SECURITIES
      PURCHASE AGREEMENT

     

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

     

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

     

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

     

    ARTICLE
      I.

    DEFINITIONS

     

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

     

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

     

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

     

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

     

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

     

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

     

    “Closing
      Price”
means
      on any particular date (a) the last reported closing bid price per share of
      Common Stock on such date on the Trading Market (as reported by Bloomberg L.P.
      at 4:15 p.m. (New York City time)), or (b) if there is no such price on such
      date, then the closing bid price on the Trading Market on the date nearest
      preceding such date (as reported by Bloomberg L.P. at 4:15 p.m. (New York City
      time)), or (c)  if the Common Stock is not then listed or quoted on the
      Trading Market and if prices for the Common Stock are then reported in the
“pink
      sheets” published by Pink Sheets LLC (or a similar organization or agency
      succeeding to its functions of reporting prices), the most recent bid price
      per
      share of the Common Stock so reported, or (d) if the shares of Common Stock
      are not then publicly traded the fair market value of a share of Common Stock
      as
      determined by an appraiser selected in good faith by the Purchasers of a
      majority in interest of the Shares then outstanding.

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    “Commission”
means
      the Securities and Exchange Commission.

     

    “Common
      Stock”
means
      the common stock of the Company, par value $0.001 per share, and any other
      class
      of securities into which such securities may hereafter be reclassified or
      changed into. 

     

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

     

    “Company
      Counsel”
means
      Richardson & Patel, LLP.

     

    “Disclosure
      Schedules”
means
      the Disclosure Schedules of the Company delivered concurrently herewith.


     

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

     

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

     

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

    


    “Exempt
      Issuance”
means
      the issuance of (a) shares of Common Stock or options to employees, officers
      or
      directors of the Company pursuant to any stock or option plan duly adopted
      by a
      majority of the non-employee members of the Board of Directors of the Company
      or
      a majority of the members of a committee of non-employee directors established
      for such purpose, (b) securities upon the exercise or exchange of or conversion
      of any Securities issued hereunder and/or other 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 approved by a majority of the disinterested directors, provided
      that 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.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    “FW”
means
      Feldman Weinstein LLP with offices located at 420 Lexington Avenue, Suite 2620,
      New York, New York 10170-0002.

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    “Per
      Share Purchase Price”
equals
      $___,1 
      subject
      to adjustment for reverse and forward stock splits, stock dividends, stock
      combinations and other similar transactions of the Common Stock that occur
      after
      the date of this Agreement.

     

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

     

    “Placement
      Agent”
means
      T. R. Winston & Company, LLC.

     

    “Placement
      Agent Fee”
means
      a
      fee payable in cash at Closing in an amount equal to 5% of the aggregate
      Subscription Amounts paid by the Purchasers pursuant to this
      Agreement.

     

    “Placement
      Agent Warrant”
means
      a
      Common Stock purchase warrant to purchase up to a number of shares of Common
      Stock equal to 3% of the aggregate number of Shares purchased hereunder, with
      an
      exercise price equal to $___2 
      (subject
      to adjustment therein) and a term of exercise equal to 5 years, in the form
      of
Exhibit
      C
      attached
      hereto

     

     

      
        

      

    

    
      1 To
        be
        determined prior to Closing, but shall not be lower than
        $3.00.

    

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

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

     

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

     

    “Purchaser
      Party”
shall
      have the meaning ascribed to such term in Section 4.9.

     

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

     

    “Registration
      Statement”
means
      a
      registration statement meeting the requirements set forth in the Registration
      Rights Agreement and covering the resale by the Purchasers of the Shares and
      the
      shares underlying the Placement Agent Warrant. 

     

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

     

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

     

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

     

    “Securities
      Act”
means
      the Securities Act of 1933, as amended, and the rules and regulations
      promulgated thereunder.

     

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

     

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

     

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

     

     

      
        

      

    

    
      2 110%
        of
        the Per Share Purchase Price.

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

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

     

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

     

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

     

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

     

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

     

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

     

    “Transfer
      Agent”
means
      American Stock Transfer and Trust Company, with a mailing address of 59 Maiden
      Lane, New York, New York, 10038 and a facsimile number of (718) 921-8336, and
      any successor transfer agent of the Company.

     

    ARTICLE
      II.

    PURCHASE
      AND SALE

     

    2.1          
      Closing.
      On the
      Closing Date, upon the terms and subject to the conditions set forth herein,
      substantially concurrent with the execution and delivery of this Agreement
      by
      the parties hereto, the Company agrees to sell, and each Purchaser agrees to
      purchase in the aggregate, severally and not jointly, up to $___________ of
      Shares. Each Purchaser shall deliver to the Company via wire transfer or a
      certified check immediately available funds equal to their Subscription Amount
      and the Company shall deliver to each Purchaser their respective Shares as
      determined pursuant to Section 2.2(a) and the other items set forth in Section
      2.2 issuable at the Closing. Upon satisfaction of the conditions set forth
      in
      Sections 2.2 and 2.3, the Closing shall occur at the offices of FW or such
      other
      location as the parties shall mutually agree.

     

    2.2          
      Deliveries

     

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

     

                      
      (i)        this
      Agreement duly executed by the Company;

     

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

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

                      
      (iii)      a
      copy of
      the irrevocable instructions to the Company’s Transfer Agent instructing the
      Transfer Agent to deliver, on an expedited basis, a certificate evidencing
      a
      number of Shares equal to such Purchaser’s Subscription Amount divided by the
      Per Share Purchase Price, registered in the name of such Purchaser;

     

                      
      (iv)     the
      Placement Agent Fee by wire transfer to the account as specified in writing
      by
      the Placement Agent;

     

                      
      (v)      the
      Placement Agent Warrant, registered in the name of the Placement Agent;
      and

     

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

     

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

     

                      
      (i)       this
      Agreement duly executed by such Purchaser;

     

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

     

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

     

    2.3          
      Closing
      Conditions. 

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

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

     

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

     

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

     

    ARTICLE
      III.

    REPRESENTATIONS
      AND WARRANTIES

     

    

      1.1          
        Representations
        and Warranties of the Company.
        

       

                     
        3.1     Except as set forth under the corresponding section
        of the disclosure schedules delivered to the Purchasers concurrently herewith
        (the “Disclosure Schedules”) which Disclosure Schedules shall be deemed a part
        hereof, the Company hereby makes the representations and warranties set forth
        below to each PurchaserExcept
        as
        set forth under the corresponding section of the Disclosure Schedules which
        Disclosure Schedules shall be deemed a part hereof and to qualify any
        representation or warranty otherwise made herein to the extent of such
        disclosure, the Company hereby makes the representations and warranties set
        forth below to each Purchaser:

       

      (a)  Subsidiaries.
        All of
        the direct and indirect subsidiaries of the Company are set forth on
Schedule
        3.1(a).
        The
        Company owns, directly or indirectly, all of the capital stock or other equity
        interests of each Subsidiary free and clear of any Liens, and all the issued
        and
        outstanding shares of capital stock of each Subsidiary are validly issued
        and
        are fully paid, non-assessable and free of preemptive and similar rights
        to
        subscribe for or purchase securities. If the Company has no subsidiaries,
        then
        all other references in the Transaction Documents to the Subsidiaries or
        any of
        them will be disregarded.

       

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

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      (c)  Authorization;
        Enforcement.
        The
        Company has the requisite corporate power and authority to enter into and
        to
        consummate the transactions contemplated by each of the Transaction Documents
        and otherwise to carry out its obligations hereunder and thereunder. The
        execution and delivery of each of the Transaction Documents by the Company
        and
        the consummation by it of the transactions contemplated hereby and thereby
        have
        been duly authorized by all necessary action on the part of the Company and
        no
        further action is required by the Company, its board of directors or its
        stockholders in connection therewith other than in connection with the Required
        Approvals. Each Transaction Document has been (or upon delivery will have
        been)
        duly executed by the Company and, when delivered in accordance with the terms
        hereof and thereof, will constitute the valid and binding obligation of the
        Company enforceable against the Company in accordance with its terms except
        (i)
        as limited by general equitable principles and applicable bankruptcy,
        insolvency, reorganization, moratorium and other laws of general application
        affecting enforcement of creditors’ rights generally, (ii) as limited by laws
        relating to the availability of specific performance, injunctive relief or
        other
        equitable remedies and (iii) insofar as indemnification and contribution
        provisions may be limited by applicable law.

       

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

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      (e)  Filings,
        Consents and Approvals.
        The
        Company is not required to obtain any consent, waiver, authorization or order
        of, give any notice to, or make any filing or registration with, any court
        or
        other federal, state, local or other governmental authority or other Person
        in
        connection with the execution, delivery and performance by the Company of
        the
        Transaction Documents, other than (i) filings required pursuant to Section
        4.4
        of this Agreement, (ii) the filing with the Commission of the Registration
        Statement, (iii) application(s) to each applicable Trading Market for the
        listing of the Shares for trading thereon in the time and manner required
        thereby and (iv) the filing of Form D with the Commission and such filings
        as
        are required to be made under applicable state securities laws (collectively,
        the “Required
        Approvals”).

       

      (f)  Issuance
        of the Securities.
        The
        Shares are duly authorized and, when issued and paid for in accordance with
        the
        applicable Transaction Documents, will be duly and validly issued, fully
        paid
        and nonassessable, free and clear of all Liens imposed by the Company other
        than
        restrictions on transfer provided for in the Transaction Documents. The Company
        has reserved from its duly authorized capital stock the maximum number of
        Shares
        issuable pursuant to this Agreement.

       

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

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      (h)  SEC
        Reports; Financial Statements.
        The
        Company has filed all reports, schedules, forms, statements and other documents
        required to be filed by it under the Securities Act and the Exchange Act,
        including pursuant to Section 13(a) or 15(d) thereof, for the two years
        preceding the date hereof (or such shorter period as the Company was required
        by
        law or regulation to file such material) (the foregoing materials, including
        the
        exhibits thereto and documents incorporated by reference therein, being
        collectively referred to herein as the “SEC
        Reports”)
        on a
        timely basis or has received a valid extension of such time of filing and
        has
        filed any such SEC Reports prior to the expiration of any such extension.
        As of
        their respective dates, the SEC Reports complied in all material respects
        with
        the requirements of the Securities Act and the Exchange Act and the rules
        and
        regulations of the Commission promulgated thereunder, as applicable, and
        none of
        the SEC Reports, when filed, contained any untrue statement of a material
        fact
        or omitted to state a material fact required to be stated therein or necessary
        in order to make the statements therein, in the light of the circumstances
        under
        which they were made, not misleading. The financial statements of the Company
        included in the SEC Reports comply in all material respects with applicable
        accounting requirements and the rules and regulations of the Commission with
        respect thereto as in effect at the time of filing. Such financial statements
        have been prepared in accordance with United States generally accepted
        accounting principles applied on a consistent basis during the periods involved
        (“GAAP”),
        except as may be otherwise specified in such financial statements or the
        notes
        thereto and except that unaudited financial statements may not contain all
        footnotes required by GAAP, and fairly present in all material respects the
        financial position of the Company and its consolidated subsidiaries as of
        and
        for the dates thereof and the results of operations and cash flows for the
        periods then ended, subject, in the case of unaudited statements, to normal,
        immaterial, year-end audit adjustments.

       

      (i)  Material
        Changes; Undisclosed Events, Liabilities or Developments.
        Since
        the date of the latest audited financial statements included within the SEC
        Reports, except as specifically disclosed in a subsequent SEC Report, (i)
        there
        has been no event, occurrence or development that has had or that could
        reasonably be expected to result in a Material Adverse Effect, (ii) the Company
        has not incurred any liabilities (contingent or otherwise) other than (A)
        trade
        payables and accrued expenses incurred in the ordinary course of business
        consistent with past practice and (B) liabilities not required to be reflected
        in the Company’s financial statements pursuant to GAAP or disclosed in filings
        made with the Commission, (iii) the Company has not altered its method of
        accounting, (iv) the Company has not declared or made any dividend or
        distribution of cash or other property to its stockholders or purchased,
        redeemed or made any agreements to purchase or redeem any shares of its capital
        stock and (v) the Company has not issued any equity securities to any officer,
        director or Affiliate, except pursuant to existing Company stock option plans.
        The Company does not have pending before the Commission any request for
        confidential treatment of information. Except for the issuance of the Shares
        contemplated by this Agreement or as set forth on Schedule
        3.1(i),
        no
        event, liability or development has occurred or exists with respect to the
        Company or its Subsidiaries or their respective business, properties, operations
        or financial condition, that would be required to be disclosed by the Company
        under applicable securities laws at the time this representation is made
        that
        has not been publicly disclosed at least 1 Trading Day prior to the date
        that
        this representation is made.

       

      
        
           

        

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

       

      (k)  Labor
        Relations.
        No
        material labor dispute exists or, to the knowledge of the Company, is imminent
        with respect to any of the employees of the Company which could reasonably
        be
        expected to result in a Material Adverse Effect. None of the Company’s or its
        Subsidiaries’ employees is a member of a union that relates to such employee’s
        relationship with the Company, and neither the Company or any of its
        Subsidiaries is a party to a collective bargaining agreement, and the Company
        and its Subsidiaries believe that their relationships with their employees
        are
        good. No executive officer, 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 or
        non-competition agreement, or any other contract or agreement or any restrictive
        covenant, and the continued employment of each such executive officer does
        not
        subject the Company or any of its Subsidiaries to any liability with respect
        to
        any of the foregoing matters. The Company and its Subsidiaries are in compliance
        with all U.S. federal, state, local and foreign laws and regulations relating
        to
        employment and employment practices, terms and conditions of employment and
        wages and hours, except where the failure to be in compliance could not,
        individually or in the aggregate, reasonably be expected to have a Material
        Adverse Effect.

       

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

       

      
        
           

        

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

       

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

       

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

       

      (p)  Insurance.
        The
        Company and the Subsidiaries are insured by insurers of recognized financial
        responsibility against such losses and risks and in such amounts as are prudent
        and customary in the businesses in which the Company and the Subsidiaries
        are
        engaged, including, but not limited to, directors and officers insurance
        coverage at least equal to the aggregate Subscription Amount. Neither the
        Company nor any Subsidiary has any reason to believe that it will not be
        able to
        renew its existing insurance coverage as and when such coverage expires or
        to
        obtain similar coverage from similar insurers as may be necessary to continue
        its business without a significant increase in cost.

       

      
        
           

        

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

       

    

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

     

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

     

    
      
         

      

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

     

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

     

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

     

    (w)  Listing
      and Maintenance Requirements.
      The
      Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the
      Exchange Act, and the Company has taken no action designed to, or which to
      its
      knowledge is likely to have the effect of, terminating the registration of
      the
      Common Stock under the Exchange Act nor has the Company received any
      notification that the Commission is contemplating terminating such registration.
      The Company has not, in the 12 months preceding the date hereof, received notice
      from any Trading Market on which the Common Stock is or has been listed or
      quoted to the effect that the Company is not in compliance with the listing
      or
      maintenance requirements of such Trading Market. The Company is, and has no
      reason to believe that it will not in the foreseeable future continue to be,
      in
      compliance with all such listing and maintenance requirements.

     

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

     

    (y)  Disclosure.
      Except
      with respect to the material terms and conditions of the transactions
      contemplated by the Transaction Documents, the Company confirms that, neither
      it
      nor any other Person acting on its behalf has provided any of the Purchasers
      or
      their agents or counsel with any information that it believes constitutes or
      might constitute material, non-public information. The Company understands
      and
      confirms that the Purchasers will rely on the foregoing representation in
      effecting transactions in securities of the Company. All disclosure furnished
      by
      or on behalf of the Company to the Purchasers regarding the Company, its
      business and the transactions contemplated hereby, including the Disclosure
      Schedules to this Agreement, with respect to the representations and warranties
      made herein are true and correct with respect to such representations and
      warranties and do not contain any untrue statement of a material fact or omit
      to
      state any material fact necessary in order to make the statements made therein,
      in light of the circumstances under which they were made, not misleading. The
      Company acknowledges and agrees that no Purchaser makes or has made any
      representations or warranties with respect to the transactions contemplated
      hereby other than those specifically set forth in Section 3.2
      hereof.

     

    
      
         

      

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

     

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

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

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

     

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

     

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

     

    (ee)  Accountants.
      The
      Company’s accountants are set forth on Schedule
      3.1(ee)
      of the
      Disclosure Schedule. To the knowledge of the Company, such accountants, who
      the
      Company expects will express their opinion with respect to the financial
      statements to be included in the Company’s Annual Report on Form 10-KSB for the
      year ending December 31, 2006, are a registered public accounting firm as
      required by the Securities Act.

     

    (ff)  Acknowledgment
      Regarding Purchasers’ Purchase of Securities.
      The
      Company acknowledges and agrees that each of the Purchasers is acting solely
      in
      the capacity of an arm’s length purchaser with respect to the Transaction
      Documents and the transactions contemplated thereby. The Company further
      acknowledges that no Purchaser is acting as a financial advisor or fiduciary
      of
      the Company (or in any similar capacity) with respect to the Transaction
      Documents and the transactions contemplated thereby and any advice given by
      any
      Purchaser or any of their respective representatives or agents in connection
      with the Transaction Documents and the transactions contemplated thereby is
      merely incidental to the Purchasers’ purchase of the Shares. The Company further
      represents to each Purchaser that the Company’s decision to enter into this
      Agreement and the other Transaction Documents has been based solely on the
      independent evaluation of the transactions contemplated hereby by the Company
      and its representatives.

     

    
      
         

      

      
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    (gg)  Acknowledgement
      Regarding Purchasers’ Trading Activity.
      Anything in this Agreement or elsewhere herein to the contrary notwithstanding
      (except for Sections 3.2(f) and 4.15 hereof), it is understood and acknowledged
      by the Company (i) that none of the Purchasers have been asked to agree, nor
      has
      any Purchaser agreed, to desist from purchasing or selling, long and/or short,
      securities of the Company, or “derivative” securities based on securities issued
      by the Company or to hold the Shares for any specified term; (ii) that past
      or
      future open market or other transactions by any Purchaser, including Short
      Sales, and specifically including, without limitation, Short Sales or
“derivative” transactions, before or after the closing of this or future private
      placement transactions, may negatively impact the market price of the Company’s
      publicly-traded securities; (iii) that any Purchaser, and counter-parties in
      “derivative” transactions to which any such Purchaser is a party, directly or
      indirectly, presently may have a “short” position in the Common Stock; and (iv)
      that each Purchaser shall not be deemed to have any affiliation with or control
      over any arm’s length counter-party in any “derivative” transaction.
The
      Company further understands and acknowledges that (a) one or more Purchasers
      may
      engage in hedging activities at various times during the period that the Shares
      are outstanding and (b) such hedging activities (if any) could reduce the value
      of the existing stockholders' equity interests in the Company at and after
      the
      time that the hedging activities are being conducted.  The Company
      acknowledges that such aforementioned hedging activities do not constitute
      a
      breach of any of the Transaction Documents.

     

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

     

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

     

    (a)  Organization;
      Authority.
      Such
      Purchaser is an entity duly organized, validly existing and in good standing
      under the laws of the jurisdiction of its organization with full right,
      corporate or partnership power and authority to enter into and to consummate
      the
      transactions contemplated by the Transaction Documents and otherwise to carry
      out its obligations hereunder and thereunder. The execution, delivery and
      performance by such Purchaser of the transactions contemplated by this Agreement
      have been duly authorized by all necessary corporate or similar action on the
      part of such Purchaser. Each Transaction Document to which it is a party has
      been duly executed by such Purchaser, and when delivered by such Purchaser
      in
      accordance with the terms hereof, will constitute the valid and legally binding
      obligation of such Purchaser, enforceable against it in accordance with its
      terms, except (i) as limited by general equitable principles and applicable
      bankruptcy, insolvency, reorganization, moratorium and other laws of general
      application affecting enforcement of creditors’ rights generally, (ii) as
      limited by laws relating to the availability of specific performance, injunctive
      relief or other equitable remedies and (iii) insofar as indemnification and
      contribution provisions may be limited by applicable law.

     

    
      
         

      

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
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    ARTICLE
      IV.

    OTHER
      AGREEMENTS OF THE PARTIES

     

    4.1           
      Transfer
      Restrictions.
      

     

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

     

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

     

    THESE
      SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
      OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
      REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
      ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
      EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
      AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
      REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
      SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
      TO
      SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
      COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
      ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL
      INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE
      SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

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

     

    (c)  Certificates
      evidencing the Shares shall not contain any legend (including the legend set
      forth in Section 4.1(b)), (i) while a registration statement (including the
      Registration Statement) covering the resale of such security is effective under
      the Securities Act, or (ii) following any sale of such 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 Securities
      Act
      (including judicial interpretations and pronouncements issued by the staff
      of
      the Commission) ), provided that, as to clauses (ii) through (iv) only, the
      Purchaser shall have delivered any customary and reasonable supporting
      documentation requested in writing by the Company. The Company shall cause
      its
      counsel to issue a legal opinion to the Transfer Agent promptly after the
      Effective Date if required by the Transfer Agent to effect the removal of the
      legend hereunder. The Company agrees that following the Effective Date or at
      such time as such legend is no longer required under this Section 4.1(c), it
      will, no later than 5 Trading Days following the delivery by a Purchaser to
      the
      Company or the Transfer Agent of a certificate representing Shares issued with
      a
      restrictive legend (such fifth Trading Day, the “Legend
      Removal Date”),
      deliver or cause to be delivered to such Purchaser a certificate representing
      such shares that is free from all restrictive and other legends. The Company
      may
      not make any notation on its records or give instructions to the Transfer Agent
      that enlarge the restrictions on transfer set forth in this Section.
      Certificates for Shares subject to legend removal hereunder shall be transmitted
      by the Transfer Agent to the Purchasers by crediting the account of the
      Purchaser’s prime broker with the Depository Trust Company System.

    


    (d)  In
      addition to such Purchaser’s other available remedies, the Company shall pay to
      a Purchaser, in cash, as partial liquidated damages and not as a penalty, for
      each $1,000 of Shares (based on the Closing Price of the Common Stock on the
      date such Shares are submitted to the Transfer Agent) delivered for removal
      of
      the restrictive legend and subject to Section 4.1(c), $10 per Trading Day
      (increasing to $20 per Trading Day five (5) Trading Days after such damages
      have
      begun to accrue) for each Trading Day after the Legend Removal Date until such
      certificate is delivered without a legend. Nothing herein shall limit such
      Purchaser’s right to pursue actual damages for the Company’s failure to deliver
      certificates representing any Shares as required by the Transaction Documents,
      and such Purchaser shall have the right to pursue all remedies available to
      it
      at law or in equity including, without limitation, a decree of specific
      performance and/or injunctive relief.

     

    
      
         

      

      
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    (e)  Each
      Purchaser, severally and not jointly with the other Purchasers, agrees that
      the
      removal of the restrictive legend from certificates representing Shares as
      set
      forth in this Section 4.1 is predicated upon the Company’s reliance that the
      Purchaser will sell any Shares pursuant to either the registration requirements
      of the Securities Act, including any applicable prospectus delivery
      requirements, or an exemption therefrom, and that if Shares are sold pursuant
      to
      a Registration Statement, they will be sold in compliance with the plan of
      distribution set forth therein.

     

    4.2          
      Furnishing
      of Information

     

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

     

    4.3          
      Integration

     

    .
      The
      Company shall not sell, offer for sale or solicit offers to buy or otherwise
      negotiate in respect of any security (as defined in Section 2 of the Securities
      Act) that would be integrated with the offer or sale of the Shares in a manner
      that would require the registration under the Securities Act of the sale of
      the
      Shares to the Purchasers or that would be integrated with the offer or sale
      of
      the Shares for purposes of the rules and regulations of any Trading Market
      such
      that it would require shareholder approval prior to the closing of such other
      transaction unless shareholder approval is obtained before the closing of such
      subsequent transaction.

     

    4.4          
      Securities
      Laws Disclosure; Publicity.
      The
      Company shall, by 8:30 a.m. New York City time on the second Trading Day
      immediately following the date hereof, issue a Current Report on Form 8-K
      disclosing the material terms of the transactions contemplated hereby and
      attaching the Transaction Documents thereto. The Company and each Purchaser
      shall consult with each other in issuing any other press releases with respect
      to the transactions contemplated hereby, and neither the Company nor any
      Purchaser shall issue any such press release or otherwise make any such public
      statement without the prior consent of the Company, with respect to any press
      release of any Purchaser, or without the prior consent of each Purchaser, with
      respect to any press release of the Company, which consent shall not
      unreasonably be withheld or delayed, except if such disclosure is required
      by
      law, in which case the disclosing party shall promptly provide the other party
      with prior notice of such public statement or communication. Notwithstanding
      the
      foregoing, the Company shall not publicly disclose the name of any Purchaser,
      or
      include the name of any Purchaser in any filing with the Commission or any
      regulatory agency or Trading Market, without the prior written consent of such
      Purchaser, except (i) as required by federal securities law in connection with
      (A) any registration statement contemplated by the Registration Rights Agreement
      and (B) the filing of final Transaction Documents (including signature pages
      thereto) with the Commission and (ii) to the extent such disclosure is required
      by law or Trading Market regulations, in which case the Company shall provide
      the Purchasers with prior notice of such disclosure permitted under this clause
      (ii).

     

    
      
         

      

      
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    4.5          
      Shareholder
      Rights Plan. No claim will be made or enforced by the Company or, with the
      consent of the Company, any other Person, that any Purchaser is an “Acquiring
      Person” under any control share acquisition, business combination, poison pill
      (including any distribution under a rights agreement) or similar anti-takeover
      plan or arrangement in effect or hereafter adopted by the Company, or that
      any
      Purchaser could be deemed to trigger the provisions of any such plan or
      arrangement, by virtue of receiving Shares under the Transaction Documents
      or
      under any other agreement between the Company and the Purchasers.

     

    4.6          
      Non-Public
      Information. Except with respect to the material terms and conditions of the
      transactions contemplated by the Transaction Documents, the Company covenants
      and agrees that neither it nor any other Person acting on its behalf will
      provide any Purchaser or its agents or counsel with any information that the
      Company believes constitutes material non-public information, unless prior
      thereto such Purchaser shall have executed a written agreement regarding the
      confidentiality and use of such information. The Company understands and
      confirms that each Purchaser shall be relying on the foregoing representations
      in effecting transactions in securities of the Company.

     

    4.7          
      Use
      of
      Proceeds. Except as set forth on Schedule 4.7 attached hereto, the Company
      shall
      use the net proceeds from the sale of the Shares hereunder for working capital
      purposes and not for the satisfaction of any portion of the Company’s debt
      (other than payment of trade payables in the ordinary course of the Company’s
      business and prior practices), to redeem any Common Stock or Common Stock
      Equivalents or to settle any outstanding litigation.

     

    4.8          
      Reimbursement.
      If any Purchaser becomes involved in any capacity in any Proceeding by or
      against any Person who is a stockholder of the Company (except as a result
      of
      sales, pledges, margin sales and similar transactions by such Purchaser to
      or
      with any other stockholder), solely as a result of such Purchaser’s acquisition
      of the Shares under this Agreement, the Company will reimburse such Purchaser
      for its reasonable legal and other expenses (including the cost of any
      investigation preparation and travel in connection therewith) incurred in
      connection therewith, as such expenses are incurred. The reimbursement
      obligations of the Company under this paragraph shall be in addition to any
      liability which the Company may otherwise have, shall extend upon the same
      terms
      and conditions to any Affiliates of the Purchasers who are actually named in
      such action, proceeding or investigation, and partners, directors, agents,
      employees and controlling persons (if any), as the case may be, of the
      Purchasers and any such Affiliate, and shall be binding upon and inure to the
      benefit of any successors, assigns, heirs and personal representatives of the
      Company, the Purchasers and any such Affiliate and any such Person. The Company
      also agrees that neither the Purchasers nor any such Affiliates, partners,
      directors, agents, employees or controlling persons shall have any liability
      to
      the Company or any Person asserting claims on behalf of or in right of the
      Company solely as a result of acquiring the Shares under this Agreement, except
      if such claim arises primarily from a breach of such Purchaser’s
      representations, warranties or covenants under the Transaction Documents or
      any
      agreements or understandings such Purchaser may have with any such stockholder
      or any violations by the Purchaser of state or federal securities laws or any
      conduct by such Purchaser which constitutes fraud, gross negligence, willful
      misconduct or malfeasance.

     

    
      
         

      

      
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    4.9          
      Indemnification
      of Purchasers. Subject to the provisions of this Section 4.9, the Company will
      indemnify and hold each Purchaser and its directors, officers, shareholders,
      members, partners, employees and agents (and any other Persons with a
      functionally equivalent role of a Person holding such titles notwithstanding
      a
      lack of such title or any other title), each Person who controls such Purchaser
      (within the meaning of Section 15 of the Securities Act and Section 20 of the
      Exchange Act), and the directors, officers, shareholders, agents, members,
      partners or employees (and any other Persons with a functionally equivalent
      role
      of a Person holding such titles notwithstanding a lack of such title or any
      other title) of such controlling persons (each, a “Purchaser Party”) harmless
      from any and all losses, liabilities, obligations, claims, contingencies,
      damages, costs and expenses, including all judgments, amounts paid in
      settlements, court costs and reasonable attorneys’ fees and costs of
      investigation that any such Purchaser Party may suffer or incur as a result
      of
      or relating to (a) any breach of any of the representations, warranties,
      covenants or agreements made by the Company in this Agreement or in the other
      Transaction Documents or (b) any action instituted against a Purchaser, or
      any
      of them or their respective Affiliates, by any stockholder of the Company who
      is
      not an Affiliate of such Purchaser, with respect to any of the transactions
      contemplated by the Transaction Documents (unless such action is based upon
      a
      breach of such Purchaser’s representations, warranties or covenants under the
      Transaction Documents or any agreements or understandings such Purchaser may
      have with any such stockholder or any violations by the Purchaser of state
      or
      federal securities laws or any conduct by such Purchaser which constitutes
      fraud, gross negligence, willful misconduct or malfeasance). If any action
      shall
      be brought against any Purchaser Party in respect of which indemnity may be
      sought pursuant to this Agreement, such Purchaser Party shall promptly notify
      the Company in writing, and the Company shall have the right to assume the
      defense thereof with counsel of its own choosing reasonably acceptable to the
      Purchaser Party. Any Purchaser Party shall have the right to employ separate
      counsel in any such action and participate in the defense thereof, but the
      fees
      and expenses of such counsel shall be at the expense of such Purchaser Party
      except to the extent that (i) the employment thereof has been specifically
      authorized by the Company in writing, (ii) the Company has failed after a
      reasonable period of time to assume such defense and to employ counsel or (iii)
      in such action there is, in the reasonable opinion of such separate counsel,
      a
      material conflict on any material issue between the position of the Company
      and
      the position of such Purchaser Party, in which case the Company shall be
      responsible for the reasonable fees and expenses of no more than one such
      separate counsel. The Company will not be liable to any Purchaser Party under
      this Agreement (i) for any settlement by a Purchaser Party effected without
      the
      Company’s prior written consent, which shall not be unreasonably withheld or
      delayed; or (ii) to the extent, but only to the extent that a loss, claim,
      damage or liability is attributable to any Purchaser Party’s breach of any of
      the representations, warranties, covenants or agreements made by such Purchaser
      Party in this Agreement or in the other Transaction Documents.

     

    
      
         

      

      
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    4.10        
      Reservation
      of Common Stock.
      As of
      the date hereof, the Company has reserved and the Company shall continue to
      reserve and keep available at all times, free of preemptive rights, a sufficient
      number of shares of Common Stock for the purpose of enabling the Company to
      issue Shares pursuant to this Agreement. 

     

    4.11         
      Listing
      of
      Common Stock.

     

    The
      Company hereby agrees to use best efforts (i) to apply to have the Common Stock
      listed for trading on the Nasdaq Capital Market or the American Stock Exchange
      as soon as reasonably practicable but in no event later than 150 calendar days
      following the Closing Date and (ii) to respond to any comments on its
      application for listing from the Nasdaq Capital Market or the American Stock
      Exchange as soon as reasonably practicable but in no event later than 30
      calendar days following receipt of such comments. The Company further agrees
      that, when the Company applies to have the Common Stock listed for trading
      on
      Nasdaq Capital Market or the American Stock Exchange, it will include in such
      application all of the Shares, and will take such other action as is necessary
      to cause all of the Shares to be listed on the Nasdaq Capital Market or the
      American Stock Exchange as promptly as possible. The Company will take all
      action reasonably necessary to continue the listing and trading of its Common
      Stock on Nasdaq Capital Market or the American Stock Exchange and will comply
      in
      all respects with the Company’s reporting, filing and other obligations under
      the bylaws or rules of Nasdaq Capital Market or the American Stock Exchange,
      as
      applicable.

     

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

     

    4.13         
      Participation
      in Future Financing. 

     

    (a)  From
      the
      date hereof until the date that is the 12 month anniversary of the Effective
      Date, upon any issuance by the Company or any of its Subsidiaries of Common
      Stock or Common Stock Equivalents (a “Subsequent
      Financing”),
      each
      Purchaser shall have the right to purchase Common Stock or Common Stock
      Equivalents on the same terms, conditions and price provided for in the
      Subsequent Financing in an amount which shall increase such Purchaser’s
      Percentage Ownership of the Company to equal such Purchaser’s Percentage
      Ownership prior to the Subsequent Financing. “Percentage
      Ownership”
means
      a
      fraction in which (i) the numerator is the aggregate number of shares of Common
      Stock owned by such Purchaser, plus additional shares of Common Stock that
      would
      be owned by such Purchaser upon the conversion or exercise of all Common Stock
      Equivalents (irrespective of exercise limitations contained therein) held by
      such Purchaser and (ii) the denominator is the aggregate number of issued and
      outstanding shares of Common Stock of the Company, plus additional shares of
      Common Stock that would be issued and outstanding upon the conversion or
      exercise of all Common Stock Equivalents (irrespective of exercise limitations
      contained therein) issued by the Company.

     

    
      
         

      

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

     

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

     

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

     

    (e)  Notwithstanding
      the foregoing, this Section 4.13 shall not apply in respect of (i) an Exempt
      Issuance or (ii) an underwritten public offering of Common Stock.

     

    4.14         
      Subsequent
      Equity Sales.
      

     

    (a)  From
      the
      date hereof until 90 days after the Effective Date, neither the Company nor
      any
      Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
      provided, however, the 90 day period set forth in this Section 4.14 shall be
      extended for the number of Trading Days during such period in which (i) trading
      in the Common Stock is suspended by any Trading Market, or (ii) following the
      Effective Date, the Registration Statement is not effective or the prospectus
      included in the Registration Statement may not be used by the Purchasers for
      the
      resale of the Shares. 

     

    
      
         

      

      
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    (b)  From
      the
      date hereof until the 12 month anniversary of the Effective Date, the Company
      shall be prohibited from effecting or entering into an agreement to effect
      any
      Subsequent Financing involving a “Variable Rate Transaction”. The term
“Variable
      Rate Transaction”
shall
      mean a transaction in which the Company issues or sells (i) any debt or equity
      securities that are convertible into, exchangeable or exercisable for, or
      include the right to receive additional shares of Common Stock either (A) at
      a
      conversion, exercise or exchange rate or other price that is based upon and/or
      varies with the trading prices of or quotations for the shares of Common Stock
      at any time after the initial issuance of such debt or equity securities or
      (B)
      with a conversion, exercise or exchange price that is subject to being reset
      at
      some future date after the initial issuance of such debt or equity security
      or
      upon the occurrence of specified or contingent events directly or indirectly
      related to the business of the Company or the market for the Common Stock or
      (ii) enters into any agreement, including, but not limited to, an equity line
      of
      credit, whereby the Company may sell securities at a future determined price.
      Any Purchaser shall be entitled to obtain injunctive relief against the Company
      to preclude any such issuance, which remedy shall be in addition to any right
      to
      collect damages. For purposes of clarity, the issuance of the Placement Agent
      Warrant hereunder shall not be deemed a Variable Rate Transaction.

     

    (c)  Notwithstanding
      the foregoing, this Section 4.14 shall not apply in respect of an Exempt
      Issuance, except that no Variable Rate Transaction shall be an Exempt
      Issuance.

     

    4.15         
      Short
      Sales
      and
      Confidentiality After The Date Hereof. Each
      Purchaser, severally and not jointly with the other Purchasers, covenants that
      neither it nor any Affiliate acting on its behalf or pursuant to any
      understanding with it will execute any Short Sales during the period commencing
      at the Discussion Time and ending on the earlier of (i) the Effective Date
      or
      (ii) the Effectiveness Date (as defined in the Registration Rights Agreement)
      of
      the initial Registration Statement. Each
      Purchaser, severally and not jointly with the other Purchasers, covenants that
      until such time as the transactions contemplated by this Agreement are publicly
      disclosed by the Company as described in Section 4.4, such Purchaser will
      maintain the confidentiality of all disclosures made to it in connection with
      this transaction (including the existence and terms of this transaction). Each
      Purchaser, severally and not jointly with any other Purchaser, understands
      and
      acknowledges that the Commission currently takes the position that coverage
      of
      short sales of shares of the Common Stock “against the box” prior to the
      Effective Date of the Registration Statement with the Securities is a violation
      of Section 5 of the Securities Act, as set forth in Item 65, Section A, of
      the
      Manual of Publicly Available Telephone Interpretations, dated July 1997,
      compiled by the Office of Chief Counsel, Division of Corporation Finance.
Notwithstanding
      the foregoing, no Purchaser makes any representation, warranty or covenant
      hereby that it will not engage in Short Sales in the securities of the Company
      after the earlier of (i) the
      Effective Date or (ii) the Effectiveness Date (as defined in the Registration
      Rights Agreement) of the initial Registration Statement.

     

    4.16         
      Delivery
      of Securities After Closing. The Company shall deliver, or cause to be
      delivered, the respective Shares purchased by each Purchaser to such Purchaser
      within 5 Trading Days of the Closing Date.

     

    
      
         

      

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

     

    4.18        
      Capital
      Changes. Until the one year anniversary of the Effective Date, the Company
      shall
      not undertake a reverse or forward stock split or reclassification of the Common
      Stock without the prior written consent of the Purchasers holding a majority
      in
      interest of the Shares.

     

    4.19  Per
      Share
      Purchase Price Protection. From the date hereof until the date that is the
      12
      month anniversary of the Effective Date, if in connection with a Subsequent
      Financing, the Company or any Subsidiary shall issue any Common Stock or Common
      Stock Equivalents entitling any person or entity to acquire shares of Common
      Stock at an effective price per share less than the Per Share Purchase Price
      (subject to reverse and forward stock splits and the like) (the “Discounted
      Purchase Price,” as further defined below), the Company shall issue to such
      Purchaser that number of additional shares of Common Stock equal to (a) the
      Subscription Amount paid by such Purchaser at the Closing divided by the
      Discounted Purchase Price, less (b) the Shares issued to such Purchaser at
      the
      Closing pursuant to this Agreement and pursuant to this Section 4.19. The term
      “Discounted Purchase Price” shall mean the amount actually paid in new cash
      consideration by third parties for each share of Common Stock. The sale of
      Common Stock Equivalents shall be deemed to have occurred at the time of the
      issuance of the Common Stock Equivalents and the Discounted Purchase Price
      covered thereby shall also include the actual exercise or conversion price
      thereof at the time of the conversion or exercise (in addition to the
      consideration per share of Common Stock underlying the Common Stock Equivalents
      received by the Company upon such sale or issuance of the Common Stock
      Equivalents). In the case of any Subsequent Financing involving a Variable
      Rate
      Transaction or an “MFN Transaction” (as defined below), the Discounted Purchase
      Price shall be deemed to be the lowest actual conversion or exercise price
      at
      which such securities are converted or exercised in the case of a Variable
      Rate
      Transaction, or the lowest adjustment price in the case of an MFN Transaction.
      If shares are issued for a consideration other than cash, the per share selling
      price shall be the fair value of such consideration as determined in good faith
      by the Board of Directors of the Company. The term “MFN Transaction” shall mean
      a transaction in which the Company issues or sells any securities in a capital
      raising transaction or series of related transactions which grants to an
      investor the right to receive additional shares based upon future transactions
      of the Company on terms more favorable than those granted to the such investor
      in such offering. The Company shall not refuse to issue a Purchaser additional
      Shares hereunder based on any claim that such Purchaser or any one associated
      or
      affiliated with such Purchaser has been engaged in any violation of law,
      agreement or for any other reason, unless an injunction from a court, on notice,
      restraining and or enjoining an issuance hereunder shall have been sought and
      obtained. Nothing herein shall limit a Purchaser’s right to pursue actual
      damages for the Company's failure to deliver Shares hereunder and such Purchaser
      shall have the right to pursue all remedies available to it at law or in equity
      including, without limitation, a decree of specific performance and/or
      injunctive relief. Notwithstanding anything to the contrary herein, this Section
      4.19 not apply in respect of an Exempt Issuance. Additionally, prior to any
      issuance to a Purchaser pursuant to this Section 4.19, such Purchaser shall
      have
      the right to irrevocably defer such issuances to such Purchaser under this
      Section 4.19, in whole or in part, for continuous periods of not less than
      75
      days.

     

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

    ARTICLE
      V.

    MISCELLANEOUS

     

    5.1           
      Termination. 
      This Agreement may be terminated by any Purchaser, as to such Purchaser’s
      obligations hereunder only and without any effect whatsoever on the obligations
      between the Company and the other Purchasers, by written notice to the other
      parties, if the Closing has not been consummated on or before June 30, 2006;
      provided, however, that no such termination will affect the right of any party
      to sue for any breach by the other party (or parties).

     

    5.2          
      Fees
      and
      Expenses. The Company shall deliver, prior to the Closing, a completed and
      executed copy of the Closing Statement, attached hereto as Annex A. Except
      as
      expressly set forth in the Transaction Documents to the contrary, each party
      shall pay the fees and expenses of its advisers, counsel, accountants and other
      experts, if any, and all other expenses incurred by such party incident to
      the
      negotiation, preparation, execution, delivery and performance of this Agreement.
      The Company shall pay all transfer agent fees, stamp taxes and other taxes
      and
      duties levied in connection with the delivery of any Shares to the
      Purchasers.

     

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

     

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

     

    5.5          
      Amendments;
      Waivers. No provision of this Agreement may be waived or amended except in
      a
      written instrument signed, in the case of an amendment, by the Company and
      the
      Purchasers of 66% of the Shares purchased hereunder or, in the case of a waiver,
      by the party against whom enforcement of any such waived provision is sought.
      No
      waiver of any default with respect to any provision, condition or requirement
      of
      this Agreement shall be deemed to be a continuing waiver in the future or a
      waiver of any subsequent default or a waiver of any other provision, condition
      or requirement hereof, nor shall any delay or omission of any party to exercise
      any right hereunder in any manner impair the exercise of any such
      right.

     

    
      
         

      

      
        28

        
          

        

      

      
         

      

    

    5.6           
      Headings.
      The headings herein are for convenience only, do not constitute a part of this
      Agreement and shall not be deemed to limit or affect any of the provisions
      hereof.

     

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

     

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

     

    5.9           
      Governing
      Law. All questions concerning the construction, validity, enforcement and
      interpretation of the Transaction Documents shall be governed by and construed
      and enforced in accordance with the internal laws of the State of New York,
      without regard to the principles of conflicts of law thereof. Each party agrees
      that all legal proceedings concerning the interpretations, enforcement and
      defense of the transactions contemplated by this Agreement and any other
      Transaction Documents (whether brought against a party hereto or its respective
      affiliates, directors, officers, shareholders, employees or agents) shall be
      commenced exclusively in the state and federal courts sitting in the City of
      New
      York. Each party hereby irrevocably submits to the exclusive jurisdiction of
      the
      state and federal courts sitting in the City of New York, borough of Manhattan
      for the adjudication of any dispute hereunder or in connection herewith or
      with
      any transaction contemplated hereby or discussed herein (including with respect
      to the enforcement of any of the Transaction Documents), and hereby irrevocably
      waives, and agrees not to assert in any suit, action or proceeding, any claim
      that it is not personally subject to the jurisdiction of any such court, that
      such suit, action or proceeding is improper or is an inconvenient venue for
      such
      proceeding. Each party hereby irrevocably waives personal service of process
      and
      consents to process being served in any such suit, action or proceeding by
      mailing a copy thereof via registered or certified mail or overnight delivery
      (with evidence of delivery) to such party at the address in effect for notices
      to it under this Agreement and agrees that such service shall constitute good
      and sufficient service of process and notice thereof. Nothing contained herein
      shall be deemed to limit in any way any right to serve process in any other
      manner permitted by law. The parties hereby waive all rights to a trial by
      jury.
      If either party shall commence an action or proceeding to enforce any provisions
      of the Transaction Documents, then the prevailing party in such action or
      proceeding shall be reimbursed by the other party for its reasonable attorneys’
fees and other costs and expenses incurred with the investigation, preparation
      and prosecution of such action or proceeding.

     

    5.10         
      Survival.
      The representations and warranties contained herein shall survive the Closing
      and the delivery of the Shares.

     

    
      
         

      

      
        29

        
          

        

      

      
         

      

    

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

     

    5.12         
      Severability.
      If any term, provision, covenant or restriction of this Agreement is held by
      a
      court of competent jurisdiction to be invalid, illegal, void or unenforceable,
      the remainder of the terms, provisions, covenants and restrictions set forth
      herein shall remain in full force and effect and shall in no way be affected,
      impaired or invalidated, and the parties hereto shall use their commercially
      reasonable efforts to find and employ an alternative means to achieve the same
      or substantially the same result as that contemplated by such term, provision,
      covenant or restriction. It is hereby stipulated and declared to be the
      intention of the parties that they would have executed the remaining terms,
      provisions, covenants and restrictions without including any of such that may
      be
      hereafter declared invalid, illegal, void or unenforceable.

     

    5.13         
      Rescission
      and Withdrawal Right. Notwithstanding anything to the contrary contained in
      (and
      without limiting any similar provisions of) any of the other Transaction
      Documents, whenever any Purchaser exercises a right, election, demand or option
      under a Transaction Document and the Company does not timely perform its related
      obligations within the periods therein provided, then such Purchaser may rescind
      or withdraw, in its sole discretion from time to time upon written notice to
      the
      Company, any relevant notice, demand or election in whole or in part without
      prejudice to its future actions and rights.

     

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

     

    5.15         
      Remedies.
      In addition to being entitled to exercise all rights provided herein or granted
      by law, including recovery of damages, each of the Purchasers and the Company
      will be entitled to specific performance under the Transaction Documents. The
      parties agree that monetary damages may not be adequate compensation for any
      loss incurred by reason of any breach of obligations contained in the
      Transaction Documents and hereby agrees to waive and not to assert in any action
      for specific performance of any such obligation the defense that a remedy at
      law
      would be adequate.

     

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

     

    
      
         

      

      
        30

        
          

        

      

      
         

      

    

    5.17        
      Independent
      Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser
      under any Transaction Document are several and not joint with the obligations
      of
      any other Purchaser, and no Purchaser shall be responsible in any way for the
      performance or non-performance of the obligations of any other Purchaser under
      any Transaction Document. Nothing contained herein or in any other Transaction
      Document, and no action taken by any Purchaser pursuant thereto, shall be deemed
      to constitute the Purchasers as a partnership, an association, a joint venture
      or any other kind of entity, or create a presumption that the Purchasers are
      in
      any way acting in concert or as a group with respect to such obligations or
      the
      transactions contemplated by the Transaction Documents. Each Purchaser shall
      be
      entitled to independently protect and enforce its rights, including without
      limitation, the rights arising out of this Agreement or out of the other
      Transaction Documents, and it shall not be necessary for any other Purchaser
      to
      be joined as an additional party in any proceeding for such purpose. Each
      Purchaser has been represented by its own separate legal counsel in their review
      and negotiation of the Transaction Documents. For reasons of administrative
      convenience only, Purchasers and their respective counsel have chosen to
      communicate with the Company through FW. FW does not represent all of the
      Purchasers but only the Placement Agent, who has acted as placement agent to
      the
      transaction. The Company has elected to provide all Purchasers with the same
      terms and Transaction Documents for the convenience of the Company and not
      because it was required or requested to do so by the Purchasers.

     

    5.18         
      Liquidated
      Damages. The Company’s obligations to pay any partial liquidated damages or
      other amounts owing under the Transaction Documents is a continuing obligation
      of the Company and shall not terminate until all unpaid partial liquidated
      damages and other amounts have been paid notwithstanding the fact that the
      instrument or security pursuant to which such partial liquidated damages or
      other amounts are due and payable shall have been canceled.

     

    5.19         
      Construction.
      The parties agree that each of them and/or their respective counsel has reviewed
      and had an opportunity to revise the Transaction Documents and, therefore,
      the
      normal rule of construction to the effect that any ambiguities are to be
      resolved against the drafting party shall not be employed in the interpretation
      of the Transaction Documents or any amendments hereto.

     

    (Signature
      Pages Follow)

     

    


    
      
         

      

      
        31

        
          

        

      

      
         

      

    

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

     

    


    
      	
              INNOVATIVE
                CARD TECHNOLOGIES, INC.

               

            	
              Address
                for Notice:

            
	
              By:__________________________________________

              Name:

              Title:

            	
              11601
                Wilshire Boulevard

              Suite
                2160

              Los
                Angeles, California 90025

              Facsimile:
                (310)
                496-2693 

              Attention:
                Bennet
                P. Tchaikovsky

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

              Lisa
                Klein

              Richardson
                & Patel, LLP

              10800
                Wilshire Boulevard

              Suite
                500

              Los
                Angeles, CA 90024

              Facsimile:
                310 208-1154

               

            	 


    

     

     

    
      
         

      

      
        32

        
          

        

      

      
         

      

    

    [PURCHASER
      SIGNATURE PAGES TO INVC SECURITIES PURCHASE AGREEMENT]

    


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

     

     

    Name
      of
      Purchaser: ________________________________________________________

     

    Signature
      of Authorized Signatory of Purchaser:
      __________________________________

     

    Name
      of
      Authorized Signatory:
      ____________________________________________________

     

    Title
      of
      Authorized Signatory:
      _____________________________________________________

     

    Email
      Address of
      Purchaser:________________________________________________

     

    Fax
      Number of Purchaser:
      ________________________________________________

     

    Address
      for Notice of Purchaser:

    


    


    


    


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

    


    


    


    


    


    Subscription
      Amount:

    Shares
      (minimum of 100,000):

    


    EIN
      Number: [PROVIDE
      THIS UNDER SEPARATE COVER]

    


    


    [SIGNATURE
      PAGES CONTINUE]

     

    
      
         

      

      
        33

        
          

        

      

      
         

      

    

    Annex
      A 

    


    CLOSING
      STATEMENT

    


    Pursuant
      to the attached Securities Purchase Agreement, dated as of the date hereto,
      the
      purchasers shall purchase up to $______ of Common Stock from Innovative Card
      Technologies, Inc. (the “Company”).
      All
      funds will be wired into a trust account maintained by ____________, counsel
      to
      the Company. All funds will be disbursed in accordance with this Closing
      Statement. 

    


    Disbursement
      Date: May
      __,
      2006

     

      
        

      

    

    


    
      	
              I.
                PURCHASE
                PRICE

            	 	 	 
	
                          Gross
                Proceeds to be Received in Trust

            	 	
              $

            	

            	 
	 	 	 	 	 
	
              II. DISBURSEMENTS

            	 	 	 	 
	
                          T.
                R.
                Winston & Company, LLC

            	 	
              $

            	

            	 
	
                          Feldman
                Weinstein, LLP

            	 	
              $

            	

            	 
	 	 	$	
            	 
	 	 	$	
            	 
	 	 	$	
            	 
	 	 	 	 	 
	
              Total
                Amount Disbursed:

            	 	
              $

            	

            	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	
              WIRE
                INSTRUCTIONS:

               

            	 	 	 	 
	
              To:
                _____________________________________

               

               

               

               

            	 	 	 	 
	
              To:
                _____________________________________

               

               

               

               

            	 	 	 	 


    

    


    
      
         

      

      
        34