shown on the most updated
Additional Investment Right Exercise Log, and any purported transfer in excess
of such number of Additional Investment Right Shares shall have no effect. The
Company may deem and treat the registered Holder of this Additional Investment
Right as the absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, absent actual notice to
the contrary.

 

2

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3. Registration of Transfers. This Additional Investment Right is subject to the
transfer restrictions set forth in the Purchase Agreement. The Company shall
register the transfer of any portion of this Additional Investment Right in the
Additional Investment Right Register, upon surrender of this Additional
Investment Right, with the Form of Assignment attached hereto duly completed and
signed, to the Company at its address specified herein. Upon any such
registration or transfer, a new Additional Investment Right to purchase Common
Stock, in substantially the form of this Additional Investment Right (any such
new Additional Investment Right, a “New Additional Investment Right”),
evidencing the portion of this Additional Investment Right so transferred shall
be issued to the transferee and a New Additional Investment Right evidencing the
remaining portion of this Additional Investment Right not so transferred, if
any, shall be issued to the transferring Holder. The acceptance of the New
Additional Investment Right by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of a Additional Investment Right.

 

4. Exercise and Duration of Additional Investment Rights.

 

(a) This Additional Investment Right shall be exercisable by the registered
Holder at any time and from time to time on or after the date hereof to and
including 6:30 p.m. New York City time, on the Expiration Date. At 6:30 p.m.,
New York City time on the Expiration Date, the portion of this Additional
Investment Right not exercised prior thereto shall be and become void and of no
value. The Company may not call or redeem any portion of this Additional
Investment Right without the consent of the Holder. The Expiration Date set
forth above shall be extended for the number of Trading Days during such period
in which (i) trading in the Common Stock is suspended by any Trading Market or
the Commission, or (ii) following the Effective Date, the Registration Statement
is not effective or the prospectus included in the Registration Statement may
not be used by the Holder for resale of the Additional Investment Right Shares.

 

(b) Subject to the provisions of this Section 4(b), at any time after the
Effective Date and prior to the Expiration Date, if the: (i) closing sales price
of the Common Stock as reported by the Nasdaq Stock Market for each of 5
consecutive Trading Days after such Effective Date is equal to or greater than
120% of the Exercise Price on the Date of Original Issuance (as may be adjusted
pursuant to Section 9), (ii) the Additional Investment Right Shares are either
registered for resale pursuant to an effective registration statement naming the
Holder as a selling stockholder thereunder (and the prospectus thereunder is
available for use by the Holder as to all then available Additional Investment
Right Shares) or freely transferable without volume restrictions pursuant to
Rule 144(k) promulgated under the Securities Act, as determined by counsel to
the Company pursuant to a written opinion letter addressed and in form and
substance reasonably acceptable to the Holder and the transfer agent for the
Common Stock, and (iii) the Company shall have honored all Exercise Notices
delivered prior to 1:00 p.m. (New York City time) on the Call Date (as defined
below), then the Company may, subject to Section 11, require that Holder
exercise all, but (subject to Section 11) not less than all, of the portion of
this Additional Investment Right for which Exercise Notices have not been
delivered by 5:00 p.m. on the Call Date. To exercise this right, the Company
must deliver to the Holder an irrevocable written notice (a “Call Notice”),
indicating therein that this Additional Investment Right shall be exercised. If
the conditions for such Call are satisfied from the period from the date of the
Call Notice through and including the Call Date, then, subject to Section 11,
this

 

3

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Additional Investment Right shall be deemed to have been exercised in full at
6:30 p.m. (New York City time) on the 10th Trading Day after the date the Call
Notice is received by the Holder (such date, the “Call Date”). The Holder shall
deliver payment in immediately available funds of the Exercise Price for the
number of Additional Investment Right Shares for which this Additional
Investment Right is required to be exercised under this subsection promptly but
in any event no later than the Call Date. Subject to the immediately following
sentence, any unexercised portion of this Additional Investment Right following
the Call Date shall automatically be deemed cancelled. The Company and the
Holder agree that, if and to the extent Section 11 of this Additional Investment
Right would restrict the ability of the Holder to exercise this Additional
Investment Right in full in the event of a delivery of a Call Notice, then
notwithstanding anything to the contrary set forth in the Call Notice, the Call
Notice shall be deemed automatically amended to apply only to such portion of
this Additional Investment Right as may be exercised by the Holder by the Call
Date in accordance with Section 11. The Holder will promptly (and, in any event,
prior to the Call Date) notify the Company in writing following receipt of a
Call Notice if Section 11 would restrict its exercise of the Additional
Investment Right, specifying therein the number of Additional Investment Right
Shares so restricted.

 

5. Delivery of Additional Investment Right Shares.

 

(a) To acquire Additional Investment Right Shares under this Additional
Investment Right, the Holder shall not be required to physically surrender this
Additional Investment Right unless the aggregate number of Additional Investment
Right Shares then represented by this Additional Investment Right is being
exercised. Upon delivery of a written notice, in the form of the Exercise Notice
attached hereto (the “Exercise Notice”) to the Company (together with the
Additional Investment Right Exercise Log attached thereto (the “Additional
Investment Right Exercise Log”) at its address for notice set forth herein and
upon payment of the Exercise Price multiplied by the number of Additional
Investment Right Shares that the Holder intends to purchase hereunder, the
Company shall promptly (but in no event later than three Trading Days after the
Date of Exercise) issue and deliver to the Holder, a certificate representing
the number of Additional Investment Right Shares to which such exercise pertains
(the dollar amount of the exercise at issue divided by the Exercise Price),
which, unless otherwise required by the Purchase Agreement, shall be free of
restrictive legends. The Company shall, upon request of the Holder and
subsequent to the date on which a registration statement covering the resale of
the Additional Investment Right Shares has been declared effective by the
Securities and Exchange Commission, use its best efforts to deliver the
Additional Investment Right Shares hereunder electronically through the
Depository Trust Corporation or another established clearing corporation
performing similar functions, if available, provided, that, the Company may, but
will not be required to change its transfer agent if its current transfer agent
cannot deliver Additional Investment Right Shares electronically through the
Depository Trust Corporation. A “Date of Exercise” means the date on which the
Holder shall have delivered to Company: (i) the Exercise Notice (with the
Additional Investment Right Exercise Log attached to it), appropriately
completed and duly signed and (ii) the Exercise Price for the number of
Additional Investment Right Shares so indicated by the Holder to be purchased.
The Company shall file a registration statement covering the Additional
Investment Right Shares and shall use its best efforts to keep such registration
statement continuously

 

4

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effective, in each case in accordance with the terms of the Registration Rights
Agreement, dated as of the date hereof, between the original Holder and the
Company.

 

(b) If by the third Trading Day after a Date of Exercise the Company fails to
deliver the required number of Additional Investment Right Shares in the manner
required pursuant to Section 5(a), then the Holder will have the right to
rescind such exercise.

 

(c) If by the third Trading Day after a Date of Exercise the Company fails to
deliver the required number of Additional Investment Right Shares in the manner
required pursuant to Section 5(a), and if after such third Trading Day and prior
to the receipt of such Additional Investment Right Shares, the Holder purchases
(in an open market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by the Holder of the Additional Investment Right
Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”),
then the Company shall (1) pay cash or issued additional registered shares of
Common Stock, at the Company’s option, to the Holder the amount by which (x) the
Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of Additional Investment Right Shares that the
Company was required to deliver to the Holder in connection with the exercise at
issue by (B) the closing bid price of the Common Stock at the time of the
obligation giving rise to such purchase obligation, with the number of
additional registered shares of Common Stock determined by dividing the above
noted amount by the closing price of the Common Stock at the time of the
obligation, and (2) reinstate the portion of the Additional Investment Right and
equivalent number of Additional Investment Right Shares for which such exercise
was not honored. The Holder shall provide the Company written notice indicating
the amounts payable to the Holder in respect of the Buy-In.

 

(d) The Company’s obligations to issue and deliver Additional Investment Right
Shares in accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Company or any
violation or alleged violation of law by the Holder or any other Person, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of
Additional Investment Right Shares. Nothing herein shall limit a Holder’s right
to pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing Additional Investment Right Shares upon exercise of
the Additional Investment Right as required pursuant to the terms hereof.

 

6. Charges, Taxes and Expenses. Issuance and delivery of Additional Investment
Right Shares upon exercise of this Additional Investment Right shall be made
without charge to the Holder for any issue or transfer tax, withholding tax,
transfer agent fee or other incidental tax or expense in respect of the issuance
of such certificates, all of which taxes and expenses shall be paid by the
Company; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates

 

5

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for Additional Investment Right Shares in a name other than that of the Holder.
The Holder shall be responsible for all other tax liability that may arise as a
result of holding or transferring this Additional Investment Right or receiving
Additional Investment Right Shares upon exercise hereof.

 

7. Replacement of Additional Investment Right. If this Additional Investment
Right is mutilated, lost, stolen or destroyed, the Company shall issue or cause
to be issued in exchange and substitution for and upon cancellation hereof, or
in lieu of and substitution for this Additional Investment Right, a New
Additional Investment Right, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity (which shall not include a surety bond), if requested.
Applicants for a New Additional Investment Right under such circumstances shall
also comply with such other reasonable regulations and procedures and pay such
other reasonable third-party costs as the Company may prescribe. If a New
Additional Investment Right is requested as a result of a mutilation of this
Additional Investment Right, then the Holder shall deliver such mutilated
Additional Investment Right to the Company as a condition precedent to the
Company’s obligation to issue the New Additional Investment Right.

 

8. Reservation of Shares. The Company covenants that it will at all times
reserve and keep available out of the aggregate of its authorized but unissued
and otherwise unreserved Common Stock, solely for the purpose of enabling it to
issue Additional Investment Right Shares upon exercise of this Additional
Investment Right as herein provided, the number of Additional Investment Right
Shares which are then issuable and deliverable upon the exercise of this entire
Additional Investment Right, free from preemptive rights or any other contingent
purchase rights of persons other than the Holder (taking into account the
adjustments and restrictions of Section 9). The Company covenants that all
Additional Investment Right Shares so issuable and deliverable shall, upon
issuance and the payment of the applicable Exercise Price in accordance with the
terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.

 

9. Certain Adjustments. The Exercise Price and number of Additional Investment
Right Shares issuable upon exercise of this Additional Investment Right are
subject to adjustment from time to time as set forth in this Section 9.

 

(a) Stock Dividends and Splits. If the Company, at any time while this
Additional Investment Right is outstanding, (i) pays a stock dividend on its
Common Stock or otherwise makes a distribution on any class of capital stock
that is payable in shares of Common Stock, (ii) subdivides outstanding shares of
Common Stock into a larger number of shares, or (iii) combines outstanding
shares of Common Stock into a smaller number of shares, then in each such case
the Exercise Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding immediately before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event. Any adjustment made pursuant to
clause (i) of this paragraph shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution, and any adjustment pursuant to clause (ii) or (iii) of this
paragraph shall become effective immediately after the effective date of such
subdivision or combination. If any event requiring an adjustment under this
paragraph occurs during the period that an Exercise

 

6

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Price is calculated hereunder, then the calculation of such Exercise Price shall
be adjusted appropriately to reflect such event.

 

(b) Fundamental Transactions. If, at any time while this Additional Investment
Right is outstanding, (1) the Company effects any merger or consolidation of the
Company with or into another Person, (2) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions, (3)
any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, or (4) the Company
effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (in any such case, a
“Fundamental Transaction”), then the Holder shall have the right to require the
repurchase of this Additional Investment Right for a purchase price, payable in
cash or registered shares of Common Stock, at the Company’s option, within five
Trading Days after such request (or, if later, on the effective date of the
Fundamental Transaction), equal to the Black Scholes value of the remaining
unexercised portion of this Additional Investment Right on the date of such
request. The terms of any agreement pursuant to which a Fundamental Transaction
is effected shall include terms requiring any such successor or surviving entity
to comply with the provisions of this paragraph (c).

 

(c) Number of Additional Investment Right Shares. Simultaneously with any
adjustment to the Exercise Price pursuant to paragraph (a) of this Section, the
number of Additional Investment Right Shares that may be purchased upon exercise
of this Additional Investment Right shall be increased or decreased
proportionately, so that after such adjustment the aggregate Exercise Price
payable hereunder for the adjusted number of Additional Investment Right Shares
shall be the same as the aggregate Exercise Price in effect immediately prior to
such adjustment.

 

(d) Calculations. All calculations under this Section 9 shall be made to the
nearest cent or the nearest 1/100th of a share, as applicable. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.

 

(e) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to
this Section 9, the Company at its expense will promptly compute such adjustment
in accordance with the terms of this Additional Investment Right and prepare a
certificate setting forth such adjustment, including a statement of the adjusted
Exercise Price and adjusted number or type of Additional Investment Right Shares
or other securities issuable upon exercise of this Additional Investment Right
(as applicable), describing the transactions giving rise to such adjustments and
showing in detail the facts upon which such adjustment is based. Upon written
request, the Company will promptly deliver a copy of each such certificate to
the Holder and to the Company’s Transfer Agent.

 

(f) Notice of Corporate Events. If the Company (i) declares a dividend or any
other distribution of cash, securities or other property in respect of its
Common Stock, including

 

7

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without limitation any granting of rights or warrants to subscribe for or
purchase any capital stock of the Company or any Subsidiary, (ii) authorizes or
approves, enters into any agreement contemplating or solicits stockholder
approval for any Fundamental Transaction or (iii) authorizes the voluntary
dissolution, liquidation or winding up of the affairs of the Company (but only
to the extent such disclosure would not result in the dissemination of material,
non-public information to the Holder), then the Company shall deliver to the
Holder a notice describing the material terms and conditions of such
transaction, at least 10 calendar days prior to the applicable record or
effective date on which a Person would need to hold Common Stock in order to
participate in or vote with respect to such transaction, and the Company will
take all steps reasonably necessary in order to insure that the Holder is given
the practical opportunity to exercise this Additional Investment Right prior to
such time so as to participate in or vote with respect to such transaction;
provided, however, that the failure to deliver such notice or any defect therein
shall not affect the validity of the corporate action required to be described
in such notice.

 

10. Payment of Exercise Price. The Holder shall pay the Exercise Price in
immediately available funds or certified or official bank check or checks.

 

11. Limitation on Exercise.

 

(a) Notwithstanding anything to the contrary contained herein, the number of
Additional Investment Right Shares that may be acquired by the Holder upon any
exercise of this Additional Investment Right (or otherwise in respect hereof)
shall be limited to the extent necessary to insure that, following such exercise
(or other issuance), the total number of shares of Common Stock then
beneficially owned by such Holder and its Affiliates and any other Persons whose
beneficial ownership of Common Stock would be aggregated with the Holder’s for
purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% of the
total number of issued and outstanding shares of Common Stock (including for
such purpose the shares of Common Stock issuable upon such exercise). For such
purposes, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
This provision shall not restrict the number of shares of Common Stock which a
Holder may receive or beneficially own in order to determine the amount of
securities or other consideration that such Holder may receive in the event of a
Fundamental Transaction as contemplated in Section 9 of this Additional
Investment Right. By written notice to the Company, the Holder may waive the
provisions of this Section but any such waiver will not be effective until the
61st day after such notice is delivered to the Company.

 

(b) Notwithstanding anything to the contrary contained herein, the number of
Additional Investment Right Shares that may be acquired by the Holder upon any
exercise of this Additional Investment Right (or otherwise in respect hereof)
shall be limited to the extent necessary to insure that, following such exercise
(or other issuance), the total number of shares of Common Stock then
beneficially owned by such Holder and its Affiliates and any other Persons whose
beneficial ownership of Common Stock would be aggregated with the Holder’s for
purposes of Section 13(d) of the Exchange Act, does not exceed 9.999% of the
total number of issued and outstanding shares of Common Stock (including for
such purpose the shares of Common Stock issuable upon such exercise). For such
purposes, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations

 

8

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promulgated thereunder. This provision shall not restrict the number of shares
of Common Stock which a Holder may receive or beneficially own in order to
determine the amount of securities or other consideration that such Holder may
receive in the event of a Fundamental Transaction as contemplated in Section 9
of this Additional Investment Right. This restriction may not be waived.

 

(c) Notwithstanding anything to the contrary contained herein, if (i) the
Company elects to pay the Buy-In penalty pursuant to clause (1) of the first
sentence of Section 5(c) in shares of registered Common Stock or (ii) the Holder
exercises its right to require the Company to repurchase this Additional
Investment Right pursuant to Section 9(b) and the Company elects to pay the
purchase price in shares of registered Common Stock, in no event shall the
aggregate number of shares of Common Stock acquired by the Holder pursuant to
the foregoing provisions exceed [ ]2 in the aggregate.

 

12. No Fractional Shares. No fractional shares of Additional Investment Right
Shares will be issued in connection with any exercise of this Additional
Investment Right and in lieu thereof, any fractional shares shall be rounded
down to the nearest whole.

 

13. Notices. Any and all notices or other communications or deliveries hereunder
(including, without limitation, any Exercise Notice) shall be in writing and
shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section prior to 5:30 p.m. (New York City
time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day or
later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the Trading
Day following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be: (i) if to
the Company, to (772) 581-8171, Attn: Chief Financial Officer, or (ii) if to the
Holder, to the address or facsimile number appearing on the Additional
Investment Right Register or such other address or facsimile number as the
Holder may provide to the Company in accordance with this Section.

 

14. Additional Investment Right Agent. The Company shall serve as Additional
Investment Right agent under this Additional Investment Right. Upon 30 days’
notice to the Holder, the Company may appoint a new warrant agent. Any
corporation into which the Company or any new warrant agent may be merged or any
corporation resulting from any consolidation to which the Company or any new
warrant agent shall be a party or any corporation to which the Company or any
new warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor warrant agent under this
Additional Investment Right without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder’s last
address as shown on the Additional Investment Right Register.

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2 The Holder’s pro rata share of 900,000 shares of Common Stock based on such
Holder’s Investment Amount under the Purchase Agreement

 

9

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15. Miscellaneous.

 

(a) This Additional Investment Right shall be binding on and inure to the
benefit of the parties hereto and their respective successors and assigns.
Subject to the preceding sentence, nothing in this Additional Investment Right
shall be construed to give to any Person other than the Company and the Holder
any legal or equitable right, remedy or cause of action under this Additional
Investment Right. This Additional Investment Right may be amended only in
writing signed by the Company and the Holder and their successors and assigns.

 

(b) All questions concerning the construction, validity, enforcement and
interpretation of this Additional Investment Right 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 this Additional Investment Right and the transactions herein
contemplated (“Proceedings”) (whether brought against a party hereto or its
respective Affiliates, employees or agents) shall be commenced exclusively in
the state and federal courts sitting in the City of New York, Borough of
Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any New York Court, or that such Proceeding has been commenced
in an improper or inconvenient forum. Each party hereto hereby irrevocably
waives personal service of process and consents to process being served in any
such 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 Additional Investment Right 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. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Additional Investment Right or the transactions contemplated hereby. If
either party shall commence a Proceeding to enforce any provisions of this
Additional Investment Right, then the prevailing party in such Proceeding shall
be reimbursed by the other party for its attorney’s fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
Proceeding.

 

(c) The headings herein are for convenience only, do not constitute a part of
this Additional Investment Right and shall not be deemed to limit or affect any
of the provisions hereof.

 

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(d) In case any one or more of the provisions of this Additional Investment
Right shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Additional
Investment Right shall not in any way be affected or impaired thereby and the
parties will attempt in good faith to agree upon a valid and enforceable
provision which shall be a commercially reasonable substitute therefor, and upon
so agreeing, shall incorporate such substitute provision in this Additional
Investment Right.

 

(e) Subject to the provisions of Section 9 hereof, prior to exercise of this
Additional Investment Right, the holder hereof shall not, by reason of by being
a holder hereof, be entitled to any rights of a stockholder with respect to the
Additional Investment Right Shares, including (without limitation) the right to
vote such Additional Investment Right Shares, receive dividends or other
distributions thereon, exercise preemptive rights or be notified of stockholder
meetings, and such holder shall not be entitled to any notice or other
communication concerning the business or affairs of the Company.

 

(f) This Additional Investment Right may be modified or amended or the
provisions hereof waived with the written consent of the Company and the Holder.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the Company has caused this Additional Investment Right to
be duly executed by its authorized officer as of the date first indicated above.

 

EMERGE INTERACTIVE, INC. By:    

Name:

   

Title:

   

 

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EXERCISE NOTICE

 

The undersigned hereby irrevocably elects to purchase
                             shares of Common Stock of eMerge Interactive, Inc.,
pursuant to the Additional Investment Right, originally issued [            ],
2004 (the “Additional Investment Right”), and the Holder encloses herewith
$             in cash, certified or official bank check or checks or other
immediately available funds, which sum represents the aggregate Exercise Price
(as defined in the Additional Investment Right) for the number of Additional
Investment Right Shares to which this Exercise Notice relates, together with any
applicable taxes payable by the undersigned pursuant to the Additional
Investment Right.

 

By its delivery of this Exercise Notice, the undersigned represents and warrants
to the Company that in giving effect to the exercise evidenced hereby the Holder
will not beneficially own in excess of the number of shares of Common Stock
(determined in accordance with Section 13(d) of the Securities Exchange Act of
1934) permitted to be owned under Section 11(a) and (b) of this Additional
Investment Right to which this notice relates.

 

The undersigned requests that certificates for the Additional Investment Right
Shares issuable upon this exercise be issued in the name of

 

         

PLEASE INSERT SOCIAL SECURITY OR

         

TAX IDENTIFICATION NUMBER

 

(Please print name and address)

 

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Additional Investment Right Exercise Log

 

Date

--------------------------------------------------------------------------------

 

Number of Additional Investment

Right Shares Available to be

Exercised

--------------------------------------------------------------------------------

 

Number of Additional

Investment Right Shares

Exercised

--------------------------------------------------------------------------------

 

Number of Additional

Investment Right Shares

Remaining to be Exercised

--------------------------------------------------------------------------------

                                                       

 

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FORM OF ASSIGNMENT

 

[To be completed and signed only upon transfer of Additional Investment Right]

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
                     the right represented by the within Additional Investment
Right to purchase                      shares of Common Stock of eMerge
Interactive, Inc. to which the within Additional Investment Right relates and
appoints                      attorney to transfer said right on the books of
the Company with full power of substitution in the premises.

 

Dated:                     ,             

 

 

(Signature must conform in all respects to name of

holder as specified on the face of the Additional

Investment Right)

 

Address of Transferee

   

 

In the presence of:   

 

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