exh1042.htm


    Exhibit
10.42

 

    
      	
              
                NOTE PURCHASE
      AGREEMENT

                


                


                dated as of July 21,
      2006

                


                


                by and
      between

                


                


                EMAGIN
      CORPORATION

                


                


                and

                


                


                [NAME OF
      INVESTOR]

                


                


                


                                                               

                


                


                


                


                6% SENIOR SECURED
      CONVERTIBLE NOTES DUE 2007-2008

                


                AND

                


                COMMON STOCK PURCHASE
      WARRANTS
 

               

            


    

    


     

    
 


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    



    EMAGIN
CORPORATION

    


    NOTE PURCHASE
AGREEMENT

    


    6% SENIOR SECURED CONVERTIBLE NOTES
DUE 2007-2008

    


    AND

    


    COMMON STOCK PURCHASE
WARRANTS

    


    


    


    TABLE OF CONTENTS

    


    Page

     

    

      
        	
                1.     DEFINITIONS

              	 	
                1

              
	
                2.     PURCHASE
      AND SALE; PURCHASE PRICE.

              	 	
                10

              
	
                (a)

              	
                Purchase. 

              	 	
                10

              
	
                (b)

              	
                Form of Payment. 

              	 	
                10

              
	
                (c)

              	
                Closing. 

              	 	
                10

              
	
                3.     REPRESENTATIONS,
      WARRANTIES, COVENANTS, ETC. OF THE BUYER.

              	 	
                11

              
	
                (a)

              	
                Circumstances
      of Purchase.

              	 	
                11

              
	
                (b)

              	
                Accredited
      Investor; Residence.

              	 	
                11

              
	
                (c)

              	
                Reoffers
      and Resales.

              	 	
                11

              
	
                (d)

              	
                Company
      Reliance.

              	 	
                11

              
	
                (e)

              	
                Information
      Provided.

              	 	
                12

              
	
                (f)

              	
                Absence
      of Approvals.

              	 	
                12

              
	
                (g)

              	
                Note
      Purchase Agreement.

              	 	
                12

              
	
                (h)

              	
                Buyer
      Status.

              	 	
                13

              
	
                (i)

              	
                Experience
      of the Buyer.

              	 	
                13

              
	
                (j))

              	
                General
      Solicitation.

              	 	
                13

              
	
                (k)

              	
                Short
      Sales and Confidentiality Prior To The Date Hereof.

              	 	
                13

              
	
                4.     REPRESENTATIONS,
      WARRANTIES, COVENANTS, ETC. OF THE COMPANY.

              	 	
                13

              
	
                (a)

              	
                Organization
      and Authority.

              	 	
                13

              
	
                (b)

              	
                Qualifications.

              	 	
                14

              
	
                (c)

              	
                Concerning
      the Shares and the Common Stock.

              	 	
                14

              
	
                (d)

              	
                Corporate
      Authorization.

              	 	
                14

              
	
                (e)

              	
                Non-contravention.

              	 	
                15

              
	
                (f)

              	
                Approvals,
      Filings, Etc.

              	 	
                15

              
	
                (g)

              	
                Information
      Provided.

              	 	
                15

              
	
                (h)

              	
                Investment
      Company.

              	 	
                16

              


      

       

       

      
        
          
          

        

        
          i

          
            

          

        

        
          
          

        

      

       

       

      
        	
                (i)

              	
                Absence
      of Brokers, Finders, Etc.

              	 	
                16

              
	
                (j)

              	
                No
      Solicitation.

              	 	
                16

              
	
                (k)

              	
                No
      Integrated Offering.

              	 	
                16

              
	
                (l)

              	
                Dilutive
      Effect.

              	 	
                17

              
	
                (m)

              	
                Absence
      of Certain Changes.

              	 	
                17

              
	
                (n)

              	
                No
      Undisclosed Events, Liabilities, Developments or
      Circumstances.

              	 	
                17

              
	
                (o)

              	
                Conduct
      of Business; Regulatory Permits.

              	 	
                17

              
	
                (p)

              	
                Indebtedness
      and Other Contracts.

              	 	
                18

              
	
                (q)

              	
                Absence
      of Litigation.

              	 	
                18

              
	
                (r)

              	
                Insurance.

              	 	
                18

              
	
                (s)

              	
                Employee
      Relations

              	
                .

              	
                18

              
	
                (t)

              	
                Title.

              	 	
                19

              
	
                (u)

              	
                Intellectual
      Property.

              	 	
                19

              
	
                (v)

              	
                Environmental
      Laws.

              	 	
                20

              
	
                (w)

              	
                Subsidiary
      Rights.

              	 	
                20

              
	
                (x)

              	
                Tax
      Status.

              	 	
                20

              
	
                (y)

              	
                Internal
      Accounting Controls; Financial Statements.

              	 	
                20

              
	
                (z)

              	
                Sarbanes-Oxley
      Act.

              	 	
                21

              
	
                (aa)

              	
                S-3
      Eligibility.

              	 	
                21

              
	
                (bb)

              	
                Concerning
      the Collateral.

              	 	
                21

              
	
                (cc)

              	
                Disclosures.

              	 	
                21

              
	
                (dd)

              	
                Absence
      of Rights Agreement.

              	 	
                21

              
	
                5.     CERTAIN
      COVENANTS.

              	 	
                21

              
	
                (a)

              	
                Transfer
      Restrictions.

              	 	
                21

              
	
                (b)

              	
                Restrictive
      Legends.

              	 	
                22

              
	
                (c)

              	
                Reporting
      Status.

              	 	
                24

              
	
                (d)

              	
                Form
      D.

              	 	
                24

              
	
                (e)

              	
                State
      Securities Laws.

              	 	
                24

              
	
                (f)

              	
                Limitation
      on Certain Actions.

              	 	
                25

              
	
                (g)

              	
                Use
      of Proceeds.

              	 	
                25

              
	
                (h)

              	
                Best
      Efforts.

              	 	
                25

              
	
                (i)

              	
                Debt
      Obligation.

              	 	
                25

              
	
                (j)

              	
                Right
      of the Buyer to Participate in Future Transactions

              	
                .

              	
                25

              
	
                (k)

              	
                Press
      Releases.

              	 	
                27

              
	
                (l)

              	
                Form
      8-K; Limitation on Information and Buyer Obligations.

              	 	
                28

              
	
                (m)

              	
                Limitation
      on Certain Transactions.

              	 	
                28

              
	
                (n)

              	
                Debt
      Obligation.

              	 	
                29

              
	
                (o)

              	
                Security
      Agreement; Financing Statements, Etc.

              	 	
                29

              
	
                (p)

              	
                Stockholder
      Approval; Reverse Stock Split.

              	 	
                29

              
	
                (q)

              	
                Short
      Sales and Confidentiality After The Date Hereof.

              	 	
                30

              
	
                6.     CONDITIONS
      TO THE COMPANY’S OBLIGATION TO SELL.

              	 	
                31

              
	
                7.     CONDITIONS
      TO THE BUYER’S OBLIGATION TO PURCHASE.

              	 	
                31

              
	
                8.     REGISTRATION
      RIGHTS.

              	 	
                33

              
	
                (a)

              	
                Mandatory
      Registration.

              	 	
                33

              
	
                (b)

              	
                Obligations
      of the Company.

              	 	
                34

              


      

       

       

      
        
          
          

        

        
          ii

          
            

          

        

        
          
          

        

      

       

       

      
        	
                (c)

              	
                Obligations
      of the Buyer and other Investors.

              	 	
                38

              
	
                (d)

              	
                Rule
      144.

              	 	
                39

              
	
                9.     INDEMNIFICATION
      AND CONTRIBUTION.

              	 	
                39

              
	
                (a)

              	
                Indemnification.

              	 	
                39

              
	
                (b)

              	
                Contribution.

              	 	
                41

              
	
                (c)

              	
                Other
      Rights.

              	 	
                41

              
	
                10.     MISCELLANEOUS.

              	 	
                42

              
	
                (a)
      

              	
                Governing
      Law.

              	 	
                42

              
	
                (b)

              	
                Headings.

              	 	
                42

              
	
                (c)

              	
                Severability.

              	 	
                42

              
	
                (d)

              	
                Notices.

              	 	
                42

              
	
                (e)

              	
                Counterparts.

              	 	
                42

              
	
                (f)

              	
                Entire
      Agreement; Benefit.

              	 	
                42

              
	
                (g)

              	
                Waiver.

              	 	
                43

              
	
                (h)

              	
                Amendment.

              	 	
                43

              
	
                (i)

              	
                Further
      Assurances.

              	 	
                43

              
	
                (j)

              	
                Assignment
      of Certain Rights and Obligations

              	
                .

              	
                43

              
	
                (k)

              	
                Expenses.

              	 	
                44

              
	
                (l)

              	
                Termination.

              	 	
                44

              
	
                (m)

              	
                Survival.

              	 	
                45

              
	
                (n)

              	
                Construction;
      Buyer Status.

              	 	
                45

              


      

      


      


      ANNEXES

      


      
        	
                Annex
      I

              	
                Form
      of 6% Senior Secured Convertible Note due 2007-2008

              
	
                Annex
      II

              	
                Form
      of Common Stock Purchase Warrant

              
	
                Annex
      III

              	
                Form
      of Patent and Trademark Security Agreement

              
	
                Annex
      IV

              	
                Form
      of Pledge and Security Agreement

              
	
                Annex
      V

              	
                Form
      of Lockbox Agreement

              
	
                Annex
      VI

              	
                Form
      of Press Release

              
	
                Annex
      VII

              	
                Form
      of Legal Opinion of Company Counsel

              
	
                Annex
      VIII

              	
                Form
      of Legal Opinion of Intellectual Property Counsel

              
	
                Annex
      IX

              	
                Form
      of Lockup Agreement

              


      

       

    


    
      
        
        

      

      
        iii

        
          

        

      

      
        
           

        

      

    


    


    NOTE PURCHASE
AGREEMENT

    


    THIS NOTE PURCHASE
AGREEMENT, dated as
of July 21, 2006 (this “Agreement”), by and between eMagin Corporation, a
Delaware corporation (the “Company”), with headquarters located at 10500 N.E.
8th Street,
Suite 1400, Bellevue,
Washington 98004, and [NAME OF BUYER] (the
“Buyer”).

    


    W I T N E S S E T H:

    


    WHEREAS, upon
the terms and subject to the conditions of this Agreement, the Buyer wishes to
purchase from the Company and the Company wishes to sell to the Buyer, the Note
(such capitalized term and all other capitalized terms used in this Agreement
having the meanings provided in Section 1) of the Company to be issued by the
Company in the principal amount set forth on the signature page of this
Agreement, which Note will be convertible into shares of Common Stock, and in
connection with the sale and issuance of the Note the Company shall issue to the
Buyer a warrant to purchase shares of Common Stock; 

    


    NOW THEREFORE, in
consideration of the premises and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:

    


    1. DEFINITIONS

    


    (a) As used
in this Agreement, the terms “Agreement”, “Buyer” and “Company” shall have the
respective meanings assigned to such terms in the introductory paragraph of this
Agreement.

    


    (b) All the
agreements or instruments herein defined shall mean such agreements or
instruments as the same may from time to time be supplemented or amended or the
terms thereof waived or modified to the extent permitted by, and in accordance
with, the terms thereof and of this Agreement.

    


    (c) The
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms
defined):

    


    “Affiliate”
means, with respect to any Person, any other Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with the subject Person. For purposes of this definition,
“control” (including, with correlative meaning, the terms “controlled by” and
“under common control with”), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.

    


    “AMEX”
means the American Stock Exchange, Inc.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    “Blackout
Period” means the period of up to twenty Trading Days (whether or not
consecutive) during any period of 365 consecutive days after the date the
Company notifies the Investors that they are required, pursuant to Section
8(c)(4), to suspend offers and sales of Registrable Securities as a result of an
event or circumstance described in Section 8(b)(5)(A), during which period, by
reason of Section 8(b)(5)(B), the Company is not required to amend a particular
Registration Statement or supplement the related Prospectus.

    


    “Business
Day” means any day other than a Saturday, Sunday or a day on which commercial
banks in The City of New York are authorized or required by law or executive
order to remain closed.

    


    “Claims”
means any losses, claims, damages, liabilities or expenses, including, without
limitation, reasonable fees and expenses of legal counsel (joint or several),
incurred by a Person.

    


    “Closing
Date” means 10:00 a.m., New York City time, on July 21, 2006, or such other
mutually agreed to time.

    


    “Collateral”
shall have the meaning to be provided or provided in each Security
Agreement.

    


    “Collateral
Agent” shall have the meaning to be provided or provided in each Security
Agreement.

    


    “Common
Stock” means the Common Stock, par value $.001 per share, of the
Company.

    


    “Common
Stock Equivalent” means any warrant, option, subscription or purchase right with
respect to shares of Common Stock, any security convertible into, exchangeable
for, or otherwise entitling the holder thereof to acquire, shares of Common
Stock or any warrant, option, subscription or purchase right with respect to any
such convertible, exchangeable or other security.

    


    “Conversion
Price” shall have the meaning to be provided or provided in the
Note.

    


    “Conversion
Shares” means the shares of Common Stock or other securities issuable upon
conversion of the Note.

    


    “Encumbrance”
means any mortgage, deed of trust, claim, security interest, lien, pledge,
lease, sublease, charge, escrow, option, proxy, right of occupancy, right of
first refusal, preemptive right, covenant, conditional limitation,
hypothecation, prior assignment, easement, title retention agreement, indenture,
security agreement or any other encumbrance of any kind.

    


    “Environmental
Law” means any federal, state, local or foreign law relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
including, without limitation, laws relating to emissions, discharges, releases
or threatened releases of Hazardous Materials into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.

    


    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    “ERISA”
means the Employee Retirement Income Security Act of 1974, as amended, and the
regulations thereunder and published interpretations thereof.

    


    “Exempt
Issuance” shall have the meaning set forth in Section 5(m) of this
Agreement.

    


    “Event of
Default” shall have the meaning to be provided or provided in the
Note.

    


    “Generally
Accepted Accounting Principles” means, for any Person, the United States
generally accepted accounting principles and practices applied by such Person
from time to time in the preparation of its audited financial
statements.

    


    “Hazardous
Material” means any chemical, pollutant, contaminant, or toxic or hazardous
substance or waste.

    


    “Indebtedness”
shall have the meaning to be provided or provided in the Note.

    


    “Indemnified
Party” means the Company, each of its directors, each of its officers who signs
the Registration Statement, each Person, if any, who controls the Company within
the meaning of the 1933 Act or the 1934 Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any Person who controls such stockholder or
underwriter within the meaning of the 1933 Act or the 1934 Act.

    


    “Indemnified
Person” means the Buyer and any Investor and their respective investment
advisers and investment managers, the directors, officers, employees and agents
of the Buyer, any such Investor and any such investment adviser or investment
manager, each Person, if any, who controls the Buyer, any such Investor or any
such investment adviser or investment manager within the meaning of the 1933 Act
or the 1934 Act, any underwriter (as defined in the 1933 Act) acting on behalf
of an Investor who participates in the offering of Registrable Securities of
such Investor in accordance with the plan of distribution contained in the
Prospectus, the directors, if any, of such underwriter and the officers, if any,
of such underwriter, and each Person, if any, who controls any such underwriter
within the meaning of the 1933 Act or the 1934 Act. 

    


    “Inspector”
means any attorney, accountant or other agent retained by an Investor for the
purposes provided in Section 8(b)(9).

    


    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    “Insolvent”
means (i) the present fair saleable value of the Company's assets is less than
the amount required to pay the Company's total indebtedness, contingent or
otherwise, (ii) the Company is unable to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured, (iii) the Company intends to incur debts beyond its
ability to pay as such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt) or (iv) the Company
has unreasonably small capital with which to conduct the business in which it is
engaged for the current fiscal year as such business is now conducted and is
proposed to be conducted.

    


    “Intellectual
Property” means all franchises, patents, trademarks, service marks, trade names
(whether registered or unregistered), copyrights, corporate names, licenses,
trade secrets, proprietary software or hardware, proprietary technology,
technical information, discoveries, designs and other proprietary rights,
whether or not patentable, and confidential information (including, without
limitation, know-how, processes and technology) used in the conduct of the
business of the Company or any Subsidiary.

    


    “Investor”
means the Buyer and any transferee or assignee who agrees to become bound by the
provisions of Sections 5(a), 5(b), 8, 9, and 10 of this Agreement.

    


    “Lockbox
Agent” means the Person from time to time serving as Lockbox Agent under the
Lockbox Agreement.

    


    “Lockbox
Agreement” means the Lockbox Agreement by and between the Company and the
Lockbox Agent in the form attached as Annex V.

    


    “Liens”
shall have the meaning to be provided or provided in the Note.

    


    “Margin
Stock” shall have the meaning provided in Regulation U of the Board of Governors
of the Federal Reserve System (12 C.F.R. Part 221).

    


    “Material
Adverse Effect” means (i) a material adverse effect on (A) the business,
properties, operations, condition (financial or other), results of operations or
prospects of the Company and the Subsidiaries, taken as a whole; (B) the
validity or enforceability of, or the ability of the Company to perform its
obligations under, the Transaction Documents; (C) the existence, validity or
priority of the Lien on and Security Interest in the Collateral granted pursuant
to any Security Agreement; or (D) the rights and remedies of the Buyer under or
in connection with the Transaction Documents or (ii) any event or circumstance
that would cause any Registration Statement or Prospectus to contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements made not misleading except if such untrue statement of a
material fact in such Registration Statement or Prospectus or omission to state
a material fact required to be stated in such Registration Statement or
Prospectus in order to make the statements therein not misleading, results from
a misstatement or omission made by the Buyer in written information it furnished
to the Company specifically for inclusion in such Registration Statement or such
Prospectus or in any amendment or supplement thereto, unless the Company shall
have failed timely to amend or supplement such Registration Statement or
Prospectus after the Buyer shall have corrected such misstatement or
omission.

    


    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    “Nasdaq”
means the Nasdaq Global Market.

    


    “Nasdaq
Capital Market” means the Nasdaq Capital Market.

    


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

    


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

    


    “Note”
means the 6% Senior Secured Convertible Note due 2007-2008 of the Company in the
form attached as Annex I.

    


    “Other
Note Purchase Agreements” means the several Note Purchase Agreements, dated of
even date herewith, by and between the Company and the buyers of the Other
Notes.

    


    “Other
Notes” shall have the meaning to be provided or provided in the
Note.

    


    “Other
Warrants” means the Common Stock Purchase Warrants issuable or issued pursuant
to the Other Note Purchase Agreements.

    


    “Patent
and Trademark Security Agreement” means the Patent and Trademark Security
Agreement from the Company to the Collateral Agent in the form attached as
Annex III.

    


    “Payment
Event” means any of the following events:

    


    (i) the
Company fails to file with the SEC any Registration Statement meeting the
requirements of this Agreement on or before the date by which the Company is
required to file such Registration Statement pursuant to Section
8(a),

    


    (ii) the SEC
Effective Date of the Registration Statement required by Section 8(a)(1)
covering Registrable Securities does not occur within 90 days following the
Closing Date or the SEC Effective Date of any Registration Statement required by
Section 8(a)(3) covering Registrable Securities does not occur within 90 days
following the date the Company shall become obligated to commence preparation of
such Registration Statement: provided, however, that if
any such Registration Statement shall be reviewed by the SEC staff a Payment
Event shall not occur until 120 days following (x) the Closing Date, in the case
of the Registration Statement required by Section 8(a)(1), or (y) such date as
the Company becomes obligated to commence preparation of such Registration
Statement, in the case of any Registration Statement required by Section
8(a)(3),

    


    (iii) The
Company fails to file with the SEC a request for acceleration of effectiveness
of a Registration Statement within three Trading Days after the date the Company
learns that no review of such Registration Statement will be made by the staff
of the SEC or that the staff of the SEC has no further comments on such
Registration Statement, as the case may be, or any such request for acceleration
fails to request acceleration of such Registration Statement to a time and date
not more than 48 hours after the submission of such request,

    


    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    (iv) after the
SEC Effective Date of any Registration Statement, sales cannot be made pursuant
to such Registration Statement for any reason (including, without limitation, by
reason of a stop order, any untrue statement of a material fact or omission of a
material fact in such Registration Statement, or the Company’s failure to update
such Registration Statement), except to the extent permitted pursuant to Section
8(b)(5), 

    


    (v) the
Common Stock generally or the Registrable Securities specifically are not listed
or included for quotation on a Trading Market, or

    


    (vi) the
Company fails, refuses or is otherwise unable timely to issue and deliver to or
upon the order of the Person entitled thereto Conversion Shares upon conversion
of the Note or shares of Common Stock issuable upon conversion of any Other
Note, Warrant Shares upon exercise of the Warrant or shares of Common Stock
issuable upon exercise of any Other Warrant in accordance with the terms of the
Warrant or any Other Warrant, as the case may be, as and when required under the
Transaction Documents, in any such case within five Trading Days after the due
date thereof in accordance with the Note, Other Note, Warrant or Other Warrant
or the Company fails, refuses or is otherwise unable timely to transfer any
Shares as and when required by the Transaction Documents.

    


    “Payment
Period” means any period following the Closing Date during which any Payment
Event occurs and is continuing.

    


    “Person”
means any natural person, corporation, partnership, limited liability company,
trust, incorporated organization, unincorporated association or similar entity
or any government, governmental agency or political subdivision.

    


    “Placement
Agent” means Roth Capital Partners.

    


    “Pledge
and Security Agreement” means the Pledge and Security Agreement from the Company
to the Collateral Agent in the form attached as Annex IV.

    


    “Pro Rata
Share” means with respect to each capital raising transaction to which Section
5(j) applies an amount equal to the product obtained by multiplying (x) an
amount equal to one-half of the securities being issued in such capital raising
transaction times (y) a
fraction of which the numerator is the sum of (A) the total number of shares of
Common Stock which would then be issuable upon conversion of the Note and upon
exercise of the Warrant for cash plus (B) the
number of outstanding Shares beneficially owned by the Buyer at the time the Pro
Rata Share is being determined and the denominator is the sum of (C) the number
of shares issuable upon conversion of the Note and the Other Notes at the time
of original issuance thereof plus (D) the
total number of shares of Common Stock issuable upon exercise of the Warrant and
the Other Warrants for cash (in each case determined without regard to any
limitation on conversion of exercise thereof), subject to adjustment of the
amounts specified in the immediately preceding clauses (C) and (D) for stock
splits, stock dividends and similar capital changes affecting the Common Stock
that occur on or after the Closing Date and on or prior to the date Pro Rata
Share is being determined.

    


    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    “Prospectus”
means the prospectus forming part of the Registration Statement at the time the
Registration Statement is declared effective and any amendment or supplement
thereto (including any information or documents incorporated therein by
reference).

    


    “PTO”
means the United States Patent and Trademark Office.

    


    “Purchase
Price” means the purchase price for the Note set forth on the signature page of
this Agreement.

    


    “QIB”
means a “qualified institutional buyer” as defined in Rule 144A.

    


    “Record”
means all pertinent financial and other records, pertinent corporate documents
and properties of the Company subject to inspection for the purposes provided in
Section 8(b)(9).

    


    “register,”
“registered,” and “registration” refer to a registration effected by preparing
and filing a Registration Statement or Statements in compliance with the 1933
Act and pursuant to Rule 415, and the declaration or ordering of effectiveness
of such Registration Statement by the SEC.

    


    “Registrable
Securities” means (1) the Shares, (2) if the Common Stock is changed, converted
or exchanged by the Company or its successor, as the case may be, into any other
stock or other securities on or after the date hereof, such other stock or other
securities which are issued or issuable in respect of or in lieu of the Shares
and (3) if any other securities are issued to holders of Common Stock (or such
other shares or other securities into which or for which the Common Stock is so
changed, converted or exchanged as described in the immediately preceding clause
(2)) upon any reclassification, share combination, share subdivision, share
dividend, merger, consolidation or similar transaction or event, such other
securities which are issued or issuable in respect of or in lieu of the
Shares.

    


    “Registration
Period” means, with respect to each Registration Statement, the period from the
SEC Effective Date for such Registration Statement, to the earlier of (A) the
date which is five years after the
Closing Date or such date after which each Investor may sell all of its
Registrable Securities without registration under the 1933 Act pursuant to Rule
144, free of any limitation on the volume of such securities which may be sold
in any period) and (B) the date on which the Investors no longer own any
Registrable Securities.

    


    “Registration
Statement” means a registration statement on Form S-3 or such other form as may
be available to the Company to be filed with the SEC under the 1933 Act relating
to the Registrable Securities and which names any Investor as a selling
stockholder.

    


    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    “Regulation
D” means Regulation D under the 1933 Act.

    


    “Repurchase
Event” shall have the meaning to be provided or provided in the
Note.

    


    “Restricted
Ownership Percentage” shall have the meaning provided in Section
5(j)(2).

    


    “Reverse
Stock Split” means a reverse split of the Common Stock of not less than one for
each ten shares of Common Stock outstanding prior thereto.

    


    “Rule
144” means Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time provide a “safe harbor” exemption
from registration under the 1933 Act so as to permit a holder to sell securities
of the Company to the public without registration under the 1933
Act.

    


    “Rule
144A” means Rule 144A under the 1933 Act or any successor rule
thereto.

    


    “SEC”
means the Securities and Exchange Commission.

    


    “SEC
Effective Date” means, with respect to any Registration Statement, the date such
Registration Statement is first declared effective by the SEC.

    


    “SEC
Filing Date” means the date the Registration Statement is first filed with the
SEC pursuant to Section 8.

    


    “SEC
Reports” means the Company’s (1) Annual Report on Form 10-K for the year ended
December 31, 2005, (2) Quarterly Report on Form 10-Q for the
quarter ended March 31, 2006, and (3)
all other periodic and other reports filed by the Company with the SEC pursuant
to the 1934 Act subsequent to December 31, 2005, and prior to the date hereof,
in each case as filed with the SEC and including the information and documents
(other than exhibits) incorporated therein by reference.

    


    “Securities”
means, collectively, the Note, the Shares and the Warrant.

    


    “Security
Agreement” means either or both of the Pledge and Security Agreement and the
Patent and Trademark Security Agreement.

    


    “Security
Interest” shall have the meaning to be provided or provided in each Security
Agreement.

    


    “Shares”
means the Conversion Shares and the Warrant Shares.

    


    “Short
Sales” shall have the meaning provided in Rule 200 of Regulation SHO under the
1934 Act as in effect on the date of this Agreement (but shall not be deemed to
include the location and/or reservation of borrowable shares of Common
Stock).

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    “Stockholder
Approval” shall have the meaning provided in Section 5(p).

    


    “Stockholder
Meeting” shall have the meaning provided in Section 5(p).

    


    “Strategic
Issuance” means the issuance by the Company for cash of Common Stock or Common
Stock Equivalents in connection with a strategic alliance, collaboration, joint
venture, partnership, manufacturing, marketing, distributing or similar
arrangement of the Company with another Person which strategic alliance,
collaboration, joint venture, partnership manufacturing, marketing, distributing
or similar arrangement relates to the Company’s business as conducted
immediately prior thereto and which Person is engaged in a business similar or
related to the business of the Company.

    


    “Subsidiary”
means any corporation or other entity of which a majority of the capital stock
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Company.

    


    “Trading
Day” means at any time a day on which any of a national securities exchange,
Nasdaq, Nasdaq
Capital Market or such
other securities market as at such time constitutes the principal securities
market for the Common Stock is open for general trading of
securities.

    


    “Trading
Market” means the AMEX, the Nasdaq, the Nasdaq
Capital Market or the
New York Stock Exchange, Inc.

    


    “Transaction
Documents” means, collectively, this Agreement, the Security Agreement, the
Securities, the Lockbox Agreement and the other agreements, instruments and
documents contemplated hereby and thereby.

    


    “Transaction
Form 8-K” shall have the meaning provided in Section 5(l).

    


    “Violation”
means 

    


    (i) any
untrue statement or alleged untrue statement of a material fact contained in a
Registration Statement or any post-effective amendment thereof or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,


    


    (ii) any
untrue statement or alleged untrue statement of a material fact contained in any
Prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading, 

    


    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    (iii) any
violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any
state securities law or any rule or regulation under the 1933 Act, the 1934 Act
or any state securities law, or 

    


    (iv) any
breach or alleged breach by the Company of any representation, warranty,
covenant, agreement or other term of any of the Transaction Documents.


    


    “Warrant”
means the Common Stock Purchase Warrant in the form attached hereto as
Annex II.

    


    “Warrant
Shares” means the shares of Common Stock and any other securities issuable upon
exercise of the Warrant.

    


    2. PURCHASE AND SALE; PURCHASE
PRICE.

    


    (a) Purchase. 
Upon the
terms and subject to the conditions of this Agreement, the Buyer hereby agrees
to purchase from the Company, and the Company hereby agrees to sell to the
Buyer, on the Closing Date, the Note in the principal amount set forth on the
signature page of this Agreement and having the terms and conditions as set
forth in the form of the Note attached hereto as Annex I for the
Purchase Price. In connection with the purchase of the Note by the Buyer, the
Company shall issue to the Buyer at the closing on the Closing Date a Warrant
initially entitling the holder to purchase the number of shares of Common Stock
set forth on the signature page of this Agreement.

    


    (b) Form of Payment.
 Payment
by the Buyer of the Purchase Price to the Company on the Closing Date shall be
made by wire transfer of immediately available funds to:

     

    [INTENTIONALLY
OMITTED]

     

    For
credit to account No. 

    For
credit to the account of 

    Reference:
[Name of
Buyer]

    


    (c) Closing. 
The
issuance and sale of the Note and the issuance of the Warrant shall occur on the
Closing Date at Law Offices of Brian W Pusch, Penthouse Suite, 29 West
57th Street,
New York, New York 10019 or at such other location and time as the parties may
agree. At the closing, upon the terms and subject to the conditions of this
Agreement, (1) the Company shall issue and deliver to the Buyer the Note and the
Warrant against payment by the Buyer to the Company of an amount equal to the
Purchase Price, and (2) the Buyer shall pay to the Company an amount equal to
the Purchase Price against delivery by the Company to the Buyer of the Note and
the Warrant.

    


    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    3. REPRESENTATIONS, WARRANTIES,
COVENANTS, ETC. OF THE BUYER.

    


    The Buyer
represents and warrants to, and covenants and agrees with, the Company as
follows:

    


    (a) Circumstances of Purchase. 
The Buyer
is purchasing the Note and acquiring the Warrant for its own account and not
with a view towards the public sale or distribution thereof within the meaning
of the 1933 Act; and the Buyer will acquire any Shares issued to the Buyer prior
to the SEC Effective Date of a Registration Statement covering the resale of
such Shares by the Buyer for its own account and not with a view towards the
public sale or distribution thereof within the meaning of the 1933 Act prior to
such SEC Effective Date; and the Buyer has no intention of making any
distribution, within the meaning of the 1933 Act, of the Shares except in
compliance with the registration requirements of the 1933 Act or pursuant to an
exemption therefrom. The Buyer is acquiring the Securities hereunder in the
ordinary course of its business. 

    


    (b) Accredited Investor;
Residence.  At the
time the Buyer was offered the Securities, it was, and at the date hereof it is,
and on each date on which it exercises any Warrants for cash it will be, an
“accredited investor” as that term is defined in Rule 501 of Regulation D under
the 1933 Act by reason of Rule 501(a)(3) thereof. The office or offices of the
Buyer in which its investment decision was made is located at the address or
addresses of such Investor set forth on the signature page hereto.

    


    (c) Reoffers and Resales. 
The Buyer
will not offer, sell, pledge, transfer or otherwise dispose of (or solicit any
offers to buy, purchase or otherwise acquire or take a pledge of) any of the
Securities unless registered under the 1933 Act, pursuant to an exemption from
registration under the 1933 Act or in a transaction not requiring registration
under the 1933 Act; provided,
however, that
the Securities may be pledged in connection with a bona fide margin account or
other loan or financing arrangement secured by the Securities and such pledge of
Securities shall not be deemed to be a transfer, sale or assignment of the
Securities prohibited hereby, and in effecting any pledge of Securities the
Buyer shall not be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document, including, without limitation, this Section 3(c);
provided,
further,
however, the
Buyer acknowledges that in connection with any sale, transfer or assignment by
the pledgee of such Securities, such pledgee may be required by applicable law
to make such sale, transfer or assignment in accordance with, or pursuant to a
registration statement or an exemption under, the 1933 Act.

    


    (d) Company Reliance. 
The Buyer
understands that (1) the Note is being offered and sold and the Warrant is being
issued to the Buyer, (2) upon conversion of the Note prior to two years after
the Closing Date, the Conversion Shares will be issued to the Buyer upon such
conversion and (3) upon exercise of the Warrant for cash, or upon cashless
exercise of the Warrant prior to two years after the Closing Date, the Warrant
Shares issued upon such exercise will be issued to the Buyer, in each such case
in reliance on one or more exemptions from the registration requirements of the
1933 Act, including, without limitation, Regulation D, and exemptions from state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Buyer’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire or receive an offer to acquire the Securities.

    


    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    (e) Information Provided. 
The Buyer
and its advisors, if any, have requested, received and considered all
information relating to the business, properties, operations, condition
(financial or other), results of operations or prospects of the Company and
information relating to the offer and sale of the Note and the offer of the
Warrant deemed relevant by them (assuming the accuracy and completeness of the
SEC Reports and of the Company’s responses to the Buyer’s requests); the Buyer
and its advisors, if any, have been afforded the opportunity to ask questions of
the Company concerning the terms of the offering of the Securities and the
business, properties, operations, condition (financial or other), results of
operations and prospects of the Company and the Subsidiaries; without limiting
the generality of the foregoing, the Buyer has had the opportunity to obtain and
to review the SEC Reports; in connection with its decision to purchase the Note
and to acquire the Warrant, the Buyer has relied solely upon the SEC Reports,
the representations, warranties, covenants and agreements of the Company set
forth in this Agreement and to be contained in the other Transaction Documents,
as well as any investigation of the Company completed by the Buyer or its
advisors; the Buyer understands that its investment in the Securities involves a
high degree of risk; and the Buyer understands that the offering of the Note is
being made to the Buyer as part of an offering without any minimum amount of the
offering but subject to a maximum amount of $7 million aggregate principal
amount of the Note and the Other Notes (subject, however, to the right of the
Company at any time prior to execution and delivery of this Agreement by the
Company, in its sole discretion, to accept or reject an offer by the Buyer to
purchase the Note and to acquire the Warrant).

    


    (f) Absence of Approvals. 
The Buyer
understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation or
endorsement of the Securities. 

    


    (g) Note Purchase Agreement. 
The Buyer
has all requisite power and authority, corporate or otherwise, to execute,
deliver and perform its obligations under this Agreement and the other
agreements executed by the Buyer in connection herewith and to consummate the
transactions on the Buyer’s part contemplated hereby and thereby; Buyer is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization; and this Agreement and the Transaction
Documents to which the Buyer is a party have been duly and validly authorized,
duly executed and delivered by the Buyer and, assuming due execution and
delivery by the Company, constitute valid and legally binding obligations of the
Buyer enforceable in accordance with their terms, except as the enforceability
hereof may be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now or hereafter in effect relating
to or affecting creditors’ rights generally and general principles of equity,
regardless of whether enforcement is considered in a proceeding in equity or at
law.

    


    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    (h) Buyer Status. 
The Buyer
is not a “broker” or “dealer” as those terms are defined in the 1934 Act, which
is required to be registered with the SEC pursuant to Section 15 of the 1934
Act.

    


    (i) Experience of the Buyer. 
The Buyer,
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. The
Buyer 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. The
Buyer has had the opportunity to ask questions of management of the
Company.

    


    (j) General Solicitation.
The
Buyer did not
learn of the offering of the Securities through any public advertising or
general solicitation (as these terms are used in Regulation D).

    


    (k) Short Sales and Confidentiality Prior
To The Date Hereof.

    Other
than the transaction contemplated hereunder, the Buyer has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with the Buyer, executed any disposition, including Short Sales
(but not including the location and/or reservation of borrowable shares of
Common Stock), in the securities of the Company during the period
commencing from the time
that the Buyer
first
received a term sheet from the Company or any other Person setting forth the
material terms of the transactions contemplated hereunder until the date hereof
(the
“Discussion Time”).
Notwithstanding
the foregoing, in the case of a Buyer
that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Buyer's assets
and the portfolio managers have no direct knowledge of the investment decisions
made by the portfolio managers managing other portions of such Buyer's
assets, the representation set forth above shall only apply with respect to the
portion of assets managed by the portfolio manager that made the investment
decision to purchase the Securities covered by this Agreement. Other than to
other Persons party to this Agreement and its professional advisors,
the Buyer
has
maintained the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this
transaction).

    


    4. REPRESENTATIONS, WARRANTIES,
COVENANTS, ETC. OF THE COMPANY.

    


    The
Company represents and warrants to, and covenants and agrees with, the Buyer as
follows:

    


    (a) Organization and Authority. 
The
Company and each of the Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, and (i) each of the Company and the Subsidiaries has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as described in the SEC Reports and as currently
conducted, and (ii) the Company has all requisite corporate power and authority
to execute, deliver and perform its obligations under this Agreement and the
other Transaction Documents to be executed and delivered by the Company in
connection herewith, and to consummate the transactions contemplated hereby and
thereby; and the Company does not have any equity investment in any other Person
other than (x) the Subsidiaries listed in the SEC Reports and (y) Subsidiaries
which do not, individually or in the aggregate, have any material revenue,
assets or liabilities.

    


    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    (b) Qualifications. 
 The
Company and each of the Subsidiaries are duly qualified to do business as
foreign corporations and are in good standing in all jurisdictions where such
qualification is necessary and where failure so to qualify could have a Material
Adverse Effect.

    


    (c) Concerning the Shares and the Common
Stock.  The
Shares have been duly authorized and the Conversion Shares, when issued upon
conversion of the Note, and the Warrant Shares, when issued upon exercise of the
Warrant, in each such case will be duly and validly issued, fully paid and
non-assessable and will not subject the holder thereof to personal liability by
reason of being such holder. There are no unwaived preemptive or similar rights
of any stockholder of the Company or any other Person to acquire any of the
Securities issued or to be issued to the Buyer. The Company has duly reserved
40,000,000 shares of Common Stock exclusively for issuance upon conversion of
the Note and the Other Notes and exercise of the Warrant and the Other Warrants,
and such shares shall remain so reserved, and the Company shall from time to
time reserve such additional shares of Common Stock as shall be required to be
reserved pursuant to the Note, the Other Notes and the Warrant, so long as the
Note, the Other Notes or the Warrant are outstanding. The Common Stock is listed
for trading on the AMEX and, except as described on Schedule 4(c), (1) the
Company and the Common Stock meet the criteria for continued listing and trading
on the AMEX; (2) the Company has not been notified since December 31, 2004 by
the AMEX of any failure or potential failure to meet the criteria for continued
listing and trading on the AMEX and (3) no suspension of trading in the Common
Stock is in effect. Except as described on Schedule 4(c), the
Company knows of no reason that the Shares will not be eligible for listing on
the AMEX. The Company acknowledges that the Securities may be pledged in
connection with a bona fide margin account or other loan or financing
arrangement secured by the Securities and such pledge of Securities shall not be
deemed to be a transfer, sale or assignment of the Securities hereunder, and the
Buyer shall not be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document; provided, however, that in
order to make any sale, transfer or assignment of Securities in connection with
a foreclosure or realization on such pledge, the Buyer or its pledgee shall make
such disposition in accordance with, or pursuant to a registration statement or
an exemption under, the 1933 Act.

    


    (d) Corporate Authorization. 
This
Agreement and the other Transaction Documents to which the Company is or will be
a party have been duly and validly authorized by the Company; this Agreement has
been duly executed and delivered by the Company and, assuming due execution and
delivery by the Buyer, this Agreement is, and the Note, and the Warrant will be,
when executed and delivered by the Company, valid and binding obligations of the
Company enforceable in accordance with their respective terms, except as the
enforceability hereof or thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting creditors’ rights generally and general principles of
equity, regardless of whether enforcement is considered in a proceeding in
equity or at law.

    


    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    (e) Non-contravention. 
The
execution and delivery of the Transaction Documents by the Company and the
consummation by the Company of the issuance of the Securities as contemplated by
this Agreement and consummation by the Company of the other transactions
contemplated by the Transaction Documents do not and will not, with or without
the giving of notice or the lapse of time, or both, (i) result in any violation
of any term or provision of the Certificate of Incorporation or Bylaws of the
Company or any Subsidiary, (ii) conflict with or result in a breach by the
Company or any Subsidiary of any of the terms or provisions of, or constitute a
default under, or result in the modification of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance (other than
pursuant to the Security Agreement) upon any of the properties or assets of the
Company or any Subsidiary pursuant to, any indenture, mortgage, deed of trust or
other agreement or instrument to which the Company or any Subsidiary is a party
or by which the Company or any Subsidiary or any of their respective properties
or assets are bound or affected, in any such case which would be reasonably
likely to have a Material Adverse Effect, (iii) violate or contravene any
applicable law, rule or regulation or any applicable decree, judgment or order
of any court, United States federal or state regulatory body, administrative
agency or other governmental body having jurisdiction over the Company or any
Subsidiary or any of their respective properties or assets, in any such case
which could have a Material Adverse Effect, or (iv) have any material adverse
effect on any permit, certification, registration, approval, consent, license or
franchise necessary for the Company or any Subsidiary to own or lease and
operate any of its properties and to conduct any of its business or the ability
of the Company or any Subsidiary to make use thereof.

    


    (f) Approvals, Filings, Etc. 
No
authorization, approval or consent of, or filing with, any United States or
foreign court, governmental body, regulatory agency, self-regulatory
organization, or stock exchange or market or the stockholders of the Company is
required to be obtained or made by the Company or any Subsidiary for (x) the
execution, delivery and performance by the Company of the Transaction Documents,
(y) the issuance and sale of the Securities as contemplated by this Agreement
and the terms of the Note and the Warrant and (z) the performance by the Company
of its obligations under the Transaction Documents, other than (1) registration
of the resale of the Shares under the 1933 Act as contemplated by Section 8, (2)
as may be required under applicable state securities or “blue sky” laws, (3)
filing of one or more Forms D with respect to the Securities as required under
Regulation D, (4) filing of financing statements as required under the
Pledge and Security Agreement, (5) the filings with the PTO as required by the
Patent and Trademark Security Agreement and (6) the filing of
the Transaction Form 8-K.

    


    (g) Information Provided. 
The SEC
Reports (together with the press release issued by the Company), the Transaction
Documents and the instruments delivered by the Company to the Buyer in
connection with the execution and delivery of this Agreement and in connection
with the closing on the Closing Date do not and will not on the date of
execution and delivery of this Agreement, the date of delivery thereof to the
Buyer and on the Closing Date contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading, it being understood that for purposes of this Section 4(g), any
statement contained in such information shall be deemed to be modified or
superseded for purposes of this Section 4(g) to the extent that a statement in
any document included in such information which was prepared and furnished to
the Buyer on a later date (but on or before the date of this Agreement) or filed
with the SEC on a later date (but on or before the date of this Agreement)
modifies or replaces such statement, whether or not such later prepared or filed
statement so states.

    


    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    (h) Investment Company. 
 Neither
the Company nor any Subsidiary is an “investment company” within the meaning of
such term under the Investment Company Act of 1940, as amended, and the rules
and regulations of the SEC thereunder.

    


    (i) Absence of Brokers, Finders,
Etc.  No
broker, finder or similar Person is entitled to any commission, fee or other
compensation by reason of action taken by or on behalf of the Company in
connection with the transactions contemplated by this Agreement other than the
Placement Agent (whose commissions, fees and compensation shall be payable
solely by the Company in accordance with a written agreement between the Company
and the Placement Agent), and the Company shall pay, and indemnify and hold
harmless the Buyer from, any claim made against the Buyer by any Person for any
such commission, fee or other compensation.

    


    (j) No Solicitation. 
Neither
the Company nor, to the best of its knowledge, any other Person acting on behalf
of the Company, used any form of general solicitation or general advertising in
respect of the Securities or in connection with the offer and sale of the
Securities. Neither the Company nor, to its knowledge, any Person acting on
behalf of the Company has, either directly or indirectly, sold or offered for
sale to any Person any of the Securities or, within the six months prior to the
date hereof, any other similar security of the Company, except as contemplated
by this Agreement and the Other Note Purchase Agreements; and neither the
Company nor any Person authorized to act on its behalf will sell or offer for
sale any promissory notes, warrants, shares of Common Stock or other securities
to, or solicit any offers to buy any such security from, any Person so as
thereby to cause the issuance or sale of any of the Securities to be in
violation of any of the provisions of Section 5 of the 1933 Act.

    


    (k) No Integrated
Offering.  None of
the Company, any Subsidiary, any of their respective Affiliates, or any Person
acting on behalf of any of them has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security, under
circumstances that would require registration of any of the Securities under the
1933 Act or cause the offering of the Securities, the Other Notes and the Other
Warrants to be integrated with prior offerings by the Company for purposes of
the 1933 Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of any exchange or automated
quotation system on which any of the securities of the Company are listed,
quoted or designated. None of the Company, any Subsidiary, their respective
Affiliates or any Person acting on behalf of any of them will take any action or
steps referred to in the preceding sentence that would require registration of
any of the Securities under the 1933 Act or cause the offering of the Securities
to be integrated with other offerings. 

    


    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    (l) Dilutive Effect. 
The
Company understands and acknowledges that the number of Shares issuable upon
conversion of the Note and the Other Notes and upon exercise of the Warrant and
the Other Warrants will be substantial and may increase in certain
circumstances. The Company further acknowledges that, subject to the terms and
conditions of the Transaction Documents, its obligation to issue Shares upon
conversion of the Note and upon exercise of the Warrant in accordance with this
Agreement, the Note and the Warrant is, in each case, absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company.

    


    (m) Absence of Certain
Changes.  Except as
disclosed in the SEC Reports, since December 31, 2005, there has been no
material adverse change and no material adverse development in the business,
properties, operations, condition (financial or otherwise), results of
operations or prospects of the Company and the Subsidiaries taken as a whole.
Except as disclosed in the SEC Reports, since December 31, 2005, neither the
Company nor any Subsidiary has (i) declared or paid any dividends, (ii) sold any
assets, individually or in the aggregate, outside of the ordinary course of
business, (iii) had capital expenditures outside of the ordinary course of
business, (iv) engaged in any transaction with any Affiliate except as set forth
in the SEC Reports or (v) engaged in any other transaction outside of the
ordinary course of business. The Company has not taken any steps to seek
protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact that would reasonably
lead a creditor to do so. The Company is not as of the date hereof, after giving
effect to the transactions contemplated hereby to occur on the Closing Date and
the transactions contemplated by the Other Note Purchase Agreements,
Insolvent.

    


    (n) No Undisclosed Events, Liabilities,
Developments or Circumstances.  No event,
liability, development, circumstance or transaction has occurred or exists, with
respect to the Company or any Subsidiary or their respective business,
properties, operations, condition (financial or other), results of operations or
prospects, that would be required to be disclosed by the Company under
applicable securities laws (including pursuant to the anti-fraud provisions
thereof) on a registration statement on Form S-3 filed with the SEC relating to
an issuance and sale by the Company of its Common Stock and which has not been
publicly disclosed.

    


    (o) Conduct of Business; Regulatory
Permits.  Neither
the Company nor any Subsidiary is in violation of any term of or in default
under its Certificate of Incorporation, or its Bylaws. Neither the Company nor
any Subsidiary is in violation of any judgment, decree or order or any statute,
ordinance, rule or regulation applicable to the Company or any Subsidiary which
violation could have a Material Adverse Effect, and neither the Company nor any
Subsidiary will conduct its business in violation of any of the foregoing,
except for possible violations which could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Without
limiting the generality of the foregoing, the Company is not in violation of any
of the rules, regulations or requirements of the AMEX and has no knowledge of
any facts or circumstances that would be likely to lead to delisting or
suspension of the Common Stock by the AMEX in the future. Since December 31,
2005, (i) the Common Stock has been listed on the AMEX, (ii) trading in the
Common Stock has not been suspended by the SEC or the AMEX and (iii) the Company
has received no communication, written or oral, from the SEC or the AMEX
regarding the suspension or delisting of the Common Stock from the AMEX. The
Company and the Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses, except where the
failure to possess such certificates, authorizations or permits could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.

    


    
      
        
        

      

      
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    (p) Indebtedness and Other
Contracts.  Except as
set forth on the SEC Reports, neither the Company nor any Subsidiary (i) has any
outstanding Indebtedness, (ii) is a party to any contract, agreement or
instrument, the violation of which, or default under which, by any other party
to such contract, agreement or instrument could reasonably be expected to result
in a Material Adverse Effect, (iii) is in violation of any term of or in default
under any contract, agreement or instrument, except where such violations and
defaults could not reasonably be expected to result, individually or in the
aggregate, in a Material Adverse Effect, or (iv) is a party to any contract,
agreement or instrument, the performance of which, in the judgment of the
Company's officers, has or is expected to have a Material Adverse Effect. The
Company has filed all material contracts required to be filed in accordance with
the applicable requirements of the SEC Reports as exhibits to such reports.


    


    (q) Absence of
Litigation.  Except as
set forth in the SEC Reports, there is no action, suit, proceeding, inquiry or
investigation, whether criminal, civil or otherwise, before or by the AMEX, any
court, arbitrational body, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company, the Common Stock or any of the Subsidiaries or
any of the Company's or any Subsidiary's officers or directors in their
capacities as such. To the knowledge of the Company, none of the directors or
officers of the Company has been a party to any securities related litigation
during the past ten years, other than as disclosed in the SEC
Reports.

    


    (r) Insurance. 
The
Company and each Subsidiary is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary in the businesses in which
the Company and the Subsidiaries are engaged. Neither the Company nor any
Subsidiary has been refused any insurance coverage sought or applied for and
neither the Company nor any Subsidiary has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that could not have a Material Adverse
Effect.

    


    (s) Employee
Relations.  Neither
the Company nor any Subsidiary is a party to any collective bargaining agreement
or employs any member of a union. No executive officer of the Company (as
defined in Rule 405 under the 1933 Act) has notified the Company that such
officer intends to leave the Company or otherwise terminate such officer's
employment with the Company. No executive officer of the Company, to the
knowledge of the Company, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and, to the knowledge of the
Company, the continued employment of each such executive officer does not
subject the Company or any Subsidiary to any material liability with respect to
any of the foregoing matters. The Company and the Subsidiaries are in compliance
with all federal, state, local and foreign laws and regulations respecting
employment and employment practices, terms and conditions of employment and
wages and hours, except where failure to be in compliance could not, either
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.

    


    
      
        
        

      

      
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    (t) Title. 
The
Company and the Subsidiaries have good and marketable title to all personal
property owned by them which is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens except (i) immaterial
Liens for taxes not yet delinquent, (ii) immaterial carriers’, warehousemen’s,
mechanics', materialmen's, repairmen’s, landlord’s Liens (and other similar
Liens), and immaterial Liens under operating and similar agreements, to the
extent the same relate to expenses incurred in the ordinary course of business
consistent with past practice and that are not yet due, (iii) that are routine
governmental approvals, or (iv) such as do not materially affect the value of
such property and do not interfere with the use made and proposed to be made of
such property by the Company and any of its Subsidiaries. Neither the Company
nor any Subsidiary owns any real property. Any real property and facilities held
under lease by the Company or any Subsidiary are held by it under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and the Subsidiaries.

    


    (u) Intellectual Property. 
Except as
provided in the Security Agreement, (1) the Company and each Subsidiary holds
all Intellectual Property that it owns free and clear of all Encumbrances and
restrictions on use or transfer, whether or not recorded, and has sole title to
and ownership of or has the full, exclusive (subject to the rights of its
licensees) right to use in its field of business such Intellectual Property; and
the Company and each Subsidiary holds all Intellectual Property that it uses but
does not own under valid licenses or sub-licenses from others; (2) the use of
the Intellectual Property by the Company or any Subsidiary does not, to the
knowledge of the Company, violate or infringe on the rights of any other Person;
(3) neither the Company nor any Subsidiary has received any notice of any
conflict between the asserted rights of others and the Company or any Subsidiary
with respect to any Intellectual Property; (4) the Company and each Subsidiary
has used its commercially reasonable best efforts to protect its rights in and
to all Intellectual Property; (5) the Company and each Subsidiary are in
compliance with all material terms and conditions of its agreements relating to
the Intellectual Property; (6) neither the Company nor any Subsidiary is, or
since December 31, 2005 has been, a defendant in any action, suit, investigation
or proceeding relating to infringement or misappropriation by the Company or any
Subsidiary of any Intellectual Property nor has the Company or any Subsidiary
been notified of any alleged claim of infringement or misappropriation by the
Company or any Subsidiary of any Intellectual Property; (7) to the knowledge of
the Company, none of the products or services the Company and the Subsidiaries
are researching, developing, propose to research and develop, make, have made,
use, or sell, infringes or misappropriates any Intellectual Property right of
any third party; (8) none of the trademarks and service marks used by the
Company or any Subsidiary, to the knowledge of the Company, infringes the
trademark or service mark rights of any third party; and (9) to the Company’s
knowledge none of the material processes and formulae, research and development
results and other know-how relating to the Company's or the Subsidiaries'
respective businesses, the value of which to the Company or any Subsidiary is
contingent upon maintenance of the confidentiality thereof, has been disclosed
to any Person other than Persons bound by written confidentiality
agreements.

    


    
      
        
        

      

      
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    (v) Environmental Laws.  To the
Company’s knowledge, the Company and the Subsidiaries (i) are in compliance with
all Environmental Laws, (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and conditions
of any such permit, license or approval where, in any such case in the foregoing
clauses (i), (ii) or (iii), the failure to so comply could be reasonably
expected to have, individually or in the aggregate, a Material Adverse
Effect.

    


    (w) Subsidiary
Rights.  The
Company or one of the Subsidiaries has the unrestricted right to vote, and
(subject to limitations imposed by the applicable corporation or company law
under which each Subsidiary is formed) to receive dividends and distributions
on, all stock of the Subsidiaries that is owned by the Company or such other
Subsidiary as owns such stock.

    


    (x) Tax Status.  The
Company and each Subsidiary (i) has made or filed all federal and state income
and all other tax returns, reports and declarations required by any jurisdiction
to which it is subject, (ii) has paid all taxes and other governmental
assessments and charges that are shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith and for
which it has set aside on its books a provision in the amount of such taxes
being contested in good faith and (iii) has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes claimed to be due by the taxing authority of any jurisdiction, and
the officers of the Company know of no basis for any such claim.

    


    (y) Internal Accounting Controls;
Financial Statements.  The
Company maintains disclosure controls and procedures (as such term is defined in
Rule 13a-15 under the 1934 Act) that are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
1934 Act is accumulated and communicated to the Company's management, including
its principal executive officer or officers and its principal financial officer
or officers, as appropriate, to allow timely decisions regarding required
disclosure. The consolidated financial statements, if any, included in each SEC
Report present fairly and accurately in all material respects the consolidated
financial position of the Company and the Subsidiaries as of the dates reported
and the consolidated results of operations, changes in stockholders' equity and
cash flows for the periods reported, all in conformity with Generally Accepted
Accounting Principles applied on a consistent basis and in conformity with the
rules and regulations of the SEC under the 1934 Act applicable to the Company,
subject, in the case of unaudited financial statements, to (1) normal recurring
year-end adjustments, all of which that are necessary for a fair presentation of
such financial statements have been included, and (2) the absence of all
required notes thereto. Except as set forth in the consolidated financial
statements of the Company included in the SEC Reports, neither the Company nor
any Subsidiary has any liabilities, contingent or otherwise, except those which
individually or in the aggregate are not material to the financial condition or
operating results of the Company and the Subsidiaries, taken as a
whole.

    


    
      
        
        

      

      
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    (z) Sarbanes-Oxley
Act.  The
Company is in compliance with any and all applicable requirements of the
Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and
all applicable rules and regulations promulgated by the SEC thereunder that are
effective as of the date hereof.

    


    (aa) S-3 Eligibility. 
The
Company meets the requirements of Form S-3 for the registration of the resale of
the Registrable Securities.

    


    (bb) Concerning the Collateral. 
 Upon
execution and delivery of the Security Agreement by the Company and the
Collateral Agent and completion of the filings referred to in Schedule I to the
Pledge and Security Agreement and Exhibit C to the
Patent and Trademark Security Agreement, the Collateral Agent will have a first
priority perfected security interest in the Collateral for the ratable benefit
of the holders of the Note and the Other Notes.

    


    (cc) Disclosures. 
For
purposes of this Agreement and the transactions contemplated hereby, none of the
representations or warranties made by the Company under any of the Transaction
Documents and no written information furnished by the Company pursuant hereto,
or in any other document, certificate or written statement furnished by the
Company to the Buyer or any authorized representative of the Buyer, pursuant to
the Transaction Documents or in connection therewith, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein, in light of the
circumstances under which they were made, not misleading.

    


    (dd) Absence of Rights Agreement. 
The
Company has not adopted a shareholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of Common Stock or a change of
control in the Company.

    


    5. CERTAIN
COVENANTS.

    


    (a) Transfer Restrictions. 
The Buyer
acknowledges and agrees that (1) the Note and the Warrant have not been and are
not being registered under the provisions of the 1933 Act or any state
securities laws and, except as provided in Section 8, the Shares have not been
and are not being registered under the 1933 Act or any state securities laws,
and that the Note and the Warrant may not be transferred unless the Buyer shall
have delivered to the Company an opinion of counsel, reasonably satisfactory in
form, scope and substance to the Company, to the effect that the Note or the
Warrant to be transferred may be transferred without such registration; (2) no
sale, conveyance assignment or other transfer of the Note or the Warrant or any
interest therein may be made except in accordance with the terms hereof and
thereof; (3) the Shares may not be resold by the Buyer unless the resale has
been registered under the 1933 Act or is made pursuant to an applicable
exemption from such registration and the Company shall have received the opinion
of counsel provided for in the second to last sentence of this Section 5(a); (4)
any sale of Shares under a Registration Statement shall be made only in
compliance with the terms of this Section 5(a) 

     

     

    
      
        
        

      

      
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    and
Section 8 (including, without limitation, Section 8(c)(4)); (5) any sale of the
Securities made in reliance on Rule 144 may be made only in accordance with the
terms of Rule 144 and further, if the exemption provided by Rule 144 is not
available, any resale of the Securities under circumstances in which the seller,
or the Person through whom the sale is made, may be deemed to be an underwriter,
as that term is used in the 1933 Act, may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC
thereunder;
and (6) the Company is under no obligation to register the Securities (other
than registration of the resale of the Registrable Securities in accordance with
Section 8) under the 1933 Act or, except as provided in Section 5(d) and Section
8, to comply with the terms and conditions of any exemption thereunder. Prior to
the time particular Shares are eligible for resale under Rule 144(k), the Buyer
may not sell the Shares in a transaction which does not constitute a sale
thereof pursuant to the applicable Registration Statement in accordance with the
plan of distribution set forth therein or in any supplement to the related
Prospectus unless the Buyer shall have delivered to the Company an opinion of
counsel, reasonably satisfactory in form, scope and substance to the Company,
that such Shares may be so sold without registration under the 1933 Act. Nothing
in any of the Transaction Documents shall limit the right of a holder of the
Securities to make a bona fide pledge thereof to an institutional lender and the
Company agrees to cooperate with any Investor who seeks to effect any such
pledge by providing such information and making such confirmations as reasonably
requested. The Buyer agrees that any sale by the Buyer of Shares pursuant to a
particular Registration Statement shall be sold in a manner described in the
plan of distribution set forth in the related Prospectus and, if the prospectus
delivery requirement cannot be satisfied by compliance with Rule 153 or 172
under the 1933 Act, (A) if such sale is made through a broker, the Buyer shall
instruct its broker to deliver the Prospectus to the purchaser or purchasers (or
the broker or brokers therefor) in connection with such sale, shall supply
copies of the Prospectus to its broker or brokers and shall instruct its broker
or brokers to deliver such Prospectus to the purchaser in such sale or such
purchaser’s broker, (B) if such sale is made in a transaction directly with a
purchaser and not through the facilities of any securities exchange or market,
the Buyer shall deliver, or cause to be delivered, the Prospectus to such
purchaser; and (C) if such sale is made by any means other than those described
in the immediately preceding clauses (A) and (B), the Buyer shall otherwise use
its best efforts to comply with the prospectus delivery requirements of the 1933
Act applicable to such sale.

    


    (b) Restrictive Legends. 
(1) The
Buyer acknowledges and agrees that the Note shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the Note):

    


    NEITHER
THE ISSUANCE OF THIS NOTE NOR THE ISSUANCE OF THE SECURITIES INTO WHICH THIS
NOTE IS CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “1933 ACT”), AND, ACCORDINGLY, MAY NOT BE, NOR MAY ANY INTEREST
THEREIN BE, OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE 1933 ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY, SUBJECT TO
CERTAIN EXCEPTIONS, A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED
BY SUCH SECURITIES.

    


    
      
        
        

      

      
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    (2) The Buyer
further acknowledges and agrees that the Warrant shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of the Warrant):

    


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

    


    (3) The Buyer
further acknowledges and agrees that until such time as the Shares have been
registered for resale under the 1933 Act as contemplated by Section 8 or are
eligible for resale under Rule 144(k) under the 1933 Act, the certificates for
the Shares may bear a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of the certificates
for the Shares):

    


    The
securities represented by this certificate have not been registered under the
Securities Act of 1933, as amended (the “1933 Act”). The securities have been
acquired for investment and may not be resold, transferred or assigned in the
absence of an effective registration statement for the securities under the 1933
Act or an opinion of counsel that registration is not required under the 1933
Act.

    


    (4) Certificates
evidencing the Shares shall not contain any legend (including the legend set
forth in Section 5(b)(3) hereof): (i) while a registration statement (including
the Registration Statement) covering the resale of such Security is effective
under the 1933 Act, or (ii) following any sale of such Shares pursuant to Rule
144, or (iii) if such Shares are eligible for sale under Rule 144(k), or (iv) if
such legend is not required under applicable requirements of the 1933Act
(including judicial interpretations and pronouncements issued by the SEC). The
Company shall cause its counsel to issue a legal opinion to the Company’s
transfer agent promptly after the SEC Effective Date if required by the
Company’s transfer agent to effect the removal of the legend hereunder. If all
or any portion of a Securities are converted or exercised (as applicable) at a
time when there is an effective registration 

     

     

    
      
        
        

      

      
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    statement
to cover the resale of the Shares, or if such Shares may be sold under Rule
144(k) or if such legend is not otherwise required under applicable requirements
of the 1933 Act (including judicial interpretations thereof) then such Shares
shall be issued free of all legends. The Company agrees that following the SEC
Effective Date or at such time as such legend is no longer required under this
Section 5(b)(4), it will, no later than five Trading Days following the delivery
by a Buyer to the Company or the Company’s transfer agent of a certificate
representing Shares, as applicable, deliver or cause to be delivered to such
Buyer a certificate representing such shares that is free from all restrictive
and other legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in this Section. Certificates for Securities subject to
legend removal hereunder shall be transmitted by the transfer agent of the
Company to the Buyers by crediting the account of the Buyer’s prime broker with
the Depository Trust Company System.

    


    (c) Reporting
Status.   During
the Registration Period, the Company shall timely file all reports required to
be filed with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination.

    


    (d) Form D. 
The
Company agrees to file with the SEC on a timely basis one or more Forms D with
respect to the Securities as required under Regulation D to claim the exemption
provided by Rule 506 of Regulation D and to provide a copy thereof to the Buyer
within five Business Days after Buyer requests in writing a copy of such
filing.

    


    (e) State Securities Laws.  
On or
before the Closing Date, the Company shall take such action as shall be
necessary to qualify, or to obtain an exemption for, the offer and sale of the
Securities to the Buyer as contemplated by the Transaction Documents under such
of the securities laws of jurisdictions in the United States as shall be
applicable thereto. Notwithstanding the foregoing obligations of the Company in
this Section 5(e), the Company shall not be required (1) to qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 5(e), (2) to subject itself to general taxation in any such
jurisdiction, (3) to file a general consent to service of process in any such
jurisdiction, (4) to provide any undertakings that cause more than nominal
expense or burden to the Company or (5) to make any change in its certificate or
articles of incorporation or by-laws which the Company determines to be contrary
to the best interests of the Company and its stockholders. The Company shall
furnish the Buyer with copies of all filings, applications, orders and grants or
confirmations of exemptions relating to such securities laws on or before the
Closing Date.

    


    
      
        
        

      

      
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    (f) Limitation on Certain Actions. 
From the
date of execution and delivery of this Agreement by the parties hereto to the
date of issuance of the Note, the Company (1) shall comply with Article III of
the Note as if the Note were outstanding, (2) shall not take any action which,
if the Note were outstanding, (A) would constitute an Event of Default or, with
the giving of notice or the passage of time or both, would constitute an Event
of Default or (B) would constitute a Repurchase Event or, with the giving of
notice or the passage of time or both, would constitute a Repurchase
Event.

    


    (g) Use of Proceeds. 
The
Company represents and warrants to the Buyer, and covenants and agrees with the
Buyer, that: (1) it does not own or have any present intention of acquiring any
Margin Stock; (2) the proceeds of sale of the Note and the Warrant Shares will
be used for general working capital purposes and in the operation of the
Company’s business; provided,
however, that up
to $100,000 of the proceeds of this Note and the Other Notes may be used in
connection with the search for an additional member of senior management
described in Section 3.17(b) of the Note; (3) none of such proceeds will be
used, directly or indirectly (A) to pay any existing debt obligations (other
than normal payables), (B) to make any loan to or investment in any other Person
or (C) for the purpose, whether immediate, incidental or ultimate, of purchasing
or carrying any margin stock or for the purpose of maintaining, reducing or
retiring any indebtedness which was originally incurred to purchase or carry any
stock that is currently a Margin Stock or for any other purpose which might
constitute the transactions contemplated by this Agreement a “purpose credit”
within the meaning of such Regulation U of the Board of Governors of the Federal
Reserve System; and (4) neither the Company nor any agent acting on its behalf
has taken or will take any action which might cause this Agreement or the
transactions contemplated hereby to violate Regulation T, Regulation U or any
other regulation of the Board of Governors of the Federal Reserve System or to
violate the 1934 Act, in each case as in effect now or as the same may hereafter
be in effect.

    


    (h) Best Efforts. 
Each of
the Company, on the one hand, and the Buyer, on the other hand, agree to use
their best efforts timely to satisfy each of the conditions to the other’s
obligations to sell and purchase the Note set forth in Section 6 or 7, as the
case may be, of this Agreement on or before the Closing Date.

    


    (i) Debt Obligation. 
So long
as any portion of the Note is outstanding, the Company shall cause its books and
records to reflect the Note as a debt of the Company in its unpaid principal
amount, shall cause its financial statements to reflect the Note as a debt of
the Company in such amount as shall be the greatest amount permitted in
accordance with Generally Accepted Accounting Principles and, whenever
appropriate, as a valid senior debt obligation of the Company for money
borrowed.

    


    (j) Right of the Buyer to Participate in
Future Transactions.

    


    (1) Right to
Participate. The
Buyer will have a right to participate, on the terms and conditions set forth in
this Section 5(j), in all sales by the Company of any of the Company’s equity
securities or other securities that are convertible into or exchangeable for any
of the Company’s equity securities in each capital raising transaction, if any,
that occurs at any time when the Note, or any instrument issued upon transfer or
split up thereof, remains outstanding (in whole or in part), other than any such
sale that is a public offering underwritten on a firm commitment basis and
registered with the SEC under the 1933 Act and other than a Strategic Issuance;
provided,
however, that if
under legal requirements applicable to a particular transaction the only Persons
eligible to purchase securities in such transaction are “accredited investors,”
as defined in Regulation D, then the Buyer must be an
accredited investor in order to purchase securities in such transaction. For any
such transaction during such period, the Company shall give at least
four Business Days  advance 

     

     

    
      
        
        

      

      
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    written
notice to the Buyer prior to any offer or sale of any of the Company's
securities in such transaction by providing to the Buyer a term sheet which (A)
contains all significant business terms of such proposed transaction, (B) is
sufficiently detailed so as to reasonably permit the Buyer the opportunity to
determine whether or not to exercise its rights under this Section 5(j) and (C)
is at least as detailed as the term sheet or summary of such transaction as the
Company shall furnish to any offeree or broker in such transaction. The Buyer
shall have the right to participate in such proposed transaction and to purchase
its Pro Rata Share of such
securities which are the subject of such proposed transaction for the same
consideration and on the same terms and conditions as contemplated for sales to
third parties in such transaction (or such lesser portion thereof as specified
by the Buyer). If the Buyer elects to exercise its rights hereunder for a
particular transaction, it shall deliver written notice to the Company within
four Business Days following receipt from the Company of the notice and term
sheet meeting the requirements of this Section 5(j), which notice from the Buyer
shall be conditional upon (A) the Buyer’s receipt of satisfactory definitive
documents for such transaction from the Company if the Company has not furnished
final, definitive documents for such transaction to the Buyer at or before the
time the Company gives such notice of such transaction to the Buyer, and (B) the
satisfaction of the other conditions precedent to the obligations of buyers
generally in such transaction to complete such transaction. If, subsequent to
the Company giving notice to the Buyer hereunder but prior to any of (i) the
Buyer exercising its right to participate, (ii) the expiration of the four
Business Day period without response from the Buyer or (iii) the rejection of
such offer for such financing by the Buyer, the terms and conditions of the
proposed sale to third parties in such transaction are changed from those
disclosed in the term sheet provided to the Buyer, the Company shall be required
to provide a new notice and term sheet meeting the requirements of this Section
5(j), reflecting such revised terms, to the Buyer hereunder and the Buyer shall
have the right, which must be exercised within four Business Days of the date
the Buyer receives such new notice and such revised term sheet, to exercise its
rights to purchase the securities on such changed terms and conditions and
otherwise as provided hereunder. If the Buyer does not exercise its rights
hereunder with respect to a proposed transaction within the period or periods
provided, or affirmatively declines to engage in such proposed transaction with
the Company, then the Company may proceed with such proposed transaction on the
same terms and conditions as noticed to the Buyer (assuming the Buyer has
consented to the transaction, if required, pursuant to Section 5(n) and such
transaction does not violate any other term or provision of the Transaction
Documents), provided that if
such proposed transaction is not consummated within 75 days following the
Company’s notice hereunder, then the rights hereunder shall again be afforded to
the Buyer for such proposed transaction. The rights and obligations of this
Section 5(j) shall in no way limit or restrict the other rights of the Buyer
pursuant to this Section 5. Notwithstanding anything herein to the contrary,
failure of the Buyer to affirmatively elect in writing to participate in any
proposed transaction within the required time frames shall be deemed to be the
equivalent of Buyer’s decision not to participate in such proposed transaction.
Notwithstanding the foregoing, this Section 5(j)(1) shall not apply in respect
of an Exempt Issuance.

    


    
      
        
        

      

      
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    (2) Limitation on Right of
Participation.
Notwithstanding
anything to the contrary contained herein, the number of shares of Common Stock
that may be acquired directly or through acquisition of Common Stock Equivalents
by the Buyer pursuant to any transaction to which this Section 5(j) applies
shall not at any one time exceed a number that, when added to the total number
of shares of Common Stock deemed beneficially owned by the Buyer (other than by
virtue of the ownership of securities or rights to acquire securities (including
the Note and the Warrant) that have limitations on the Buyer’s right to convert,
exercise or purchase similar to the limitation set forth herein (the “Excluded
Shares”)), together with all shares of Common Stock deemed beneficially owned at
such time (other than by virtue of ownership of Excluded Shares) by Persons
whose beneficial ownership of Common Stock would be aggregated with the
beneficial ownership of the Buyer for purposes of determining whether a group
exists or for purposes of determining the Buyer’s beneficial ownership, in
either such case for purposes of Section 13(d) of the 1934 Act and Regulation
13D-G thereunder, would result in beneficial ownership by the Buyer or such
group of more than 9.9% of the shares of the Company's Common Stock (the
“Restricted Ownership Percentage”), computed in accordance with Regulation
13D-G. The Buyer shall have the right at any time and from time to time to
reduce its Restricted Ownership Percentage immediately upon notice to the
Company in the event and only to the extent that Section 16 of the 1934 Act or
the rules promulgated thereunder (or any successor statute or rules) is changed
to reduce the beneficial ownership percentage threshold thereunder to a
percentage less than 10%. If the Buyer would otherwise be unable by reason of
the Restricted Ownership Percentage to acquire the full amount of securities
which the Buyer would otherwise be entitled to acquire in a particular
transaction pursuant to this Section 5(j) then (A) the Company shall include in
the terms of the securities which the Buyer is entitled to purchase in such
transaction under this Section 5(j) a provision comparable to Section
6.7 of the
Note and (B) if, notwithstanding the inclusion of the provision required by the
immediately preceding clause (1), the Buyer remains unable to acquire the full
amount of securities which the Buyer would otherwise be entitled to acquire
under this Section 5(j), the Buyer’s right to acquire such securities shall be
deferred and if thereafter, at any time or from time to time the Buyer could
acquire all or any part of such securities without exceeding its Restricted
Ownership Percentage, then the Buyer shall be entitled to acquire such
securities at such time or form time to time. The Buyer will provide notice to
the Company when it becomes able to purchase all or any part of such securities
and the closing of each such purchase shall occur on the date that is five
Business Days after the Buyer gives such notice.

    


    (3) Right Applicable to Successive
Transactions. The
rights of the Buyer under this Section 5(j) shall apply to all capital raising
transactions described in Section 5(j)(1) that occur during the period specified
in Section 5(j)(1).

    


    (k) Press
Releases.

    Any press
release or other publicity concerning this Agreement or the transactions
contemplated by this Agreement shall be submitted to the Buyer for comment at
least one Business Day prior to issuance, unless the release is required to be
issued within a shorter period of time pursuant to this Agreement or by law or
pursuant to the rules of the securities exchange or market which at the time
constitutes the principal market for the Common Stock.  The
Company shall, contemporaneously with the closing on the Closing Date or as
promptly as possible thereafter on the Closing Date, issue a press release, in
the form of Annex VI hereto,
concerning the transactions contemplated hereby. The Company's other press
releases and other public information, to the extent concerning the Transaction
Documents, shall contain such information as reasonably requested by the Buyer
and be reasonably approved by the Buyer prior to issuance. 

    


    
      
        
        

      

      
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    (l) Form 8-K; Limitation on Information
and Buyer Obligations.  (1)
Within two Business Days after the Closing Date, the Company will publicly
report the issue and sale of the Note and Warrant and the securities issued
pursuant to the Other Purchase Agreements entered into on or before the Closing
Date by filing with the SEC a Current Report on Form 8-K under the 1934 Act,
which report shall describe the material terms of the transactions contemplated
hereby and thereby and include copies of the forms of the Transaction Documents
as exhibits to such report (the “Transaction Form 8-K”). The Company
acknowledges and agrees that, upon the filing of the Transaction Form 8-K with
the SEC, the Buyer shall not be in possession of any material nonpublic
information received from the Company, any Subsidiary or any of their respective
officers, directors, employees or agents.

    


    (2) The
Company shall not provide, and shall cause each Subsidiary and the respective
officers, directors, employees and agents of the Company and the Subsidiaries
not to provide, the Buyer any material nonpublic information regarding the
Company or any Subsidiary from and after the date the Company files, or is
required by this Agreement to file, the Transaction Form 8-K with the SEC
without the prior express written consent of the Buyer.

    


    (m) Limitation on Certain
Transactions.  From the
date of this Agreement until after the SEC Effective Date of the Registration
Statement contemplated by Section 8(a)(1), without the prior written consent of
the Buyer (which consent may be withheld in the Buyer’s sole discretion), the
Company shall not issue or sell or agree to issue or sell any securities (aside
from the Other Notes and the Other Warrants) in a capital raising transaction,
unless such securities will not be, and are not, registered for sale or resale
under the 1933 Act until on or after such SEC Effective Date; provided, however,
that the limitation of this Section 5(m) shall not apply to (a) shares of Common
Stock or options to employees, officers, directors or consultants of the Company
pursuant to any stock or option plan duly adopted by a majority of the
non-employee members of the Board of Directors of the Company or a majority of
the members of a committee of non-employee directors established for such
purpose, (b) securities upon the exercise or exchange of or conversion of any
Securities issued hereunder and/or securities exercisable or exchangeable for or
convertible into shares of Common Stock issued and outstanding on the date of
this Agreement, provided that such securities have not been amended since the
date of this Agreement to increase the number of such securities or to decrease
the exercise, exchange or conversion price of any such securities, and (c)
securities issued pursuant to acquisitions or strategic transactions, provided
any such issuance shall only be to a Person which is, itself or through its
subsidiaries, an operating company in a business synergistic with the business
of the Company and in which the Company receives benefits in addition to the
investment of funds, but shall not include a transaction in which the Company is
issuing securities primarily for the purpose of raising capital or to an entity
whose primary business is investing in securities (collectively, an “Exempt
Issuance”). The Company agrees that, except for the amounts of securities to be
purchased and the name of the buyer and the Restricted Ownership Percentage, the
terms and provisions of the Other Notes and the Other Warrants shall be
identical to the Note and the Warrant.

    


    
      
        
        

      

      
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    (n) Debt Obligation. 
 So long
as any portion of the Note is outstanding, the Company shall cause its books and
records to reflect the Note as a debt of the Company in its unpaid principal
amount, shall cause its financial statements to reflect the Note as a debt of
the Company in accordance with Generally Accepted Accounting Principles and as a
valid senior debt obligation of the Company for money borrowed that is secured
by the Collateral (unless all Collateral shall have been released pursuant to
the Security Agreement and the security interest thereunder shall have
terminated).

    


    (o) Security Agreement; Financing
Statements, Etc.  The
Company agrees to execute and deliver to the Collateral Agent at or before the
closing on the Closing Date the Patent and Trademark Security Agreement in the
form attached hereto as Annex III and the
Pledge and Security Agreement in the form attached hereto as Annex IV. The
Company shall prepare and at or before the closing on the Closing Date file with
the appropriate officials, Uniform Commercial Code financing statements on Form
UCC-1 relating to the Collateral in which the Company is granting a security
interest to the Collateral Agent for the benefit of the holders of the Note and
the Other Notes pursuant to the Pledge and Security Agreement and prepare and
file with the PTO appropriate documents relating to the Collateral in which the
Company is granting a security interest to the Collateral Agent for the benefit
of the holders of the Note and the Other Note pursuant to the Patent and
Trademark Security Agreement. Prior to the closing on the Closing Date, the
Company shall provide to the Buyer evidence of such filings and customary,
current search reports of the relevant Uniform Commercial Code filing offices
and the PTO.

    


    (p) Stockholder Approval;
Reverse Stock
Split.

    


    (1) Stockholder
Approval. The
Company shall seek, and use its best efforts to obtain, on or before the date
which is 90 days after the Closing Date, stockholder approval of the issuance of
the Shares in accordance with the terms of the Notes and the Warrants, which
approval shall meet the requirements of Rule 713 of the AMEX set forth in the
AMEX Company Guide (“Stockholder Approval”). The Company shall call a meeting of
stockholders (the “Stockholder Meeting”) to be held within 90 days after the
Closing Date, shall prepare and file with the SEC as promptly as practical, but
in no event later than 30 days after the Closing Date, preliminary proxy
materials which set forth a proposal to seek the Stockholder Approval, and the
Board of Directors shall recommend approval thereof by the Company’s
stockholders. The Company shall mail and distribute its proxy materials for the
Stockholder Meeting to its stockholders at least 30 days prior to the date of
the Stockholder Meeting, shall actively solicit proxies to vote for the
Stockholder Approval, and within 30 days after the Closing Date shall retain a
proxy solicitation firm of recognized national standing to assist in the
solicitation. The Company shall provide the Buyer an opportunity to review and
comment on such proxy materials by providing (which may be by e-mail) copies of
such proxy materials and any revised preliminary proxy materials to the Buyer a
reasonable period of time prior to their filing with the SEC. The Company shall
provide the Buyer (which may be by e-mail) copies of all correspondence from or
to the SEC or its staff concerning the proxy materials for the Stockholder
Meeting promptly after the same is sent or received by the Company and summaries
of any comments of the SEC staff which the Company receives orally promptly
after receiving such oral comments. The Company shall furnish to the Buyer and
its legal counsel (which may be by e-mail) a copy of its definitive proxy
materials for the Stockholder Meeting and any amendments or supplements thereto
promptly after the same are first used, mailed to stockholders or filed with the
SEC, shall inform the Buyer of the progress of solicitation of proxies for such
meeting and shall inform the Buyer of any adjournment of the Stockholder Meeting
and shall report the result of the vote of stockholders on such proposition at
the conclusion of the Stockholder Meeting. If the Company fails to obtain such
Stockholder Approval, the Company shall call a meeting of stockholders every 90
days thereafter until such Stockholder Approval is obtained, and the Company’s
seeking of such Stockholder Approval shall be conducted in accordance with the
requirements of this Section 5(p)(1).

    


    
      
        
        

      

      
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    (2) Reverse Stock
Split. In
connection with the Stockholder Meeting, the Company shall also seek, and use
its best efforts to obtain, on or before the date that is 90 days after the
Closing Date a reverse split of its Common Stock of not less than one for each
ten shares of Common Stock outstanding prior thereto (the “Reverse Stock
Split”). The Company shall include the Reverse Stock Split in the preliminary,
revised preliminary and definitive proxy materials prepared, filed with the SEC
and used for the Stockholder Approval, and the Company’s seeking of approval of
the Reverse Stock Split shall be conducted in accordance with the requirements
of Section 5(p)(1).

     

    (q) Short Sales and Confidentiality
After The Date Hereof.  The Buyer
covenants that neither it nor any affiliates acting on its behalf or pursuant to
any understanding with it will execute any Short Sales during the period
commencing
from the time
that the Buyer first received a term sheet from the Company or any other Person
setting forth the material terms of the transactions contemplated hereunder and
ending on the earlier of (i) the date that the transactions contemplated by this
Agreement are first publicly announced as described in Section 5(k) and (ii) the
date, if applicable, that this Agreement is terminated pursuant to Section
10(l). The Buyer covenants that until such time as the transactions contemplated
by this Agreement are publicly disclosed by the Company as described in Section
5(k) or the earlier termination of this Agreement, the Buyer will maintain the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction). The Buyer
understands and acknowledges that the SEC currently takes the position that
coverage of short sales of shares of the Common Stock “against the box” prior to
the effective date of the Registration Statement with the Securities is a
violation of Section 5 of the 1933 Act, as set forth in Item 65, Section 5 under
Section A, of the Manual of Publicly Available Telephone Interpretations, dated
July 1997, compiled by the Office of Chief Counsel, Division of Corporation
Finance. Notwithstanding the foregoing, the Buyer does not make any
representation, warranty or covenant hereby that it will not engage in Short
Sales in the securities of the Company after the earlier of (i) the date that
the transactions contemplated by this Agreement are first publicly announced as
described in Section 5(k) and (ii) the date, if applicable, that this Agreement
is terminated pursuant to Section 10(l). Notwithstanding the foregoing, in the
case of a Buyer that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Buyer's assets and the
portfolio managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Buyer's assets, the
covenant set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement.

    


    
      
        
        

      

      
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    6. CONDITIONS TO THE COMPANY’S
OBLIGATION TO SELL.

    


    The Buyer
understands that the Company’s obligation to sell the Note and issue the Warrant
to the Buyer pursuant to this Agreement is conditioned upon satisfaction of the
following conditions precedent on or before the Closing Date (any or all of
which may be waived by the Company in its sole discretion):

    


    (a) On the
Closing Date, no legal action, suit or proceeding shall be pending or threatened
which seeks to restrain or prohibit the transactions contemplated by this
Agreement; and

    


    (b) The
representations and warranties of the Buyer contained in this Agreement shall
have been true and correct on the date of this Agreement and on the Closing Date
as if made on the Closing Date and on or before the Closing Date the Buyer shall
have performed all covenants and agreements of the Buyer contained in this
Agreement and required to be performed by the Buyer on or before the Closing
Date.

    


    7. CONDITIONS TO THE BUYER’S OBLIGATION
TO PURCHASE. 

    


    The
Company understands that the Buyer’s obligation to purchase the Note and acquire
the Warrant is conditioned upon satisfaction of the following conditions
precedent on or before the Closing Date (any or all of which may be waived by
the Buyer in its sole discretion):

    


    (a) No legal
action, suit or proceeding shall be pending or threatened which seeks to
restrain or prohibit the transactions contemplated by this
Agreement;

    


    (b) The
representations and warranties of the Company contained in this Agreement shall
have been true and correct on the date of this Agreement and shall be true and
correct on the Closing Date as if given on and as of the Closing Date (except
for representations given as of a specific date, which representations shall be
true and correct as of such date), and on or before the Closing Date the Company
shall have performed all covenants and agreements of the Company contained
herein or in any of the other Transaction Documents required to be performed by
the Company on or before the Closing Date;

    


    (c) No event
which, if the Note were outstanding, (1) would constitute an Event of Default or
which, with the giving of notice or the passage of time, or both, would
constitute an Event of Default shall have occurred and be continuing or (2)
would constitute a Repurchase Event or which, with the giving of notice or the
passage of time, or both, would constitute a Repurchase Event shall have
occurred and be continuing;

    


    
      
        
        

      

      
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    (d) The
Company shall have delivered to the Buyer a certificate, dated the Closing Date,
duly executed by its Chief Executive Officer or Chief Financial Officer, to the
effect set forth in subparagraphs (a), (b) and (c) of this Section
7;

    


    (e) The
Company shall have delivered to the Buyer a certificate, dated the Closing Date,
of the Secretary of the Company certifying (1) the Certificate of Incorporation
and By-Laws of the Company as in effect on the Closing Date, (2) all resolutions
of the Board of Directors (and committees thereof) of the Company relating to
this Agreement and the other Transaction Documents and the transactions
contemplated hereby and thereby and (3) such other matters as reasonably
requested by the Buyer;

    


    (f) The
Collateral Agent shall have executed and delivered to the Company the Pledge and
Security Agreement and a copy thereof duly executed and delivered by the
Company, shall have been furnished to the Buyer;

    


    (g) The Buyer
shall have received from the Company customary, current search reports of the
relevant Uniform Commercial Code filing offices, the content of which reports
shall be satisfactory to the Buyer;

    


    (h) All
filings of financing statements necessary or appropriate under the Uniform
Commercial Code in connection with the Pledge and Security Agreement shall have
been made, and the Buyer shall have received satisfactory evidence of such
filings;

    


    (i) The
Collateral Agent shall have executed and delivered to the Company the Patent and
Trademark Security Agreement and a
copy thereof duly executed and delivered by the Company, shall have been
furnished to the Buyer;

    


    (j) The Buyer
shall have received from the Company customary, current search reports of the
PTO, the content of which reports shall be satisfactory to the
Buyer;

    


    (k) All
filings with the PTO necessary or appropriate in connection with the Patent and
Trademark Security Agreement shall have been made, and the Buyer shall have
received satisfactory evidence of such filings;

    


    (l) The
Lockbox Agent shall have executed and delivered to the Company the Lockbox
Agreement and a copy thereof duly executed and delivered by the Company shall
have been furnished to the Buyer;

    


    (m) The
Conversion Shares and the Warrant Shares shall have been approved for listing,
subject only to official notice of issuance, by the AMEX and the Buyer shall
have received written evidence of such approval by the AMEX; 

    


    (n) On the
Closing Date, the Buyer shall have received an opinion of Sichenzia Ross
Friedman Ference LLP, counsel for the Company, dated the Closing Date, addressed
to the Buyer, in the form attached as Annex VII and
otherwise in form, scope and substance reasonably satisfactory to the Buyer and
an opinion of Epstein Drangel Bazerman & James, LLP, intellectual property
counsel for the Company, dated the Closing Date, addressed to the Buyer, in the
form attached as Annex VIII and
otherwise in form, scope and substance reasonably satisfactory to the Buyer;
and

    


    
      
        
        

      

      
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    (o) On the
Closing Date, (i) trading in securities on the New York Stock Exchange, Inc.,
the AMEX, Nasdaq or the Nasdaq Capital Market shall not have been suspended or
materially limited and (ii) a general moratorium on commercial banking
activities in the State of New York shall not have been declared by either
federal or state authorities.

    


    (p) John
Atherly shall have executed and delivered to the Buyers and the Company a Lockup
Agreement in the form attached as Annex IX.

    


    8. REGISTRATION
RIGHTS.

    


    (a) Mandatory Registration. 
(1) The
Company shall prepare and, as expeditiously as possible, but in no event later
than the date which is 30 days after the Closing Date, file with the SEC a
Registration Statement which covers the resale by the Buyer of a number of
shares of Common Stock equal to 100% of the sum of (A) the number of Conversion
Shares issuable upon conversion of the Note plus (B) the
number of Warrant Shares issuable upon exercise of the Warrant, as Registrable
Securities, and which Registration Statement shall state that, in accordance
with Rule 416 under the 1933 Act, such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon conversion of the Note or exercise of the Warrant to prevent dilution
resulting from stock splits, stock dividends or similar transactions.


    


    (2) Prior to
the earlier of the (i) SEC Effective Date, or (ii) two (2) years from the date
hereof, the Company shall not file any other registration statement or any
amendment thereto with the SEC under the 1933 Act or request the acceleration of
the effectiveness of any other registration statement previously filed with the
SEC, other than (A) any registration statement on Form S-8 and (B) any
registration statement or amendment which the Company is required to file, or as
to which the Company is required to request acceleration, pursuant to any
obligation in effect on the date of execution and delivery of this
Agreement.

    


    (3) If at any
time or from time to time after the Closing Date any Investor shall hold or be
the beneficial owner of any Registrable Securities, other than those Registrable
Securities included in the Registration Statement that the Company is required
to file under Section 8(a)(1), which Registrable Securities are not covered by a
Registration Statement, then promptly following the written demand of any
Investor following the issuance of such additional Registrable Securities or the
issuance of any securities convertible into, exchangeable for, or otherwise
entitling an Investor to acquire, such additional Registrable Securities, and in
any event within 30 days following such demand, the Company shall prepare and
file with the SEC a new Registration Statement on Form S-3 (or, if Form S-3 is
not then available to the Company, on such form of registration statement as is
then available to effect a registration for resale of such additional
Registrable Securities) covering the resale by such Investor of such additional
Registrable Securities. Such Registration Statement also shall cover, to the
extent permitted by the 1933 Act and the rules promulgated thereunder (including
Rule 416), such indeterminate number of additional securities resulting from
stock splits, stock dividends or similar transactions with respect to such
additional Registrable Securities. Nothing herein shall limit the Company’s
obligations or any Investor’s rights under Section 6.4 of the Note or Section 9
of the Warrant.

    


    
      
        
        

      

      
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    (4) If a
Payment Event occurs, then the Company will make payments to the Buyer, in
immediately available funds in lawful money of the United States, as partial
liquidated damages for the minimum amount of damages to the Buyer by reason
thereof, and not as a penalty, which payments shall accrue at the rate of 1.0%
per month of the principal amount of the Note at the time outstanding during
each Payment Period. Each such payment shall be due and payable within five
Business Days after the end of each calendar month during which any Payment
Period occurs until the termination of such Payment Period and within five
Business Days after such termination. Such payments shall be in partial
compensation to the Buyer, and shall not constitute the Buyer’s exclusive remedy
for any Payment Event. A particular Payment Period shall terminate upon (u) the
filing of the applicable Registration Statement, in the case of clause (i) of
the definition of “Payment Event”; (v) the applicable SEC Effective Date for the
particular Registration Statement, in the case of clause (ii) or (iii) of the
definition of “Payment Event”; (w) the ability of the Buyer to effect sales
pursuant to the applicable Registration Statement, in the case of clause (iv) of
the definition of “Payment Event”; (x) the listing or inclusion and/or trading
of the Common Stock on a Trading Market, as the case may be, in the case of
clause (v) of the definition of “Payment Event”; (y) the issuance and delivery
of the shares, in the case of clause (vi) of the definition of “Payment Event”;
and (z) in the case of the events described in clauses (ii), (iii) and (iv) of
the definition of “Payment Event”, the earlier termination of the Registration
Period, and in each such case in the preceding clauses (u) thorough (z), any
Payment Period that commenced by reason of the occurrence of any Payment Event
shall terminate if at the time (1) no other Payment Event is continuing or (2)
subject to the rights of any transferee under Section 10(j), the Buyer no longer
holds any portion of the Note or any Registrable Securities. Notwithstanding any
other provision of this Section 8(a)(4) to the contrary, the Company shall not
be obligated to make any payments hereunder for Payment Periods in excess of an
aggregate of 548 days. If the Company fails to pay any liquidated damages
pursuant to this Section in full within three days after the date payable, the
Company will pay interest thereon at a rate of 16% per annum (or such lesser
rate as is the highest rate permitted by applicable law) to the Buyer, accruing
daily from the date such liquidated damages are due until such amounts, plus all
such interest thereon, are paid in full.

    


    (b) Obligations of the Company. 
In
connection with the registration of the Registrable Securities, the Company
shall:

    


    (1) use its
best efforts to cause each Registration Statement to become effective as
promptly as possible after the filing thereof and to
keep such Registration Statement effective at all times during the Registration
Period. The Company shall submit to the SEC, within three Business Days after
the Company learns that no review of such Registration Statement will be made by
the staff of the SEC or that the staff of the SEC has no further comments on
such Registration Statement, as the case may be, a request for acceleration of
effectiveness of such Registration Statement to a time and date not later than
48 hours after the submission of such request. The Company represents and
warrants to the Investors that (a) each Registration Statement (including any
amendment or supplement thereto and prospectus contained therein), at the time
it is first filed with the SEC, at the time it is ordered effective by the SEC
and at all times during which it is required to be effective hereunder (and each
such amendment and supplement at the time it is filed with the SEC and at all
times during which it is available for use in connection with the offer and sale
of the Registrable Securities) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (b) each Prospectus,
at the time the related Registration Statement is declared effective by the SEC
and at all times that such Prospectus is required by this Agreement to be
available for use by any Investor and, in accordance with Section 8(c)(4), any
Investor is entitled to sell Registrable Securities pursuant to such Prospectus,
shall not contain any 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 in which they were made, not
misleading;

    


    
      
        
        

      

      
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    (2) subject
to Section 8(b)(5), prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to each Registration Statement and
Prospectus as may be necessary to keep such Registration Statement effective,
and such Prospectus current, at all times during the Registration Period, and,
during the Registration Period (other than during any Blackout Period during
which the provisions of Section 8(b)(5)(B) are applicable), comply with the
provisions of the 1933 Act applicable to the Company in order to permit the
disposition by the Investors of all Registrable Securities covered by such
Registration Statement;

    


    (3) furnish
to Investors whose Registrable Securities are included in a particular
Registration Statement and such Investors’ respective legal counsel, promptly
after the same is prepared and publicly distributed, filed with the SEC or
received by the Company, (1) one conformed copy of such Registration Statement
and any amendment thereto and the related Prospectus and each amendment or
supplement thereto and (2) such number of copies of such Prospectus and all
amendments and supplements thereto and such other documents, as such Investor
may reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Investor; and notify the Investor and its legal counsel
within one Business Day after the same is filed with the SEC, or received by the
Company, of the filing or receipt of each letter written by or on behalf on the
Company to the SEC or the staff of the SEC, and each item of correspondence from
the SEC or the staff of the SEC, in each case relating to such Registration
Statement (other than any portion of any thereof which contains information for
which the Company has sought confidential treatment), and permit counsel
designed by the Investor to review letters and items of correspondence upon the
request of such counsel;

    


    (4) subject
to Section 8(b)(5), use its best efforts (i) to register and qualify the
Registrable Securities covered by each Registration Statement under the
securities or blue sky laws of such jurisdictions as any Investor who owns or
holds any Registrable Securities reasonably requests, (ii) to prepare and to
file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof at all times during the
Registration Period and (iii) to take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale by the Investors in
such jurisdictions; provided,
however, that the
Company shall not be required in connection therewith or as a condition thereto
(I) to qualify to do business in any jurisdiction where it would not otherwise
be required to qualify but for this Section 8(b)(4), (II) to subject itself to
general taxation in any such jurisdiction, (III) to file a general consent to
service of process in any such jurisdiction, (IV) to provide any undertakings
that cause more than nominal expense or burden to the Company or (V) to make any
change in its certificate or article of incorporation or by-laws which the Board
of Directors of the Company determines to be contrary to the best interests of
the Company and its stockholders;

    


    
      
        
        

      

      
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    (5) (A) as
promptly as practicable after becoming aware of such event or circumstance,
notify each Investor of the occurrence of any event or circumstance of which the
Company has knowledge (x) as a result of which any Prospectus, as then in
effect, includes an untrue statement of a material fact or omits 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, (y) which requires the Company to amend or supplement any
Registration Statement due to the receipt from an Investor or any other selling
stockholder named in the Prospectus of new or additional information about such
Investor or selling stockholder or its intended plan of distribution of its
Registrable Securities or other securities covered by such Registration
Statement, or (z) which requires the Company to amend or supplement any
Registration Statement pursuant to the Company’s undertakings as set forth in
the Registration Statement and in Item 512 of Regulation S-K under the 1933 Act,
and use its best efforts promptly to prepare a supplement or amendment to such
Registration Statement and Prospectus to correct such untrue statement or
omission or to add any new or additional information, and deliver a number of
copies of such supplement or amendment to each Investor as such Investor may
reasonably request;

    


    (B) notwithstanding
Section 8(b)(5)(A) above, if at any time the Company notifies the Investors as
contemplated by Section 8(b)(5)(A) with respect to a particular Registration
Statement or Prospectus the Company also notifies the Investors that the event
giving rise to such notice relates to a development involving the Company which
occurred subsequent to the later of (x) the SEC Effective Date of the applicable
Registration Statement and (y) the latest date prior to such notice on which the
Company has amended or supplemented such Registration Statement, then the
Company shall not be required to use best efforts to make such amendment during
a Blackout Period; provided,
however, that in
any period of 365 consecutive days the Company shall not be entitled to avail
itself of its rights under this Section 8(b)(5)(B) with respect to more than two
Blackout Periods; and provided further, however,
that no
Blackout Period may commence sooner than 90 days after the end of an earlier
Blackout Period;

    


    (6) as
promptly as practicable after becoming aware of such event, notify each Investor
who holds Registrable Securities being offered or sold pursuant to a particular
Registration Statement of the issuance by the SEC of any stop order or other
suspension of effectiveness of such Registration Statement at the earliest
possible time;

    


    (7) permit
the Investors who hold Registrable Securities being included in a particular
Registration Statement (or their designee) and their counsel to review and have
a reasonable opportunity to comment on such Registration Statement and any
related Prospectus and all amendments and supplements thereto at least two
Business Days prior to their filing with the SEC;

    


    
      
        
        

      

      
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    (8) make
generally available to its security holders as soon as practical, but not later
than 90 days after the close of the period covered thereby, an earning statement
(in form complying with the provisions of Rule 158 under the 1933 Act) covering
a 12-month period beginning not later than the first day of the Company’s fiscal
quarter next following the SEC Effective Date of each Registration
Statement;

    


    (9) make
available for inspection by any Investor and any Inspector retained by such
Investor, at such Investor’s sole expense, all Records as shall be reasonably
necessary or appropriate to enable such Investor to exercise due diligence for
purposes of the 1933 Act and the 1934 Act as it relates to the Registration
Statement and cause the Company’s and the Subsidiaries officers, directors and
employees to supply all information which such Investor or Inspector may
reasonably request for purposes of such due diligence; provided, however,
that such
Investor shall hold in confidence and shall not make any disclosure of any
Record or other information which the Company determines in good faith to be
confidential, and of which determination such Investor is so notified, unless
(i) the disclosure of such Record is necessary to avoid or correct a
misstatement or omission in a Registration Statement or Prospectus and a
reasonable time prior to such disclosure the Investor shall have notified the
Company of the need to so correct such misstatement or omission and the Company
shall have failed to correct such misstatement or omission, (ii) the release of
such Record is ordered pursuant to a subpoena or other order from a court or
governmental body of competent jurisdiction or (iii) the information in such
Record has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into a confidentiality agreement
with the Company with respect thereto, substantially in the form of this Section
8(b)(9), which agreement shall permit such Inspector to disclose Records to the
Investor who has retained such Inspector. Each Investor agrees that it shall,
upon learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at the Company’s expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential. The Company shall hold in confidence
and shall not make any disclosure of information concerning an Investor provided
to the Company pursuant to this Agreement unless (i) the disclosure of such
information is necessary to comply with federal or state securities laws, (ii)
the disclosure of such information is necessary to avoid or correct a
misstatement or omission in a Registration Statement or the related Prospectus,
(iii) the release of such information is ordered pursuant to a subpoena or other
order from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor and
allow such Investor, at such Investor’s expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, such
information;

    


    (10) use its
best efforts to cause all the Registrable Securities covered by a particular
Registration Statement as of the SEC Effective Date of such Registration
Statement to be listed, quoted or traded on the principal securities market on
which securities of the same class or series issued by the Company are then
listed, quoted or traded;

    


    
      
        
        

      

      
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    (11) provide a
transfer agent and registrar, which may be a single entity, for the Registrable
Securities at all times;

    


    (12) cooperate
with the Investors who hold Registrable Securities being offered pursuant to a
particular Registration Statement to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legends) representing
Registrable Securities to be offered pursuant to such Registration Statement and
enable such certificates to be in such denominations or amounts as the Investors
may reasonably request and registered in such names as the Investors may
request; and, not later than the SEC Effective Date of such Registration
Statement, the Company shall cause legal counsel selected by the Company to
deliver to the Investors whose Registrable Securities are included in the
Registration Statement opinions of counsel in form and substance as is
customarily given to underwriters in an underwritten public offering;


    


    (13) advise
the Investors in writing on the date that the Registration Statement is declared
effective by the SEC that the form of Prospectus contained in the Registration
Statement at the time of effectiveness meets the requirements of Section 10(a)
of the 1933 Act or that it intends to file a Prospectus pursuant to Rule 424(b)
that meets the requirements of Section 10(a) of the 1933 Act;

    


    (14) during
the Registration Period, the Company shall not bid for or purchase any Common
Stock or any right to purchase Common Stock or attempt to induce any Person to
purchase any such security or right if such bid, purchase or attempt would in
any way limit the right of the Investors to sell Registrable Securities by
reason of the limitations set forth in Regulation M under the 1934 Act;
and

    


    (15) take all
other reasonable actions necessary to expedite and facilitate disposition by the
Investors of the Registrable Securities pursuant to the Registration Statement
relating thereto.

    


    (c) Obligations of the Buyer and other
Investors.  In
connection with the registration of the Registrable Securities, the Investors
shall have the following obligations:

    


    (1) It shall
be a condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Investor that such Investor shall furnish to the
Company completed Selling Securityholder Questionnaire in the form attached
hereto as Exhibit A and
shall execute such other documents in connection with such registration as the
Company may reasonably request.

    


    (2) Each
Investor by such Investor’s acceptance of the Registrable Securities agrees to
cooperate with the Company as reasonably requested by the Company in connection
with the preparation and filing of each Registration Statement hereunder that
covers such Registrable Securities, unless such Investor has notified the
Company of such Investor’s election to exclude all of such Investor’s
Registrable Securities from such Registration Statement;

    


    
      
        
        

      

      
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    (3) Each
Investor agrees that it will not effect any disposition of the Registrable
Securities except as contemplated in the applicable Registration Statement or
Prospectus or as otherwise is in compliance with applicable securities laws and
that it will promptly notify the Company of any material changes in the
information set forth in the Registration Statement regarding such Investor or
its plan of distribution before selling any Registrable Securities pursuant to
such Registration Statement or Prospectus subsequent to such material change;
each Investor agrees (a) to notify the Company in writing in the event that such
Investor enters into any material agreement with a broker or a dealer for the
sale pursuant to a Registration Statement of Registrable Securities through a
block trade, special offering, exchange distribution or a purchase by a broker
or dealer and (b) in connection with such agreement, to provide to the Company
in writing the information necessary to prepare any supplemental Prospectus
pursuant to Rule 424(c) under the 1933 Act which is required with respect to
such transaction; and

    


    (4) Each
Investor acknowledges that there may occasionally be times as specified in
Section 8(b)(5) or 8(b)(6) when the Company must suspend the use of a Prospectus
until such time as an amendment to the related Registration Statement has been
filed by the Company and declared effective by the SEC, the Company has prepared
a supplement to such Prospectus or the Company has filed an appropriate report
with the SEC pursuant to the 1934 Act. Each Investor hereby covenants that it
will not sell any Registrable Securities pursuant to such Prospectus during the
period commencing at the time at which the Company gives such Investor notice of
the suspension of the use of such Prospectus in accordance with Section 8(b)(5)
or 8(b)(6) and ending at the time the Company gives such Investor notice that
such Investor may thereafter effect sales pursuant to the Prospectus, or until
the Company delivers to such Investor or files with the SEC an amended or
supplemented Prospectus.

    


    (d) Rule 144. 
 With a
view to making available to each Investor the benefits of Rule 144, the Company
agrees:

    


    (1) so long
as any Investor owns Registrable Securities, promptly upon request of such
Investor, to furnish to such Investor such information as may be necessary to
permit such Investor to sell Registrable Securities pursuant to Rule 144 without
registration and otherwise reasonably to cooperate with such Investor
and

    


    (2) if at any
time the Company is not required by applicable law or this Agreement to file
reports with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, to use its
best efforts, upon the request of an Investor, to make publicly available other
information so long as is necessary to permit publication by brokers and dealers
of quotations for the Common Stock and sales of the Registrable Securities in
accordance with Rule 15c2-11 under the 1934 Act.

    


    9. INDEMNIFICATION AND
CONTRIBUTION.

    


    (a) Indemnification. 
(1) To
the extent not prohibited by applicable law, the Company will indemnify and hold
harmless each Indemnified Person against any Claims to which any of them may
become subject under the 1933 Act, the 1934 Act or otherwise, insofar as such
Claims (or actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon any Violation. Subject to the
restrictions set forth in Section 9(a)(3) with respect to the number of legal
counsel, the Company shall  reimburse the

     

    
      
        
        

      

      
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     Investors
and each such controlling Person, promptly as such expenses are incurred and are
due and payable, for any documented reasonable legal fees or other documented
and reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 9(a)(1) shall
not apply to: (I) a Claim arising out of or based upon a Violation which occurs
in reliance upon and in conformity with information relating to an Indemnified
Person furnished in writing to the Company by such Indemnified Person or an
underwriter for such Indemnified Person expressly for use in connection with the
preparation of any Registration Statement or any such amendment thereof or
supplement thereto; (II) any Claim arising out of or based on any statement or
omission in any Prospectus, which statement or omission was corrected in any
subsequent Prospectus that was delivered to the Indemnified Person prior to the
pertinent sale or sales of Registrable Securities by such Indemnified Person;
and (III) amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors.

    


    (2) In
connection with each Registration Statement, each Investor who is named as a
selling stockholder in such Registration Statement agrees to indemnify and hold
harmless, to the same extent and in the same manner set forth in Section
9(a)(1), each Indemnified Party against any Claim to which any of them may
become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such
Claim arises out of or is based upon any Violation, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement or any
amendment thereof or supplement thereto; and such Investor will reimburse any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such Claim; provided,
however, that
the indemnity agreement contained in this Section 9(a)(2) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Investor; provided,
further,
however, that an
Investor shall be liable under this Section 9(a)(2) for only that amount of all
Claims in the aggregate as does not exceed the amount by which the proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement exceeds the amount paid by such Investor for such
Registrable Securities or for the Common Stock Equivalents pursuant to which
such Registrable Securities were issued, as the case may be. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 9(a)(2) with respect to any preliminary prospectus shall not inure to
the benefit of any Indemnified Party if the untrue statement or omission of
material fact contained in such preliminary prospectus was corrected on a timely
basis in the related Prospectus, as then amended or supplemented.

    


    
      
        
        

      

      
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    (3) Promptly
after receipt by an Indemnified Person or Indemnified Party under this Section
9(a) of notice of the commencement of any action (including any governmental
action), such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section
9(a), deliver to the indemnifying party a notice of the commencement thereof and
the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
reasonably satisfactory to the Indemnified Person or the Indemnified Party, as
the case may be; provided,
however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding, in which case the
indemnifying party shall not be responsible for more than one such separate
counsel, and one local counsel in each jurisdiction in which an action is
pending, for all Indemnified Persons or Indemnified Parties, as the case may be.
The failure to deliver notice to the indemnifying party within a reasonable time
of the commencement of any such action shall not relieve such indemnifying party
of any liability to the Indemnified Person or Indemnified Party under this
Section 9(a), except to the extent that the indemnifying party is prejudiced in
its ability to defend such action. The indemnification required by this Section
9(a) shall be made by periodic payments of the amount thereof during the course
of the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.

    


    (b) Contribution.
To the
extent any indemnification by an indemnifying party as set forth in Section 9(a)
above is applicable by its terms but is prohibited or limited by law, the
indemnifying party agrees to make the maximum contribution with respect to any
amounts for which it would otherwise be liable under Section 9(a) to the fullest
extent permitted by law. In determining the amount of contribution to which the
respective parties are entitled, there shall be considered the relative fault of
each party, the parties’ relative knowledge of and access to information
concerning the matter with respect to which the claim was asserted, the
opportunity to correct and prevent any statement or omission and any other
equitable considerations appropriate under the circumstances; provided,
however, that
(a) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 9(a), (b) no Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any other Person who was not guilty of such fraudulent misrepresentation and (c)
the aggregate contribution by any seller of Registrable Securities shall be
limited to the amount by which the proceeds received by such seller from the
sale of such Registrable Securities exceeds the amount paid by such Investor for
such Registrable Securities or for the Common Stock Equivalents pursuant to
which such Registrable Securities were issued, as the case may be.

    


    (c) Other Rights.
The
indemnification and contribution provided in this Section shall be in addition
to any other rights and remedies available at law or in equity.

     

     

    
      
        
        

      

      
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    10. MISCELLANEOUS.

    


    (a)  Governing Law. 
THIS
AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.

    


    (b) Headings. 
 The
headings, captions and footers of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.

    


    (c) Severability.
 If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.

    


    (d) Notices. 
 Any
notices required or permitted to be given under the terms of this Agreement
shall be in writing and shall be sent by certified mail, personal delivery,
telephone line facsimile transmission or courier and shall be effective five
days after being placed in the mail, if mailed, or upon receipt, if delivered
personally, by telephone line facsimile transmission or by courier, in each case
addressed to a party at such party’s address (or telephone line facsimile
transmission number) shown in the introductory paragraph or on the signature
page of this Agreement or such other address (or telephone line facsimile
transmission number) as a party shall have provided by notice to the other party
in accordance with this provision. In the case of any notice to the Company,
such notice shall be addressed to the Company at its address shown in the
introductory paragraph of this Agreement, Attention: Chief Executive Officer
(telephone line facsimile number (425) 749-3601).

    


    (e) Counterparts. 
This
Agreement may be executed in counterparts and by the parties hereto on separate
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument. A telephone line
facsimile transmission of this Agreement bearing a signature on behalf of a
party hereto shall be legal and binding on such party. Although this Agreement
is dated as of the date first set forth above, the actual date of execution and
delivery of this Agreement by each party is the date set forth below such
party’s signature on the signature page hereof. Any reference in this Agreement
or in any of the documents executed and delivered by the parties hereto in
connection herewith to (1) the date of execution and delivery of this Agreement
by the Buyer shall be deemed a reference to the date set forth below the Buyer’s
signature on the signature page hereof, (2) the date of execution and delivery
of this Agreement by the Company shall be deemed a reference to the date set
forth below the Company’s signature on the signature page hereof and (3) the
date of execution and delivery of this Agreement, or the date of execution and
delivery of this Agreement by the Buyer and the Company, shall be deemed a
reference to the later of the dates set forth below the signatures of the
parties on the signature page hereof.

    


    (f) Entire Agreement; Benefit. 
This
Agreement, including the Annexes, Schedules and Exhibits hereto, constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof. There are no restrictions, promises, warranties, or undertakings, other
than those set forth or referred to herein and in the Annexes and Exhibits. This
Agreement, including the Annexes and Exhibits, supersedes all prior agreements
and understandings, whether written or oral, between the parties hereto with
respect to the subject matter hereof. This Agreement and the terms and
provisions hereof are for the sole benefit of only the Company, the Buyer and
their respective successors and permitted assigns.

    


    
      
        
        

      

      
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    (g) Waiver. 
Failure
of any party to exercise any right or remedy under this Agreement or otherwise,
or delay by a party in exercising such right or remedy, or any course of dealing
between the parties, shall not operate as a waiver thereof or an amendment
hereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or exercise of any other right or
power. 

    


    (h) Amendment. 
(1) No
amendment, modification, waiver, discharge or termination of any provision of
this Agreement on or prior to the Closing Date nor consent to any departure by
the Buyer or the Company therefrom on or prior to the Closing Date shall in any
event be effective unless the same shall be in writing and signed by the party
to be charged with enforcement, and in any such case shall be effective only in
the specific instance and for the purpose for which given.

    


    (2) No
amendment, modification, waiver, discharge or termination of any provision of
this Agreement after the Closing Date nor consent to any departure by the
Company therefrom after the Closing Date shall in any event be effective unless
the same shall be in writing and signed (x) by the Company, if the Company is to
be charged with enforcement or (y) by the Majority Holders, if the Buyer is to
be charged with enforcement, and in any such case shall be effective only in the
specific instance and for the purpose for which given but shall nonethless bind
the Buyer and its transferees, successors and assigns; provided, however, that no
such amendment modification, waiver, discharge or termination which (i)
increases the Buyer’s liability, (ii) amends this Section 10(h) or (iii)
adversely affects the Buyer’s rights under Sections 5(a), 5(b), 5(c), 5(d),
5(e), 5(f), 5(j), 5(k), 5(l), 5(m), 8(a), 8(b) and 9, shall be effective unless
in writing signed by the Buyer. 

    


    (3) No course
of dealing between the parties hereto shall operate as an amendment of this
Agreement.

    


    (i) Further Assurances. 
Each
party to this Agreement will perform any and all acts and execute any and all
documents as may be necessary and proper under the circumstances in order to
accomplish the intents and purposes of this Agreement and to carry out its
provisions.

    


    (j) Assignment of Certain Rights and
Obligations.  The
rights of an Investor under Sections 5(a), 5(b), 8, 9, and 10 of this Agreement
shall be automatically assigned by such Investor to any transferee of all or any
portion of such Investor’s Registrable Securities (or all or any portion of the
Note or the Warrant) if: (1) such Investor agrees in writing with such
transferee to assign such rights, and a copy of such agreement is furnished to
the Company within a reasonable time after such assignment, (2) the Company is,
within a reasonable
time after such transfer, furnished with notice of (A) the name and address of
such transferee and (B) the securities with respect to which such rights and
obligations are being
transferred, (3) in  the case of assignment of  rights under Section
8,  immediately following such transfer or assignment the  further
disposition of Registrable Securities by the 

     

    
      
        
        

      

      
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    transferee
or assignee is restricted under the 1933 Act and applicable state securities
laws, (4) at or before the time the Company received the notice contemplated by
clause (2) of this sentence the transferee agrees in writing with the Company to
be bound with respect to such assigned securities by such of the provisions
contained in Sections 5(a), 5(b), 8, 9, and 10 hereof as shall have been so
assigned to such transferee and (5) if Section 5(a) shall be applicable to such
transfer, such Investor shall have complied with Section 5(a). Upon any such
transfer, the Company shall be obligated to such transferee to perform all of
its covenants under Sections 5(a), 5(b), 8, 9, and 10 of this Agreement, to the
extent the same have been so assigned to such transferee, as if such transferee
were the Buyer. In connection with any such transfer the Company shall, at its
sole cost and expense, promptly after such transfer take such actions as shall
be reasonably acceptable to the transferring Investor and such transferee to
assure that each Registration Statement and related Prospectus for which the
transferring Investor is a selling stockholder are or become available for use
by such transferee for sales of the Registrable Securities in respect of which
such rights and obligations have been so transferred. 

    


    (k) Expenses. 
The
Company shall be responsible for its expenses (including, without limitation,
the legal fees and expenses of its counsel), incurred by it in connection with
the negotiation and execution of, and closing under, and performance of, this
Agreement. Whether or not the closing occurs, the Company shall be obligated to
pay or reimburse the legal fees and expenses and out-of-pocket due diligence
expenses of Alexandra Global Master Fund Ltd., not in excess of $40,000, in
connection with the negotiation and execution of, and closing under, this
Agreement. All expenses incurred in connection with registrations, filings or
qualifications pursuant to Sections 5(d), 5(e), 5(g) and 8 of
this Agreement shall be paid by the Company, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees and
the fees and disbursements of counsel for the Company but excluding (a) fees and
expenses of investment bankers or other advisors retained by any Investor and
(b) brokerage commissions incurred by any Investor. The Company shall pay
promptly upon demand all expenses incurred by the Buyer after the Closing Date,
including reasonable attorneys’ fees and expenses, as a consequence of, or in
connection with (1) the negotiation, preparation or execution of any amendment,
modification or waiver of any of the Transaction Documents, (2) any default or
breach of any of the Company’s representations, warranties, covenants or
obligations set forth in any of the Transaction Documents, and (3) the
enforcement or restructuring of any right of, including the collection of any
payments due, the Buyer under any of the Transaction Documents, including,
without limitation, any action or proceeding relating to such enforcement or any
order, injunction or other process seeking to restrain the Company from paying
any amount due the Buyer. Except as otherwise provided in Section 9 and this
Section 10(k), each of the Company and the Buyer shall bear its own expenses in
connection with this Agreement and the transactions contemplated hereby.


    


    (l) Termination. 
(1) The
Buyer shall have the right to terminate this Agreement by giving notice to the
Company at any time at or prior to the Closing Date if:

    


    
      
        
        

      

      
        44

        
          

        

      

      
        
        

      

    

    (A) the
Company shall have failed, refused, or been unable at or prior to the date of
such termination of this Agreement to perform any of its obligations hereunder
required to be performed prior to the time of such termination;

    


    (B) any
condition to the Buyer’s obligations hereunder is not fulfilled at or prior to
the time such condition is required to be satisfied; or

    


    (C) the
closing shall not have occurred on a Closing Date on or before July 21, 2006,
other than solely by reason of a breach of this Agreement by the
Buyer.

     

    Any such
termination shall be effective upon the giving of notice thereof by the Buyer.
Upon such termination, the Buyer shall have no further obligation to the Company
hereunder and the Company shall remain liable for any breach of this Agreement
or the other documents contemplated hereby which occurred on or prior to the
date of such termination.

    


    (2) The
Company shall have the right to terminate this Agreement by giving notice to the
Buyer at any times at or prior to the Closing Date if the closing shall not have
occurred on a Closing Date on or before July 21, 2006, other than solely by
reason of a breach of this Agreement by the Company, so long as the Company is
not in breach of this Agreement at the time it gives such notice. Any such
termination shall be effective upon the giving of notice thereof by the Company.
Upon such termination, neither the Company nor the Buyer shall have any further
obligation to one another hereunder, except for the Company’s liability for the
Buyer’s expenses as provided in Section 10(k).

    


    (m) Survival. 
The
respective representations, warranties, covenants and agreements of the Company
and the Buyer contained in this Agreement and the documents delivered in
connection with this Agreement shall survive the execution and delivery of this
Agreement and the other Transaction Documents and the closing hereunder and
delivery of and payment for the Note and the issuance of the Warrant, and shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Buyer or any Person controlling or acting on behalf of the Buyer
or by the Company or any Person controlling or acting on behalf of the
Company.

    


    (n) Construction; Buyer Status. 
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. The Buyer is not acting as part of a “group” (as
that term is used in Section 13(d) of the 1934 Act) with any other Person who is
or proposes to become a party to any Other Note Purchase Agreement, or who is
acquiring or holds any Other Note or Other Warrant, in negotiating and entering
into this Agreement or purchasing the Note and the Warrant or acquiring,
disposing of or voting any of the Shares. The Company hereby confirms that it
understands and agrees that the Buyer is not acting as part of any such group.
If the Buyer is other than AGMF, such Buyer acknowledges and agrees that such
Buyer is not relying on AGMF or AGMF’s legal counsel in making a decision to
enter into this Agreement, purchase the Note, acquire the Warrant or otherwise
in connection with the Transaction Documents, and such legal counsel are not
acting as the Buyer’s legal counsel in connection therewith.

    


    


    
      
        
        

      

      
        45

        
          

        

      

      
        
        

      

    

     

     

     

    [Signature pages
follow]

     

     

     

     

     

     

     

     

    
 

    
      
        
        

      

      
        46

        
          

        

      

      
        
        

      

    

     

     

    IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be duly executed by their
respective officers or other representatives thereunto duly authorized on the
respective dates set forth below their signatures hereto.

    


    Purchase
Price: $

    Principal
Amount of Note: $

    Initial
Conversion Price of Note: $0.26 

    Warrant
Shares Initially 

    Issuable
Upon Exercise of Warrant: 

    Initial
Exercise Price of Warrant: $0.36

     

     

    
      	 	 	 
	 	EMAGIN
    CORPORATION
	 
 	 
 	 
 
	Date: July 21,
      2006	By:  	/s/ Gary W.
      Jones
	 	
              
      Gary W.
      Jones
	 	Chief Executive
      Officer


    

     

    With a
copy to:

     

    
      	 	 	 
	 	
              Sichenzia Ross
      Friedman Ference LLP

              1065
      Avenue of the Americas, 21st
      Floor

              New
      York, New York 10018

              Attention:
      Richard A. Friedman, Esq.

               

              Facsimile
      No: (212) 930-9725

            
	 
 	
              
  
THE BUYER:

               

              [NAME]

               

               

            
	 	By:  	[NAME], 
	 	
              its Investment
      Advisor

            
	 	 


    

     

    
      	 	 	 
	 	 
	 
 	 
 	 
 
	 	By:  	 
	 	
              
      Name:
      
	 	
              Title 

              Date:
      July 21, 2006

            


    

     

     

     

    
      
        
        

      

      
        47

        
          

        

      

      
        
        

      

    

     

     

     

     

     

    Address
for Notices:

    


    


    



    
      
        
        

      

      
        48

        
          

        

      

      
        
        

        
          


        

      

    



    eMagin
Corporation

     

    Selling Securityholder
Questionnaire

     

    The
undersigned beneficial owner (the “Selling Securityholder”) of Common Stock, par
value $.001 per share, of eMagin Corporation, a Delaware corporation (the
“Company”), understands that the Company intends to file with the Securities and
Exchange Commission (the “SEC”) a registration statement (the “Registration
Statement”) for registration of the resale under the Securities Act of 1933, as
amended (the “Securities Act”), of such securities (the “Registrable
Securities”). This Questionnaire is delivered pursuant to the terms of the Note
Purchase Agreement, dated as of July 21, 2006 (the
“Purchase Agreement”), between the Company and the Buyer named therein. All
capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Purchase Agreement.

     

    Certain
legal consequences arise from being named as a selling securityholder in the
Registration Statement and the related prospectus. Accordingly, the Selling
Securityholder is advised to consult its own securities law counsel regarding
the consequences of being named or not being named as a selling securityholder
in the Registration Statement and the related prospectus.

     

    The
Selling Securityholder hereby provides the following information to the Company
in connection with the Company’s preparation of the Registration
Statement:

     

    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 the natural person who directly or indirectly has power to
      vote or dispose of the Registrable Securities listed in Item 3
      below:

            


    

     

    
      

    

     

    2.     Address for Notices to Selling
Securityholder:

     

    Complete
the following only if the Selling Securityholder wishes to receive notices
relating to the Registration at a different address or to a different person
than the current notice address for purposes of the Purchase
Agreement.

     

    
      

    

    
      

    

    
      

    

     

    
      
        
        

      

      
        A-1

        
          

        

      

      
        
        

      

    

     

    Telephone: ________________________________________________ 

    Fax:
______________________________________________________

    Contact
Person: _____________________________________________

    


    3.     Beneficial Ownership of Registrable
Securities:

     

    
      	 	
              (a)

            	
              Number
      of Registrable Securities (all of which are shares of Common Stock)
      beneficially owned:

            


    

    
       

      
        

      

      
        

      

      
        

      

       

    

     

    4.     Broker-Dealer
Status:

     

    
      	 	
              (a)

            	
              Are
      you a broker-dealer?

            


    

     

    Yes
__ No
__

     

    
      	 	
              Note:

            	
              If
      yes, the SEC 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 SEC staff has indicated that you should be identified as an
      underwriter in the Registration
Statement.

            


    

     

    
      	
              5.

            	
              Other Beneficial Ownership of
      Common Stock by the Selling
  Securityholder.

            


    

     

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

     

     

    
      
        
        

      

      
        A-2

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (a)

            	
              Number
      of other shares of Common Stock held of record or beneficially owned by
      the Selling Securityholder:

            


    

     

    
      
        

      

      
        

      

      
        

      

    

     

    6. Relationships with the
Company:

     

    Except for the Purchase Agreement
and transactions related thereto and except as set forth below, the Selling
Securityholder has not held any position or office or had any other material
relationship with the Company (or its predecessors or affiliates) during the
past three years.

     

    State any
exceptions here:

     

    
      
        

      

      
        

      

    

     

    The
Selling Securityholder’s obligations with respect to the information it provides
in response to this Questionnaire are set forth in Section 8(c) of the Purchase
Agreement.

     

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

     

     

     

    
      	 Dated:________________________________	
                Beneficial
      Owner:_________________________________  

            
	 	
              By:____________________________________________ 

            
	 	
               
      Name: 

            
	 	
               
      Title: 

            
	 	 


    

           

    
 

    PLEASE FAX OR E-MAIL THE
COMPLETED

    AND EXECUTED QUESTIONNAIRE
TO:

    


    Sichenzia
Ross Friedman Ference LLP

    1065
Avenue of the Americas, 21st
Floor

    New York,
New York 10018

    Attention:
Richard A. Friedman, Esq.

    e-Mail
address: rfriedman@srff.com

     

     

    A-3