Document:

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                                                                    Exhibit 10.1

                                                                  EXECUTION COPY

                          SECURITIES PURCHASE AGREEMENT

      This Securities Purchase Agreement (this "AGREEMENT") is dated as of
August 17, 2003 by and between Stratasys, Inc., a Delaware corporation (the
"COMPANY"), and each purchaser identified on the signature pages hereto (each, 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
Company desires to issue and sell to each Purchaser, and each Purchaser,
severally and not jointly, desires to purchase from the Company, certain
securities of the Company as more fully described in this Agreement.

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

                                   ARTICLE I
                                   DEFINITIONS

      1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms have the meanings indicated:

            "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.

            "BANKRUPTCY EVENT" means any of the following events: (a) the
      Company or any Subsidiary commences a case or other proceeding under any
      bankruptcy, reorganization, arrangement, adjustment of debt, relief of
      debtors, dissolution, insolvency or liquidation or similar law of any
      jurisdiction relating to the Company or any Subsidiary thereof; (b) there
      is commenced against the Company or any Subsidiary any such case or
      proceeding that is not dismissed within 60 days after commencement; (c)
      the Company or any Subsidiary is adjudicated insolvent or bankrupt or any
      order of relief or other order approving any such case or proceeding is
      entered; (d) the Company or any Subsidiary suffers any appointment of any
      custodian or the like for it or any substantial part of its property that
      is not discharged or stayed within 60 days; (e) the Company or any
      Subsidiary makes a general assignment for the benefit of creditors; (f)
      the Company or any Subsidiary fails to pay, or states that it is unable to
      pay or is unable to pay, its debts generally as they become due; (g) the
      Company or any Subsidiary calls a meeting of its creditors with a view to
      arranging a composition, adjustment or restructuring of its debts; or (h)
      the Company or any Subsidiary, by any act or failure to act, expressly
      indicates its consent to, approval of or acquiescence in any of the
      foregoing or takes any corporate or other action for the purpose of
      effecting any of the foregoing.
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            "BUSINESS DAY" means any day other than Saturday, Sunday or other
      day on which commercial banks in The City of New York are authorized or
      required by law to remain closed.

            "CHANGE OF CONTROL" means the occurrence of any of the following in
      one or a series of related transactions: (i) an acquisition after the date
      hereof by an individual or legal entity or "group" (as described in Rule
      13d-5(b)(1) under the Exchange Act) of more than one-half of the voting
      rights or equity interests in the Company; (ii) a replacement of more than
      one-half of the members of the Company's board of directors that is not
      approved by those individuals who are members of the board of directors on
      the date hereof (or other directors previously approved by such
      individuals); (iii) a merger or consolidation of the Company or any
      Subsidiary or a sale of more than one-half of the assets of the Company in
      one or a series of related transactions, unless following such transaction
      or series of transactions, the holders of the Company's securities prior
      to the first such transaction continue to hold at least two-thirds of the
      voting rights and equity interests in of the surviving entity or acquirer
      of such assets; (iv) a recapitalization, reorganization or other
      transaction involving the Company or any Subsidiary that constitutes or
      results in a transfer of more than one-half of the voting rights or equity
      interests in the Company; or (v) consummation of a "Rule 13e-3
      transaction" as defined in Rule 13e-3 under the Exchange Act with respect
      to the Company.

            "CLOSING" means the closing of the purchase and sale of the Shares
      and the Warrants pursuant to Section 2.1.

            "CLOSING DATE" means the date of the Closing.

            "CLOSING PRICE" means, for any date, the price determined by the
      first of the following clauses that applies: (a) if the Common Stock is
      then listed or quoted on an Eligible Market or any other national
      securities exchange, the closing bid price per share of the Common Stock
      for such date (or the nearest preceding date) on the primary Eligible
      Market or exchange on which the Common Stock is then listed or quoted; (b)
      if prices for the Common Stock are then quoted on the OTC Bulletin Board,
      the closing bid price per share of the Common Stock for such date (or the
      nearest preceding date) so quoted; (c) if prices for the Common Stock are
      then reported in the "Pink Sheets" published by the National Quotation
      Bureau Incorporated (or a similar organization or agency succeeding to its
      functions of reporting prices), the most recent closing bid price per
      share of the Common Stock so reported; or (d) in all other cases, the fair
      market value of a share of Common Stock as determined by an independent
      appraiser selected in good faith by a majority-in-interest of the
      Purchasers.

            "COMMISSION" means the Securities and Exchange Commission.

            "COMMON STOCK" means the common stock of the Company, par value
      $0.01 per share.

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            "COMMON STOCK EQUIVALENTS" means, collectively, Options and
      Convertible Securities.

            "COMPANY COUNSEL" means Snow Becker Krauss P.C.

            "CONVERTIBLE SECURITIES" means any stock or securities (other than
      Options) convertible into or exercisable or exchangeable for Common Stock.

            "EFFECTIVE DATE" means the date that the Registration Statement is
      first declared effective by the Commission.

            "ELIGIBLE MARKET" means any of the New York Stock Exchange, the
      American Stock Exchange, the NASDAQ National Market, the NASDAQ Small Cap
      Market or the Nasdaq OTC Bulletin Board (or any successor thereto).

            "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
      amended.

            "EXCLUDED STOCK" means the issuance of Common Stock (A) upon
      exercise or conversion of any options or other securities described in
      Schedule 3.1(f) (provided that such exercise or conversion occurs in
      accordance with the terms thereof, without amendment or modification, and
      that the applicable exercise or conversion price or ratio is described in
      such schedule) or otherwise pursuant to any employee benefit plan
      described in Schedule 3.1(f) or hereafter adopted by the Company and
      approved by its stockholders, (B) in connection with any issuance of
      shares or grant of options to employees, officers, directors or
      consultants of the Company pursuant to a stock option plan or other
      incentive stock plan duly adopted by the Company's board of directors or
      in respect of the issuance of Common Stock upon exercise of any such
      options, (C) pursuant to a bona fide firm commitment underwritten public
      offering with a nationally recognized underwriter (excluding any equity
      line) and in an aggregate offering amount equal to or greater than
      $20,000,000, (D) pursuant to the Company's bona fide acquisition of
      another corporation, or all or a portion of its assets, by merger,
      purchase of assets or stock or other corporate reorganization in each
      case, as approved by the Company's board of directors and not for the
      principal purpose of raising capital, or (E) in connection with a bona
      fide joint venture or development agreement or strategic partnership, the
      primary purpose of which is not to raise equity capital.

            "FILING DATE" means September 16, 2003.

            "LIEN" means any lien, charge, claim, security interest,
      encumbrance, right of first refusal or other restriction.

            "LOSSES" means any and all losses, claims, damages, liabilities,
      settlement costs and expenses, including, without limitation, costs of
      preparation and reasonable attorneys' fees.

            "OPTIONS" means any rights, warrants or options to subscribe for or
      purchase Common Stock or Convertible Securities.

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            "PERSON" means any 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 any court or other federal, state, local or other
      governmental authority or other entity of any kind.

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

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

            "REGISTRABLE SECURITIES" means any Common Stock (including
      Underlying Shares) issued or issuable pursuant to the Transaction
      Documents, together with any securities issued or issuable upon any stock
      split, dividend or other distribution, recapitalization or similar event
      with respect to the foregoing.

            "REGISTRATION STATEMENT" means each registration statement required
      to be filed under Article VI, including (in each case) the Prospectus,
      amendments and supplements to such registration statement or Prospectus,
      including pre- and post-effective amendments, all exhibits thereto, and
      all material incorporated by reference or deemed to be incorporated by
      reference in such registration statement.

            "REQUIRED EFFECTIVENESS DATE" means December 5, 2003.

            "RULE 144," "RULE 415," and "RULE 424" means Rule 144, Rule 415 and
      Rule 424, respectively, promulgated by the Commission pursuant to the
      Securities Act, as such Rules may be amended from time to time, or any
      similar rule or regulation hereafter adopted by the Commission having
      substantially the same effect as such Rule.

            "SECURITIES" means the Shares, the Warrants and the Underlying
      Shares.

            "SECURITIES ACT" means the Securities Act of 1933, as amended.

            "SHARES" means an aggregate of Seven Hundred Thousand (700,000)
      shares of Common Stock, which are being issued and sold to the Purchasers
      at the Closing.

            "SUBSIDIARY" means any Person in which the Company, directly or
      indirectly, owns capital stock or holds an equity or similar interest that
      are required to be listed in Schedule 3.1(a).

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            "TRADING DAY" means (a) any day on which the Common Stock is listed
      or quoted and traded on its primary Trading Market, (b) if the Common
      Stock is not then listed or quoted and traded on any Eligible Market, then
      a day on which trading occurs on the Nasdaq National Market (or any
      successor thereto), or (c) if trading does not occur on the Nasdaq
      National Market (or any successor thereto), any Business Day.

            "TRADING MARKET" means the Nasdaq National Market or any other
      Eligible Market on which the Common Stock is then listed or quoted.

            "TRANSACTION DOCUMENTS" means this Agreement, the Warrants, the
      Transfer Agent Instructions and any other documents or agreements executed
      in connection with the transactions contemplated hereunder.

            "TRANSFER AGENT" means North American Transfer Company, or any other
      transfer agent selected by the Company.

            "TRANSFER AGENT INSTRUCTIONS" means the Irrevocable Transfer Agent
      Instructions, in the form of Exhibit D, executed by the Company and
      delivered to and acknowledged in writing by the Transfer Agent.

            "UNDERLYING SHARES" means the shares of Common Stock issuable upon
      exercise of the Warrants and any securities issued in exchange for or in
      respect of such shares.

            "WARRANTS" means, collectively, the Common Stock purchase warrants
      issued and sold under this Agreement, in the form of Exhibit A, and any
      warrants issued upon exercise of such warrants.

                                   ARTICLE II
                                PURCHASE AND SALE

      2.1 Closing. Subject to the terms and conditions set forth in this
Agreement, at the Closing the Company shall issue and sell to each Purchaser,
and each Purchaser shall, severally and not jointly, purchase from the Company,
such number of Shares and a Warrant to purchase such number of Underlying
Shares, each as indicated below such Purchaser's name on the signature page of
this Agreement, for an aggregate purchase price for such Purchaser as indicated
below such Purchaser's name on the signature page of this Agreement. The Closing
shall take place at the offices of Proskauer Rose LLP immediately following the
execution hereof, or at such other location or time as the parties may agree.

      2.2 Closing Deliveries.

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

                        (i) one or more stock certificates, free and clear of
            all restrictive and other legends (except as expressly provided in
            Section 4.1(b) hereof), evidencing the number of Shares indicated
            below such Purchaser's name on the signature page of this Agreement,
            registered in the name of such Purchaser;

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                        (ii) a Warrant, registered in the name of such
            Purchaser, pursuant to which such Purchaser shall have the right to
            acquire the number of Underlying Shares indicated below such
            Purchaser's name on the signature page of this Agreement, on the
            terms set forth therein;

                        (iii) a legal opinion of Company Counsel, in the form of
            Exhibit B, executed by such counsel and delivered to the Purchasers;
            and

                        (iv) duly executed Transfer Agent Instructions
            acknowledged by the Transfer Agent.

                  (b) At the Closing, each Purchaser shall deliver or cause to
      be delivered to the Company the purchase price indicated below such
      Purchaser's name on the signature page of this Agreement, in United States
      dollars and in immediately available funds, by wire transfer to an account
      designated in writing by the Company for such purpose.

                                  ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

      3.1 Representations and Warranties of the Company. The Company hereby
represents and warrants to each of the Purchasers as follows:

                  (a) Subsidiaries. The Company has no direct or indirect
      Subsidiaries other than those listed in Schedule 3.1(a). Except as
      disclosed in Schedule 3.1(a), the Company owns, directly or indirectly,
      all of the capital stock or comparable equity interests of each Subsidiary
      free and clear of any Lien, and all the issued and outstanding shares of
      capital stock or comparable equity interests of each Subsidiary are
      validly issued and are fully paid, non-assessable and free of preemptive
      and similar rights.

                  (b) Organization and Qualification. Each of the Company and
      the Subsidiaries is an entity duly 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 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
      do 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, individually or in the aggregate, (i) adversely affect the
      legality, validity or enforceability of any Transaction Document, (ii)
      have or result in a material adverse effect on the results of operations,
      assets, prospects, business or condition (financial or otherwise) of the
      Company and the Subsidiaries, taken as a whole, or (iii) adversely impair
      the Company's ability to perform fully on a timely basis its obligations
      under any of the Transaction Documents (any of (i), (ii) or (iii), a
      "MATERIAL ADVERSE EFFECT").

                  (c) Authorization; Enforcement. The Company has the requisite
      corporate power and authority to enter into and to consummate the
      transactions contemplated by each of

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      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 consent or
      action is required by the Company, its Board of Directors or its
      stockholders. Each of the Transaction Documents has been (or upon delivery
      will be) duly executed by the Company and is, or when delivered in
      accordance with the terms hereof, will constitute, the valid and binding
      obligation of the Company enforceable against the Company in accordance
      with its terms.

                  (d) No Conflicts. The execution, delivery and performance of
      the Transaction Documents by the Company and the consummation by the
      Company of the 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, (ii) conflict with, or constitute a
      default (or an event that with notice or lapse of time or both would
      become a default) under, or give to others any rights of termination,
      amendment, acceleration or cancellation (with or without notice, lapse of
      time or both) of, any agreement, credit facility, debt or other instrument
      (evidencing a Company 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, except to the extent that such conflict, default or termination
      right could not reasonably be expected to have a Material Adverse Effect,
      or (iii) result in a violation of any law, rule, regulation, order,
      judgment, injunction, decree or other restriction of any court or
      governmental authority to which the Company or a Subsidiary is subject
      (including federal and state securities laws and regulations and the rules
      and regulations of any self-regulatory organization to which the Company
      or its securities are subject), or by which any property or asset of the
      Company or a Subsidiary is bound or affected.

                  (e) Issuance of the Securities. The Securities (including the
      Underlying Shares) are duly authorized and, when issued and paid for in
      accordance with the Transaction Documents, will be duly and validly
      issued, fully paid and nonassessable, free and clear of all Liens and
      shall not be subject to preemptive rights or similar rights of
      stockholders. The Company has reserved from its duly authorized capital
      stock the number of shares of Common Stock issuable upon exercise of the
      Warrants.

                  (f) Capitalization. The number of shares and type of all
      authorized, issued and outstanding capital stock, options and other
      securities of the Company (whether or not presently convertible into or
      exercisable or exchangeable for shares of capital stock of the Company) is
      set forth in Schedule 3.1(f). All outstanding shares of capital stock are
      duly authorized, validly issued, fully paid and nonassessable and have
      been issued in compliance with all applicable securities laws. Except as
      disclosed in Schedule 3.1(f), 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

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      Common Stock, or securities or rights convertible or exchangeable into
      shares of Common Stock. There are no anti-dilution or price adjustment
      provisions contained in any security issued by the Company (or in any
      agreement providing rights to security holders) and the issue and sale of
      the Securities (including the Underlying 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 such securities. To the knowledge of the Company, except
      as specifically disclosed in Schedule 3.1(f), no Person or group of
      related Persons beneficially owns (as determined pursuant to Rule 13d-3
      under the Exchange Act), or has the right to acquire, by agreement with or
      by obligation binding upon the Company, beneficial ownership of in excess
      of 5% of the outstanding Common Stock, ignoring for such purposes any
      limitation on the number of shares of Common Stock that may be owned at
      any single time.

                  (g) SEC Reports; Financial Statements. The Company has filed
      all reports required to be filed by it under the Securities Act and the
      Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
      the two years preceding the date hereof (or such shorter period as the
      Company was required by law to file such material) (the foregoing
      materials being collectively referred to herein as the "SEC REPORTS" and,
      together with this Agreement and the Schedules to this Agreement, the
      "DISCLOSURE MATERIALS") 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. The Company has delivered to the
      Purchasers true, correct and complete copies of all SEC Reports filed
      within the ten (10) days preceding the date hereof. As of their respective
      dates, the SEC Reports complied in all material respects with the
      requirements of the Securities Act and the Exchange Act and the rules and
      regulations of the Commission promulgated thereunder, and none of the SEC
      Reports, when filed, contained any untrue statement of a material fact or
      omitted to state a material fact required to be stated therein or
      necessary in order to make the statements therein, in 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
      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. All material agreements to which the Company
      or any Subsidiary is a party or to which the property or assets of the
      Company or any Subsidiary are subject are included as part of or
      specifically identified in the SEC Reports.

                  (h) Material Changes. Since the date of the latest audited
      financial statements included within the SEC Reports, except as
      specifically disclosed in the SEC Reports, (i) there has been no event,
      occurrence or development that, individually or in the aggregate, has had
      or that could result in a Material Adverse Effect, (ii) the Company has
      not incurred any liabilities (contingent or otherwise) other than (A)
      trade payables and accrued

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      expenses incurred in the ordinary course of business consistent with past
      practice and (B) liabilities not required to be reflected in the Company's
      financial statements pursuant to GAAP or required to be disclosed in
      filings made with the Commission, (iii) the Company has not altered its
      method of accounting or the identity of its auditors, (iv) the Company has
      not declared or made any dividend or distribution of cash or other
      property to its stockholders or purchased, redeemed or made any agreements
      to purchase or redeem any shares of its capital stock, and (v) the Company
      has not issued any equity securities to any officer, director or
      Affiliate, except pursuant to existing Company stock option plans.

                  (i) Absence of Litigation. Except as set forth in Schedule
      3.1(i), there is no action, suit, claim, proceeding, inquiry or
      investigation before or by any court, public board, government agency,
      self-regulatory organization or body pending or, to the knowledge of the
      Company, threatened against or affecting the Company or any of its
      Subsidiaries that could, individually or in the aggregate, have a Material
      Adverse Effect. Schedule 3.1(i) contains a complete list and summary
      description of any pending or, to the knowledge of the Company, threatened
      proceeding against or affecting the Company or any of its Subsidiaries
      that could individually or in the aggregate, have a Material Adverse
      Effect.

                  (j) 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 relating to
      taxes, environmental protection, occupational health and safety, product
      quality and safety and employment and labor matters, except in each case
      as could not, individually or in the aggregate, have or result in a
      Material Adverse Effect.

                  (k) 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. Any real property and facilities held under lease by the
      Company and the Subsidiaries are held by them under valid, subsisting and
      enforceable leases of which the Company and the Subsidiaries are in
      compliance.

                  (l) Certain Fees. Except for the fees to Merriman Curhan Ford
      & Co. and described in Schedule 3.1(l), all of which are payable to
      registered broker-dealers, no brokerage or finder's fees or commissions
      are or will be payable by the Company to any broker, financial advisor or
      consultant, finder, placement agent, investment banker, bank or other
      Person with respect to the transactions contemplated by this Agreement,
      and the

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      Company has not taken any action that would cause any Purchaser to be
      liable for any such fees or commissions.

                  (m) Private Placement. Neither the Company nor any Person
      acting on the Company's behalf has sold or offered to sell or solicited
      any offer to buy the Securities by means of any form of general
      solicitation or advertising. Neither the Company nor any of its Affiliates
      nor any Person acting on the Company's behalf has, directly or indirectly,
      at any time within the past six months, made any offer or sale of any
      security or solicitation of any offer to buy any security under
      circumstances that would (i) eliminate the availability of the exemption
      from registration under Regulation D under the Securities Act in
      connection with the offer and sale of the Securities as contemplated
      hereby or (ii) cause the offering of the Securities pursuant to the
      Transaction Documents to be integrated with prior offerings by the Company
      for purposes of any applicable law, regulation or stockholder approval
      provisions, including, without limitation, under the rules and regulations
      of the Trading Market. The Company is not, and is not an Affiliate of, an
      "investment company" within the meaning of the Investment Company Act of
      1940, as amended. The Company is not a United States real property holding
      corporation within the meaning of the Foreign Investment in Real Property
      Tax Act of 1980.

                  (n) Form S-3 Eligibility. The Company is eligible to register
      its Common Stock for resale by the Purchasers using Form S-3 promulgated
      under the Securities Act.

                  (o) Listing and Maintenance Requirements. The Company has not,
      in the two years preceding the date hereof, received notice (written or
      oral) 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.

                  (p) Registration Rights. Except as described in Schedule
      3.1(p), the Company has not granted or agreed to grant to any Person any
      rights (including "piggy-back" registration rights) to have any securities
      of the Company registered with the Commission or any other governmental
      authority that have not been satisfied.

                  (q) Application of Takeover Protections. There is no control
      share acquisition, business combination, poison pill (including any
      distribution under a rights agreement) or other similar anti-takeover
      provision under the Company's charter documents or the laws of its state
      of incorporation that is or could become applicable to any of the
      Purchasers as a result of the Purchasers and the Company fulfilling their
      obligations or exercising their rights under the Transaction Documents,
      including, without limitation, as a result of the Company's issuance of
      the Securities and the Purchasers' ownership of the Securities.

                  (r) Disclosure. 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 constitutes or might
      constitute material, nonpublic information. The Company understands and
      confirms that each of the Purchasers will rely on the foregoing

                                       10
<PAGE>
      representations in effecting transactions in securities of the Company.
      All disclosure provided to the Purchasers regarding the Company, its
      business and the transactions contemplated hereby, including the Schedules
      to this Agreement, furnished by or on behalf of the Company are true and
      correct and do not contain any untrue statement of a material fact or omit
      to state any material fact necessary in order to make the statements made
      therein, in the light of the circumstances under which they were made, not
      misleading. No event or circumstance has occurred or information exists
      with respect to the Company or any of its Subsidiaries or its or their
      business, properties, prospects, operations or financial condition, which,
      under applicable law, rule or regulation, requires public disclosure or
      announcement by the Company but which has not been so publicly announced
      or disclosed. 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.

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

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

                  (u) 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. 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.

                  (v) 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

                                       11
<PAGE>
      Reports, except where the failure to possess such permits could not,
      individually or in the aggregate, have or 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.

                  (w) Transactions With Affiliates and Employees. Except as set
      forth in SEC Reports filed at least ten days prior to the date hereof,
      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.

                  (x) Solvency. Based on the financial condition of the Company
      as of the Closing Date, (i) the Company's fair saleable value of its
      assets exceeds the amount that will be required to be paid on or in
      respect of the Company's existing debts and other liabilities (including
      known contingent liabilities) as they mature; (ii) the Company's assets do
      not constitute unreasonably small capital to carry on its business for the
      current fiscal year as now conducted and as proposed to be conducted
      including its capital needs taking into account the particular capital
      requirements of the business conducted by the Company, and projected
      capital requirements and capital availability thereof; and (iii) the
      current cash flow of the Company, together with the proceeds the Company
      would receive, were it to liquidate all of its assets, after taking into
      account all anticipated uses of the cash, would be sufficient to pay all
      amounts on or in respect of its debt when such amounts are required to be
      paid. The Company does not intend to incur debts beyond its ability to pay
      such debts as they mature (taking into account the timing and amounts of
      cash to be payable on or in respect of its debt).

                  (y) Internal Accounting Controls. 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 generally accepted accounting principles 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.

      3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, as to itself only and for no other Purchaser, represents and warrants 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 the requisite 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

                                       12
<PAGE>
      obligations hereunder and thereunder. The purchase by such Purchaser of
      the Shares and the Warrants hereunder has been duly authorized by all
      necessary action on the part of such Purchaser. This Agreement has been
      duly executed and delivered by such Purchaser and constitutes the valid
      and binding obligation of such Purchaser, enforceable against it in
      accordance with its terms.

                  (b) Investment Intent. Such Purchaser is acquiring the
      Securities as principal for its own account for investment purposes only
      and not with a view to or for distributing or reselling such Securities or
      any part thereof, without prejudice, however, to such Purchaser's right,
      subject to the provisions of this Agreement, at all times to sell or
      otherwise dispose of all or any part of such Securities pursuant to an
      effective registration statement under the Securities Act or under an
      exemption from such registration and in compliance with applicable federal
      and state securities laws. Nothing contained herein shall be deemed a
      representation or warranty by such Purchaser to hold Securities for any
      period of time. Such Purchaser does not have any agreement or
      understanding, directly or indirectly, with any Person to distribute any
      of the Securities.

                  (c) Purchaser Status. At the time such Purchaser was offered
      the Shares and the Warrants, it was, and at the date hereof it is, an
      "accredited investor" as defined in Rule 501(a) under the Securities Act.

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

                  (e) Access to Information. Such Purchaser acknowledges that it
      has reviewed the Disclosure Materials and has been afforded (i) the
      opportunity to ask such questions as it has deemed necessary of, and to
      receive answers from, representatives of the Company concerning the terms
      and conditions of the offering of the Securities and the merits and risks
      of investing in the Securities; (ii) access to information about the
      Company and the Subsidiaries and their respective financial condition,
      results of operations, business, properties, management and prospects
      sufficient to enable it to evaluate its investment; and (iii) the
      opportunity to obtain such additional information that the Company
      possesses or can acquire without unreasonable effort or expense that is
      necessary to make an informed investment decision with respect to the
      investment. In particular, such Purchaser acknowledges that the Company
      has offered to provide, subject to confidentiality, each Purchaser with
      certain non-public information regarding the Company and its business and
      prospects and certain risks in connection therewith, and such Purchaser
      has declined to accept such offer and has agreed to purchase the
      Securities hereunder regardless of the materiality of such information.
      Such Purchaser further acknowledges the risks of an investment in the
      Securities, including, without limitation, the risks set forth on Schedule
      3.2(e) and as otherwise set forth in the Company's SEC Reports. Neither
      such inquiries nor any other investigation conducted by or on behalf of
      such Purchaser or its representatives or counsel shall modify, amend or
      affect such Purchaser's right to rely on the truth, accuracy and

                                       13
<PAGE>
      completeness of the information set forth in the Disclosure Materials and
      the Company's representations and warranties contained in the Transaction
      Documents.

            (f) Certain Trading Limitations. Each Purchaser agrees that
beginning on the date hereof until the earlier to occur of (a) 90 days from the
Closing Date and (b) the effective date of the Registration Statement to be
filed in connection with the sale of the Company Shares, it will not enter into
any Short Sales. For purposes of this Section 3.2(f), a "SHORT SALE" by a
Purchaser means a sale of Common Stock that is marked as a short sale and that
is executed at a time when such Purchaser has no equivalent offsetting long
position in the Common Stock. For purposes of determining whether a Purchaser
has an equivalent offsetting long position in the Common Stock, all Common Stock
and all Common Stock that would be issuable upon conversion or exercise in full
of all Options then held by such Purchaser (assuming that such Options were then
fully convertible or exercisable, notwithstanding any provisions to the
contrary, and giving effect to any conversion or exercise price adjustments
scheduled to take effect in the future) shall be deemed to be held long by such
Purchaser.

                                   ARTICLE IV
                         OTHER AGREEMENTS OF THE PARTIES

      4.1 Transfer Restrictions.

            (a) Each Purchaser shall sell, transfer or otherwise dispose of the
Securities only pursuant to an effective registration statement under the
Securities Act or pursuant to an available exemption from the registration
requirements of the Securities Act, and in compliance with any applicable state
securities laws. In connection with any transfer of Securities other than
pursuant to an effective registration statement or to the Company or pursuant to
paragraph (k) of Rule 144, except as otherwise set forth herein, the Company may
require the transferor to provide to the Company an opinion of counsel selected
by the transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration under the Securities Act. Notwithstanding the foregoing, the
Company hereby consents to and agrees to register on the books of the Company
and with its Transfer Agent, without any such legal opinion, any transfer of
Securities by a Purchaser to an Affiliate of such Purchaser, provided that the
transferee certifies to the Company that it is an "accredited investor" as
defined in Rule 501(a) under the Securities Act.

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

      [NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES
      ARE EXERCISABLE] 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

                                       14
<PAGE>
      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.
      NOTWITHSTANDING THE FOREGOING, THESE SECURITIES [AND THE SECURITIES
      ISSUABLE UPON EXERCISE OF THESE SECURITIES] MAY BE PLEDGED IN CONNECTION
      WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT
      SECURED BY SUCH SECURITIES.

Certificates evidencing Securities shall not be required to contain such legend
or any other legend (i) while a Registration Statement covering the resale of
such Securities is effective under the Securities Act, or (ii) following any
sale of such Securities pursuant to Rule 144, or (iii) if such Securities are
eligible for sale under paragraph (k) of Rule 144, or (iv) if such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the Commission). The
Company shall cause its counsel to issue the legal opinion included in the
Transfer Agent Instructions to the Transfer Agent on the Effective Date.
Following the Effective Date or at such earlier time as a legend is no longer
required for certain Securities, the Company will no later than three Trading
Days following the delivery by a Purchaser to the Company or the Transfer Agent
of a legended certificate representing such Securities, deliver or cause to be
delivered to such Purchaser a certificate representing such Securities that is
free from all restrictive and other legends. The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this Section.

            (c) The Company acknowledges and agrees that a Purchaser may from
time to time pledge or grant a security interest in some or all of the
Securities in connection with a bona fide margin agreement or other loan or
financing arrangement secured by the Securities and, if required under the terms
of such agreement, loan or arrangement, such Purchaser may transfer pledged or
secured Securities to the pledgees or secured parties. Such a pledge or transfer
would not be subject to approval of the Company and no legal opinion of the
pledgee, secured party or pledgor shall be required in connection therewith.
Further, no notice shall be required of such pledge. At the appropriate
Purchaser's expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may reasonably request
in connection with a pledge or transfer of the Securities, including the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) of the Securities Act or other applicable provision of the Securities
Act to appropriately amend the list of selling stockholders thereunder.

      4.2 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. Upon the request
of any Purchaser, the Company shall deliver to such Purchaser a written
certification of a duly authorized officer as to whether it has complied with
the preceding sentence. As long as any Purchaser owns Securities, if the Company
is not required to file reports pursuant to such laws, it will prepare and
furnish to the Purchasers and make publicly available in accordance with
paragraph (c) of Rule 144 such information as is

                                       15
<PAGE>
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request to satisfy the provisions of Rule 144
applicable to the issuer of securities relating to transactions for the sale of
securities pursuant to Rule 144.

      4.3 Integration. The Company shall not, and shall use its best efforts to
ensure that no Affiliate of the Company shall, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers, or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.

      4.4 Reservation of Securities. The Company shall maintain a reserve from
its duly authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents. In the event that at any
time the then authorized shares of Common Stock are insufficient for the Company
to satisfy its obligations in full under the Transaction Documents, the Company
shall promptly take such actions as may be required to increase the number of
authorized shares.

      4.5 Subsequent Placements.

            (a) From the date hereof until the Effective Date (the "BLOCKOUT
PERIOD"), the Company will not, directly or indirectly, offer, sell, grant any
option to purchase, or otherwise dispose of (or announce any offer, sale, grant
or any option to purchase or other disposition of) any of its or the
Subsidiaries' equity or equity equivalent securities, including without
limitation any debt, preferred stock or other instrument or security that is, at
any time during its life and under any circumstances, convertible into or
exchangeable or exercisable for Common Stock or Common Stock Equivalents (any
such offer, sale, grant, disposition or announcement being referred to as a
"SUBSEQUENT PLACEMENT").

            (b) The Blockout Period set forth in the preceding paragraph (a)
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, (ii) the
Registration Statement is not effective, or (iii) the prospectus included in the
Registration Statement may not be used by the Purchasers for the resale of
Registrable Securities thereunder.

            (c) From the end of the Blockout Period until the one year
anniversary thereof, the Company will not, directly or indirectly, effect any
Subsequent Placement unless the Company shall have first complied with this
Section 4.5(c).

                  (i) The Company shall deliver to each Purchaser a written
      notice (the "OFFER") of any proposed or intended issuance or sale or
      exchange of the securities being offered (the "OFFERED SECURITIES") in a
      Subsequent Placement, which Offer shall (w) identify and describe the
      Offered Securities, (x) describe the price and other terms upon which they
      are to be issued, sold or exchanged, and the number or amount of the
      Offered Securities to be issued, sold or exchanged, (y) identify the
      Persons or entities (if known) to which or with which the Offered
      Securities are to be offered, issued, sold or exchanged

                                       16
<PAGE>
      and (z) offer to issue and sell to or exchange with each Purchaser on the
      same terms as those set forth in the Subsequent Placement a pro-rata
      portion of fifty percent (50%) of the Offered Securities, based on such
      Purchaser's pro rata portion of the aggregate purchase price paid by the
      Purchasers for all of the Shares purchased hereunder (the "BASIC AMOUNT"),
      and with respect to each Purchaser that elects to purchase its Basic
      Amount, any additional portion of the Offered Securities attributable to
      the Basic Amounts of other Purchasers as such Purchaser shall indicate it
      will purchase or acquire should the other Purchasers subscribe for less
      than their Basic Amounts (the "UNDERSUBSCRIPTION AMOUNT").

                  (ii) To accept an Offer, in whole or in part, a Purchaser must
      deliver a subscription agreement or other subscription document in
      accordance with the terms of the offering for such Subsequent Placement
      prior to the end of the ten (10) Trading Day period of the Offer, setting
      forth the portion of the Purchaser's Basic Amount that such Purchaser
      elects to purchase (the "SUBSCRIPTION AGREEMENT") and, if such Purchaser
      shall elect to purchase all of its Basic Amount, a written notice setting
      forth the Undersubscription Amount, if any, that such Purchaser elects to
      purchase (in either case, the "NOTICE OF ACCEPTANCE"). If the Basic
      Amounts subscribed for by all Purchasers are less than the total of all of
      the Basic Amounts, then each Purchaser who has set forth an
      Undersubcription Amount in its Notice of Acceptance shall be entitled to
      purchase, in addition to the Basic Amounts subscribed for, the
      Undersubscription Amount it has subscribed for by submitting an additional
      Subscription Agreement for such Undersubscription Amount; provided,
      however, that if the Undersubscription Amounts subscribed for exceed the
      difference between the total of all the Basic Amounts and the Basic
      Amounts subscribed for (the "AVAILABLE UNDERSUBSCRIPTION AMOUNT"), each
      Purchaser who has subscribed for any Undersubscription Amount shall be
      entitled to purchase on that portion of the Available Undersubscription
      Amount as the Basic Amount of such Purchaser bears to the total Basic
      Amounts of all Purchasers that have subscribed for Undersubscription
      Amounts, subject to rounding by the Board of Directors to the extent its
      deems reasonably necessary. A Purchaser may subscribe for Offered
      Securities in addition to a Purchaser's Basic Amount of such Offered
      Securities and its pro rata share of any Available Undersubscription
      Amount of such Offered Securities (such additional Offered Securities
      being referred to herein as the "ADDITIONAL AMOUNT"), by submitting a
      Subscription Agreement with respect to such Additional Amount in
      accordance with the terms of the offering of such Offered Securities prior
      to the expiration of the offering period of such Subsequent Placement.

                  (iii) If the Company closes the sale or exchange of Offered
      Securities in accordance with the terms of the Subsequent Placement, then
      the Company shall be required to accept at such closing each Purchaser's
      Subscription Agreements with respect to its Basic Amount and its pro rata
      share of the Available Undersubscription Amount, if any, and may, but
      shall not be required to, accept such Purchaser's Subscription Agreement
      with respect to any Additional Amount, all in accordance with the same
      terms and conditions of sales of Offered Shares to third party purchasers
      in the Subsequent Placement.

                                       17
<PAGE>
            (d) The restrictions contained in paragraphs (a) and (c) of this
Section shall not apply to Excluded Stock.

      4.6 Securities Laws Disclosure; Publicity. The Company shall, on or before
9:30a.m., Eastern Standard Time, on August 18, 2003, issue a press release
acceptable to the Purchasers disclosing all material terms of the transactions
contemplated hereby. On the Closing Date, the Company shall file a Current
Report on Form 8-K with the Commission (the "8-K FILING") describing the terms
of the transactions contemplated by the Transaction Documents and including as
exhibits to such Current Report on Form 8-K this Agreement and the form of
Warrants, in the form required by the Exchange Act. Thereafter, the Company
shall timely file any filings and notices required by the Commission or
applicable law with respect to the transactions contemplated hereby and provide
copies thereof to the Purchasers promptly after filing. Except with respect to
the 8-K Filing (a copy of which will be provided to the Purchasers for their
review as early as practicable prior to its filing), the Company shall, at least
two Trading Days prior to the filing or dissemination of any disclosure required
by this paragraph, provide a copy thereof to the Purchasers for their review.
The Company and the Purchasers shall consult with each other in issuing any
press releases or otherwise making public statements or filings and other
communications with the Commission or any regulatory agency or Trading Market
with respect to the transactions contemplated hereby, and neither party shall
issue any such press release or otherwise make any such public statement, filing
or other communication without the prior consent of the other, 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, filing or
other 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 to the
extent such disclosure (but not any disclosure as to the controlling Persons
thereof) is required by law or Trading Market regulations, in which case the
Company shall provide the Purchasers with prior notice of such disclosure. The
Company shall not, and shall cause each of its Subsidiaries and its and each of
their respective officers, directors, employees and agents not to, provide any
Purchaser with any material nonpublic information regarding the Company or any
of its Subsidiaries from and after the filing of the 8-K Filing without the
express written consent of such Purchaser. In the event of a breach of the
foregoing covenant by the Company, any of its Subsidiaries, or any of its or
their respective officers, directors, employees and agents, in addition to any
other remedy provided herein or in the Transaction Documents, a Purchaser shall
have the right to make a public disclosure, in the form of a press release,
public advertisement or otherwise, of such material nonpublic information
without the prior approval by the Company, its Subsidiaries, or any of its or
their respective officers, directors, employees or agents. No Purchaser shall
have any liability to the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees, stockholders or agents for any such
disclosure. Subject to the foregoing, neither the Company nor any Purchaser
shall issue any press releases or any other public statements with respect to
the transactions contemplated hereby; provided, however, that the Company shall
be entitled, without the prior approval of any Purchaser, to make any press
release or other public disclosure with respect to such transactions (i) in
substantial conformity with the 8-K Filing and contemporaneously therewith and
(ii) as is required by applicable law and regulations (provided that in the case
of clause (i) each Purchaser shall be consulted by the Company in connection
with any such press release or other public disclosure prior to its release).
Each press release disseminated during the

                                       18
<PAGE>
12 months preceding the date of this Agreement did not at the time of release
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not misleading

      4.7 Use of Proceeds. The Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes strategic acquisitions
of companies, lines of business, products or technologies, joint ventures, or
other business partnerships or strategic initiatives, or research and
development, but not for the satisfaction of any portion of the Company's debt
(other than payment of trade payables and accrued expenses in the ordinary
course of the Company's business and consistent with prior practices), to redeem
any Company equity or equity-equivalent securities or to settle any outstanding
litigation.

      4.8 Reimbursement. If any Purchaser or any of its Affiliates or any
officer, director, partner, controlling Person, employee or agent of a Purchaser
or any of its Affiliates (a "RELATED PERSON") becomes involved in any capacity
in any Proceeding brought by or against any Person in connection with or as a
result of the transactions contemplated by the Transaction Documents, the
Company will indemnify and hold harmless such Purchaser or Related Person for
its reasonable legal and other expenses (including the costs of any
investigation, preparation and travel) and for any Losses incurred in connection
therewith, as such expenses or Losses are incurred, excluding only Losses that
result directly from such Purchaser's or Related Person's gross negligence or
willful misconduct. The conduct of any Proceedings for which indemnification is
available under this paragraph shall be governed by Section 6.4(c) below. The
indemnification obligations of the Company under this paragraph shall be in
addition to any liability that the Company may otherwise have and shall be
binding upon and inure to the benefit of any successors, assigns, heirs and
personal representatives of the Purchasers and any such Related Persons. The
Company also agrees that neither the Purchasers nor any Related Persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company in connection with or as a result of the transactions
contemplated by the Transaction Documents, except to the extent that any Losses
incurred by the Company result from the gross negligence or willful misconduct
of the applicable Purchaser or Related Person in connection with such
transactions.

                                    ARTICLE V
                                   CONDITIONS

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

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

            (b) Performance. The Company and each other Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and

                                       19
<PAGE>
conditions required by the Transaction Documents to be performed, satisfied or
complied with by it at or prior to the Closing.

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

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

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

                                   ARTICLE VI
                               REGISTRATION RIGHTS

      6.1 Shelf Registration

            (a) As promptly as possible, and in any event on or prior to the
Filing Date, the Company shall prepare and file with the Commission a "Shelf"
Registration Statement covering the resale of all Registrable Securities for an
offering to be made on a continuous basis pursuant to Rule 415. The Registration
Statement shall be on Form S-3 (except if the Company is not then eligible to
register for resale the Registrable Securities on Form S-3, in which case such
registration shall be on another appropriate form in accordance herewith as the
Purchasers may consent) and shall contain (except if otherwise directed by the
Purchasers) the "Plan of Distribution" attached hereto as Exhibit C.

            (b) The Company shall use its commercially reasonably efforts to
cause the Registration Statement to be declared effective by the Commission as
promptly as possible after the filing thereof, but in any event prior to the
Required Effectiveness Date, and shall use its commercially reasonable efforts
to keep the Registration Statement continuously effective under the Securities
Act until the earliest of (x) the fifth anniversary of the Effective Date, (y)
the date on which all Registrable Securities covered by such Registration
Statement have been sold or (z) the date on which all Registrable Securities
then held by the Purchasers may be sold without registration under paragraph (k)
of Rule 144 of the Securities Act (the "EFFECTIVENESS PERIOD").

            (c) The Company shall notify each Purchaser in writing promptly (and
in any event within one Trading Day) after receiving notification from the
Commission that the Registration Statement has been declared effective.

            (d) Upon the occurrence of any Event (as defined below) during the
Effectiveness Period and on every monthly anniversary thereof until the
applicable Event is cured, as partial relief for the damages suffered therefrom
by the Purchasers (which remedy shall not be exclusive of any other remedies
available under this Agreement, at law or in

                                       20
<PAGE>
equity), the Company shall pay to each Purchaser an amount in cash, as
liquidated damages and not as a penalty, equal to 1% of the aggregate purchase
price paid by such Purchaser hereunder for the Securities then held by such
Purchaser for the first month and 2% for each month thereafter. The payments to
which a Purchaser shall be entitled pursuant to this Section 6.1(d) are referred
to herein as "EVENT Payments". Any Event Payments payable pursuant to the terms
hereof shall apply on a pro-rata basis for any portion of a month prior to the
cure of an Event.

For such purposes, each of the following shall constitute an "EVENT":

            (i) the Registration Statement is not filed on or prior to the
      Filing Date or is not declared effective on or prior to the Required
      Effectiveness Date;

            (ii) after the Effective Date, a Purchaser is not permitted to sell
      Registrable Securities under the Registration Statement (or a subsequent
      Registration Statement filed in replacement thereof) for any reason for 10
      or more Trading Days (whether or not consecutive) in any period of 12
      consecutive months;

            (iii) after the Effective Date, any Registrable Securities covered
      by such Registration Statement are not listed on an Eligible Market;

            (iv) the Common Stock is not listed or quoted, or is suspended from
      trading, on an Eligible Market for a period of 10 Trading Days (which need
      not be consecutive Trading Days);

            (v) the Company fails for any reason to deliver a certificate
      evidencing any Securities to a Purchaser within three Trading Days after
      delivery of such certificate is required pursuant to any Transaction
      Document; or

            (vi) the Company fails to have available a sufficient number of
      authorized but unissued and otherwise unreserved shares of Common Stock
      available to issue Underlying Shares upon any exercise of the Warrants or,
      at any time following the Effective Date, any Shares or Underlying Shares
      are not listed on an Eligible Market.

            (e) If any Event occurs and remains uncured for 60 days, then at any
time or times thereafter any Purchaser may deliver to the Company a notice (a
"REPURCHASE NOTICE") requiring the Company to repurchase all or any portion of
the Shares and any Underlying Shares then held by such Purchaser at a price (the
"REPURCHASE PRICE") per share equal to 100% of the average of the Closing Prices
for the five Trading Days preceding either (a) the date of delivery of the
notice requiring such repurchase, or (b) the date on which the applicable
repurchase price (together with any other payments, expenses and liquidated
damages then due and payable under the Transaction Documents) is paid in full,
whichever is greater. If a Purchaser delivers a Repurchase Notice pursuant to
this Section, the Company shall pay the aggregate Repurchase Price (together
with any other payments, expenses and liquidated damages then due and payable
pursuant to the Transaction Documents) to such Purchaser no later than the fifth
Trading Day following the date of delivery of the Repurchase Notice, and upon
receipt thereof such Purchaser shall deliver original certificates evidencing

                                       21
<PAGE>
the Securities so repurchased to the Company (to the extent such certificates
have been delivered to such Purchaser). Notwithstanding the foregoing,
immediately upon the occurrence of a Bankruptcy Event, each Purchaser will
automatically be deemed to have delivered a Repurchase Notice pursuant to this
paragraph and will be entitled to receive the corresponding Repurchase Price
without any further action or notice to the Company.

            (f) The Company shall not, prior to the Effective Date of the
Registration Statement, prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of others
under the Securities Act of any of its equity securities except for a
registration statement on Form S-8.

      6.2 Registration Procedures. In connection with the Company's registration
obligations hereunder, the Company shall:

            (a) Not less than three Trading Days prior to the filing of a
Registration Statement or any related Prospectus or any amendment or supplement
thereto, the Company shall (i) furnish to each Purchaser and any counsel
designated by any Purchaser (each, a "PURCHASER COUNSEL", and Mainfield
Enterprises, Inc. has initially designated Proskauer Rose LLP) copies of such
Registration Statement, amendment or supplement proposed to be filed, which
documents will be subject to the review of such Purchasers and each Purchaser
Counsel, and (ii) cause its officers and directors, counsel and independent
certified public accountants to respond to such inquiries as shall be necessary,
in the reasonable opinion of each Purchaser Counsel, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file a Registration Statement or any such Prospectus or any amendments or
supplements thereto to which Purchasers holding a majority of the Registrable
Securities shall reasonably object.

            (b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to each Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep the
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
such additional Registration Statements in order to register for resale under
the Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424; (iii)
respond as promptly as reasonably possible, and in any event within ten days, to
any comments received from the Commission with respect to the Registration
Statement or any amendment thereto and as promptly as reasonably possible
provide the Purchasers true and complete copies of all correspondence from and
to the Commission relating to the Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange Act
with respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Purchasers thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented

            (c) Notify the Purchasers of Registrable Securities to be sold and
each Purchaser Counsel as promptly as reasonably possible, and (if requested by
any such Person)

                                       22
<PAGE>
confirm such notice in writing no later than one Trading Day thereafter, of any
of the following events: (i) the Commission notifies the Company whether there
will be a "review" of any Registration Statement; (ii) the Commission comments
in writing on any Registration Statement (in which case the Company shall
deliver to each Purchaser a copy of such comments and of all written responses
thereto); (iii) any Registration Statement or any post-effective amendment is
declared effective; (iv) the Commission or any other Federal or state
governmental authority requests any amendment or supplement to any Registration
Statement or Prospectus or requests additional information related thereto; (v)
the Commission issues any stop order suspending the effectiveness of any
Registration Statement or initiates any Proceedings for that purpose; (vi) the
Company receives notice of any suspension of the qualification or exemption from
qualification of any Registrable Securities for sale in any jurisdiction, or the
initiation or threat of any Proceeding for such purpose; or (vii) the financial
statements included in any Registration Statement become ineligible for
inclusion therein or any statement made in any Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference is untrue in any material respect or any revision to a Registration
Statement, Prospectus or other document is required so that it will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.

            (d) Use its commercially reasonable efforts to avoid the issuance of
or, if issued, obtain the withdrawal of (i) any order suspending the
effectiveness of any Registration Statement, or (ii) any suspension of the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, at the earliest practicable moment.

            (e) Furnish to each Purchaser and each Purchaser Counsel, without
charge, at least one conformed copy of each Registration Statement and each
amendment thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.

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

            (g) (i) In the time and manner required by each Trading Market,
prepare and file with such Trading Market an additional shares listing
application covering all of the Registrable Securities; (ii) take all steps
necessary to cause such Registrable Securities to be approved for listing on
each Trading Market as soon as possible thereafter; (iii) provide to the
Purchasers evidence of such listing; and (iv) maintain the listing of such
Registrable Securities on each such Trading Market or another Eligible Market.

                                       23
<PAGE>
            (h) Prior to any public offering of Registrable Securities, use its
commercially reasonable efforts to register or qualify or cooperate with the
selling Purchasers and each applicable Purchaser Counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or blue sky laws of such jurisdictions within the United States as
any Purchaser requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise subject.

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

            (j) Upon the occurrence of any event described in Section
6.2(c)(vii), as promptly as reasonably possible, prepare a supplement or
amendment, including a post-effective amendment, to the Registration Statement
or a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.

            (k) Cooperate with any due diligence investigation undertaken by the
Purchasers in connection with the sale of Registrable Securities, including
without limitation by making available any documents and information; provided
that the Company will not deliver or make available to any Purchaser material,
nonpublic information unless such Purchaser specifically requests in advance to
receive material, nonpublic information in writing.

            (l) If Holders of a majority of the Registrable Securities being
offered pursuant to a Registration Statement select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, by providing customary legal opinions, comfort letters and
indemnification and contribution obligations.

            (m) Comply with all applicable rules and regulations of the
Commission.

            (n) Notwithstanding anything to the contrary in this Section 6.2, at
any time after the Registration Statement has been declared effective, the
Company may delay the disclosure of material, non-public information concerning
the Company the disclosure of

                                       24
<PAGE>
which at the time is not, in the good faith opinion of the Board of Directors of
the Company and its counsel, in the best interest of the Company and, in the
opinion of counsel to the Company, otherwise required (a "GRACE PERIOD");
provided, that the Company shall promptly (i) notify the Purchasers in writing
of the existence of material, non-public information giving rise to a Grace
Period and the date on which the Grace Period will begin, and (ii) notify the
Purchasers in writing of the date on which the Grace Period ends; and, provided
further, that during any consecutive 365 day period, there shall be no more than
2 such Grace Periods and that the total of all such Grace Periods shall not
exceed 20 Trading Days. For purposes of determining the length of a Grace Period
above, the Grace Period shall begin on and include the date the Purchasers
receive the notice referred to in clause (i) above and shall end on and include
the date the Purchasers receive the notice referred to in clause (ii) above.

      6.3 Registration Expenses. The Company shall pay (or reimburse the
Purchasers for) all fees and expenses incident to the performance of or
compliance with this Agreement by the Company, including without limitation (a)
all registration and filing fees and expenses, including without limitation
those related to filings with the Commission, any Trading Market and in
connection with applicable state securities or Blue Sky laws, (b) printing
expenses (including without limitation expenses of printing certificates for
Registrable Securities and of printing prospectuses requested by the
Purchasers), (c) messenger, telephone and delivery expenses, (d) fees and
expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement, and (e) all
listing fees to be paid by the Company to the Trading Market.

      6.4 Indemnification

            (a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Purchaser, the officers, directors, partners, members, agents, brokers
(including brokers who offer and sell Registrable Securities as principal as a
result of a pledge or any failure to perform under a margin call of Common
Stock), investment advisors and employees of each of them, each Person who
controls any such Purchaser (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) and the officers, directors, partners,
members, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all Losses, as
incurred, arising out of or relating to any untrue or alleged untrue statement
of a material fact contained in the Registration Statement, any Prospectus or
any form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, except to the extent, but only to the extent, that (i)
such untrue statements, alleged untrue statements, omissions or alleged
omissions are based solely upon information regarding such Purchaser furnished
in writing to the Company by such Purchaser expressly for use therein, or to the
extent that such information relates to such Purchaser or such Purchaser's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Purchaser expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (ii) in the case of an occurrence of an event
of the type specified in

                                        25
<PAGE>
Section 6.2(c)(v)-(vii), the use by such Purchaser of an outdated or defective
Prospectus after the Company has notified such Purchaser in writing that the
Prospectus is outdated or defective and prior to the receipt by such Purchaser
of the Advice contemplated in Section 6.5. The Company shall notify the
Purchasers promptly of the institution, threat or assertion of any Proceeding of
which the Company is aware in connection with the transactions contemplated by
this Agreement.

            (b) Indemnification by Purchasers. Each Purchaser shall, severally
and not jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of any untrue statement of a material
fact contained in the Registration Statement, any Prospectus, or any form of
prospectus, or in any amendment or supplement thereto, or arising solely out of
any omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of any Prospectus or form of prospectus
or supplement thereto, in the light of the circumstances under which they were
made) not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Purchaser to the Company specifically for inclusion in such Registration
Statement or such Prospectus or to the extent that (i) such untrue statements or
omissions are based solely upon information regarding such Purchaser furnished
in writing to the Company by such Purchaser expressly for use therein, or to the
extent that such information relates to such Purchaser or such Purchaser's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Purchaser expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (ii) in the case of an occurrence of an event
of the type specified in Section 6.2(c)(v)-(vii), the use by such Purchaser of
an outdated or defective Prospectus after the Company has notified such
Purchaser in writing that the Prospectus is outdated or defective and prior to
the receipt by such Purchaser of the Advice contemplated in Section 6.5. In no
event shall the liability of any selling Purchaser hereunder be greater in
amount than the dollar amount of the net proceeds received by such Purchaser
upon the sale of the Registrable Securities giving rise to such indemnification
obligation.

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

                                       26
<PAGE>
            An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (i) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (ii) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (iii) the
named parties to any such Proceeding (including any impleaded parties) include
both such Indemnified Party and the Indemnifying Party, and such Indemnified
Party shall have been advised by counsel that a conflict of interest is likely
to exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.

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

            (d) Contribution. If a claim for indemnification under Section
6.4(a) or (b) is unavailable to an Indemnified Party (by reasons other than the
specified exclusions to indemnification), then each Indemnifying Party, in lieu
of indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses, in such proportion
as is appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 6.4(c), any reasonable attorneys' or
other reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.

                                       27
<PAGE>
            The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6.4(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 6.4(d), no Purchaser shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by such Purchaser from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.

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

      6.5 Dispositions. Each Purchaser agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement. Each Purchaser further agrees that, upon receipt of a notice from the
Company of the occurrence of any event of the kind described in Sections
6.2(c)(v), (vi) or (vii), such Purchaser will discontinue disposition of such
Registrable Securities under the Registration Statement until such Purchaser's
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement contemplated by Section 6.2(j), or until it is advised in writing (the
"ADVICE") by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement. The Company may provide
appropriate stop orders to enforce the provisions of this paragraph.

      6.6 No Piggyback on Registrations. Neither the Company nor any of its
security holders (other than the Purchasers in such capacity pursuant hereto)
may include securities of the Company in the Registration Statement other than
the Registrable Securities, and the Company shall not after the date hereof
enter into any agreement providing any such right to any of its security
holders.

      6.7 Piggy-Back Registrations. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Purchaser written notice of
such determination and if, within fifteen days after receipt of such notice, any
such Purchaser shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
Purchaser requests to be registered.

                                       28
<PAGE>
                                   ARTICLE VII
                                  MISCELLANEOUS

      7.1 Termination. This Agreement may be terminated by the Company or any
Purchaser, by written notice to the other parties, if the Closing has not been
consummated by the third Trading Day following the date of this Agreement;
provided that no such termination will affect the right of any party to sue for
any breach by the other party (or parties).

      7.2 Fees and Expenses. At the Closing, the Company shall pay to Mainfield
Enterprises, Inc. an aggregate of $10,000 for their legal fees and expenses
incurred in connection with the preparation and negotiation of the Transaction
Documents. In lieu of the foregoing payment, Mainfield Enterprises, Inc. may
retain such amount at the Closing or require the Company to pay such amount
directly to Proskauer Rose LLP. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all Transfer
Agent fees, stamp taxes and other taxes and duties levied in connection with the
issuance of the Securities.

      7.3 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. At or
after the Closing, and without further consideration, the Company will execute
and deliver to the Purchasers such further documents as may be reasonably
requested in order to give practical effect to the intention of the parties
under the Transaction Documents. Notwithstanding anything to the contrary
herein, Securities may be assigned to any Person in connection with a bona fide
margin account or other loan or financing arrangement secured by such Company
Securities.

      7.4 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
specified in this Section prior to 6:30 p.m. (New York City time) on a Trading
Day, (b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 6:30 p.m. (New
York City time) on any Trading Day, (c) the Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be given.
The addresses and facsimile numbers for such notices and communications are
those set forth on the signature pages hereof, or such other address or
facsimile number as may be designated in writing hereafter, in the same manner,
by such Person.

      7.5 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each of the Purchasers or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or

                                       29
<PAGE>
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such
right. Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Purchasers under Article VI and that does not directly or indirectly
affect the rights of other Purchasers may be given by Purchasers holding at
least a majority of the Registrable Securities to which such waiver or consent
relates.

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

      7.7 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 the Purchasers. Any Purchaser may assign
its rights under this Agreement to any Person to whom such Purchaser assigns or
transfers any Securities, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof that
apply to the "Purchasers." Notwithstanding anything to the contrary herein,
Securities may be assigned to any Person in connection with a bona fide margin
account or other loan or financing arrangement secured by such Securities.

      7.8 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 that each Related Person is an intended third party
beneficiary of Section 4.8 and each Indemnified Party is an intended third party
beneficiary of Section 6.4 and (in each case) may enforce the provisions of such
Sections directly against the parties with obligations thereunder.

      7.9 Governing Law; Venue; Waiver Of Jury Trail. ALL QUESTIONS CONCERNING
THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK. THE COMPANY AND PURCHASERS HEREBY IRREVOCABLY SUBMIT 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 BROUGHT BY
THE COMPANY OR ANY PURCHASER HEREUNDER, 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
WAIVE, AND AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE
COMPANY OR ANY PURCHASER, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, OR THAT SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES

                                       30
<PAGE>
PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH
SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED
MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE
ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH
SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE COMPANY AND PURCHASERS
HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.

      7.10 Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery and/or exercise of
the Securities, as applicable.

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

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

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

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

      7.15 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

                                       31
<PAGE>
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of obligations described in the foregoing sentence and
hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.

      7.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser hereunder or pursuant to the Warrants or any Purchaser
enforces or exercises its rights hereunder or 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 by 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.

      7.17 Adjustments in Share Numbers and Prices. In the event of any stock
split, subdivision, dividend or distribution payable in shares of Common Stock
(or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof, each
reference in any Transaction Document to a number of shares or a price per share
shall be amended to appropriately account for such event.

      7.18 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. The decision of each Purchaser to
purchase Shares pursuant to this Agreement has been made by such Purchaser
independently of any other Purchaser and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or of the Subsidiary which may have been
made or given by any other Purchaser or by any agent or employee of any other
Purchaser, and no Purchaser or any of its agents or employees shall have any
liability to any other Purchaser (or any other Person) relating to or arising
from any such information, materials, statements or opinions. Nothing contained
herein or in any Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Document. Each Purchaser acknowledges that no other Purchaser has
acted as agent for such Purchaser in connection with making its investment
hereunder and that no other Purchaser will be acting as agent of such Purchaser
in connection with monitoring its investment hereunder. 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.

                                       32
<PAGE>
      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.

                                    STRATASYS, INC.

                                    By: /s/ S. Scott Crump
                                        ------------------------
                                    Name:   S. Scott Crump
                                    Title:  Chief Executive Officer

                                    Address for Notice:

                                    14950 Martin Drive
                                    Eden Prairie, MN 55344
                                    Facsimile No.:  (952) 937-0070
                                    Telephone No.: (952) 937-3000
                                    Attn:  Thomas W. Stenoien

                  With a copy to:   Snow Becker Krauss P.C.
                                    605 Third Avenue
                                    New York, NY  10158
                                    Facsimile No.:  212-949-7052
                                    Telephone No.: 212-455-0440
                                    Attn:  Eric Honick, Esq.

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                     SIGNATURE PAGES FOR PURCHASERS FOLLOW]
<PAGE>
                                    Mainfield Enterprises, Inc.

                                    By:     __________________________
                                    Name:
                                    Title:

                                    Purchase Price:  $17,700,000

                                    Number of Shares to be acquired: 600,000

                                    Underlying Shares subject to Warrant: 90,000

                                    Address for Notice:

                                    Mainfield Enterprises, Inc.
                                    c/o Sage Capital Growth, Inc.
                                    660 Madison Avenue
                                    New York, New York  10022
                                    Facsimile No.:  (212) 651-9010
                                    Telephone No.:  (212) 651-9000
                                    Attn: Eldad Gal

                  With a copy to:   Proskauer Rose LLP
                                    1585 Broadway
                                    New York, New York  10036-8299
                                    Facsimile No.:  (212) 969-2900
                                    Telephone No.:  (212) 969-3000
                                    Attn:  Adam J. Kansler, Esq.
<PAGE>
                                    Smithfield Fiduciary LLC

                                    By:     __________________________
                                    Name:
                                    Title:

                                    Purchase Price:  $2,950,000

                                    Number of Shares to be acquired: 100,000

                                    Underlying Shares subject to Warrant: 15,000

                                    Address for Notice:

                                    Smithfield Fiduciary LLC
                                    c/o Highbridge Capital Management, LLC
                                    Nine West 57th Street, 27th Floor
                                    New York, New York  10019
                                    Facsimile No.:  212-751-0755
                                    Telephone No.:212-287-4720
                                    Attn: Ari J. Storch/Adam J. Chill
<PAGE>
         Exhibits:

A        Form of Warrant
B        Opinion of Company Counsel
C        Plan of Distribution
D        Transfer Agent Instructions<PAGE>

                                                                   Exhibit 10.32

                         UNITED STATES BANKRUPTCY COURT
                           SOUTHERN DISTRICT OF TEXAS
                                HOUSTON DIVISION

In re:                                   )
                                         )   Jointly Admin. Under Case No.
PHILIP SERVICES CORPORATION, et al.      )   03-37718-H2-11
                                         )
                  Debtors.               )   (Chapter 11)

                      EXPEDITED MOTION TO APPROVE EMPLOYEE
                    RETENTION, INCENTIVE AND SEVERANCE PLANS

          A HEARING WILL BE CONDUCTED ON THIS MATTER ON JUNE 23, 2002 AT 2:00
          P.M. IN COURTROOM 400, 515 RUSK AVENUE, HOUSTON, TEXAS. IF YOU OBJECT
          TO THE RELIEF REQUESTED, YOU MUST RESPOND IN WRITING SPECIFICALLY
          ANSWERING EACH PARAGRAPH OF THIS PLEADING. YOU MUST FILE YOUR RESPONSE
          WITH THE CLERK OF THE BANKRUPTCY COURT WITHIN TWENTY DAYS FROM THE
          DATE YOU WERE SERVED WITH THIS PLEADING UNLESS YOU DID NOT RECEIVE
          THIS NOTICE IN TIME TO DO SO. IN THAT SITUATION, FILE YOUR RESPONSE AS
          SOON AS POSSIBLE. IN ADDITION TO FILING YOUR RESPONSE WITH THE CLERK,
          YOU MUST GIVE A COPY OF YOUR RESPONSE TO THE PERSON WHO SENT YOU THE
          NOTICE; OTHERWISE, THE COURT MAY TREAT THE PLEADING AS UNOPPOSED AND
          GRANT THE RELIEF REQUESTED.

          TO THE HONORABLE UNITED STATES BANKRUPTCY JUDGE:

         Philip Services Corporation ("Philip Services") and its affiliated
debtors (collectively, the "Debtors"), as debtors-in-possession, file this
Expedited Motion to Approve Employee Retention, Incentive and Severance Plans
(the "Motion") in support of which, the Debtors respectfully state as follows:

                                   I. SUMMARY

         1.       The proposed employee program is necessary and pressing given
that (i) this is the Debtors' second chapter 11 filing in four years, (ii) to
date, there is no long term DIP financing or other long-term liquidity source
and (iii) the Debtors have proposed an auction

<PAGE>

process with a sale in three months which cannot guarantee that particular
business units will be purchased or that employees within such business units
will be offered employment. The Debtors' businesses are primarily service
businesses and retention of knowledgeable employees is necessary to maintain
customer and vendor relationships and collect the receivables which are the
heart of the value of each business either to going concern buyers or in a
standalone reorganization. Debtors are concerned that absent prompt ratification
of this program by the Court, key individuals will be lost.

         2.       The four elements of the program (the "Retention Program") are
                  as follows:

                  1.       Key Employee Retention Plan: This program was under
                  discussion pre-petition and is designed to address (i) certain
                  2002 target bonus payments which ultimately were never paid
                  after a review of 2002 overall performance despite the fact
                  that certain business units met or exceeded their unit's goals
                  and (ii) to provide an incentive for key management personnel
                  to remain with the Company through uncertain times going
                  forward. The aggregate retention bonuses for the 89 key
                  managers is $2.2 million. The Debtors have specific
                  allocations of these amounts among the 89 individuals which it
                  is sharing on a confidential basis with Wells Fargo/Foothill,
                  Inc., as Agent, CIBC, as Agent, and the Official Committee of
                  Unsecured Creditors (the "Committee"), but which do not exceed
                  $65,000 to any one individual. This list was carefully
                  compiled and reduced after several levels of review and
                  generally covers key personnel in the following categories:

                           Key Operations Managers
                           Sales & Marketing
                           Finance
                           Information Technology
                           Treasury and Collections
                           Risk Management
                           Health, Safety & Environment
                           Human Resources

                  The payments are payable in three installments ((a) June 30,
                  2003, (b) October 31, 2003, and (c) March 31, 2003) with the
                  final two payments paid on an accelerated basis upon an asset
                  sale of the business unit for the applicable employee.

                  2.       Severance Program: The Debtors previously had a
                  severance program in place which allowed two weeks of
                  severance per year of

<PAGE>

                  service, capped at 52 weeks. Certain former employees were
                  still receiving severance under the program until it was
                  terminated shortly before the filing of these cases. In
                  terminating the existing program, the Debtors recognized that
                  a replacement program was needed and intended to promptly file
                  this Motion to approve the new program. The main changes from
                  the prior program are that (i) at least one year of service
                  would now be required to be eligible and (ii) the two weeks
                  per year of service thereafter would be capped at 12 weeks
                  rather than 52 weeks. These amounts would not be payable if
                  there is a going concern sale of assets in which the employee
                  was offered employment by the buyer or a reorganization plan
                  in which the employee retained his or her job. The Debtors
                  believe that this program provides an important comfort for
                  employees to stay through a sale even though they have no
                  assurance their business unit will be sold or that they will
                  be offered employment and thus, acts as a retention plan for
                  the general employee pool. Parties with employment agreements
                  that provide contractual severance, including the Retention
                  Program, would be eligible for this general program less any
                  payment received for their contractual severance.

                  3.       Top Executive Plan: The Debtors are proposing a
                  separate plan for five of their top executives. The program
                  consists of a retention program and also an incentive piece in
                  the event of asset sales for the whole company or for the
                  Metals Services Group and Industrial Services Group at certain
                  targeted levels, which information is being provided on a
                  confidential basis to Wells Fargo/Foothill, Inc., as Agent,
                  CIBC, as Agent, and the Committee. The aggregate cost of the
                  incentive program is not more than $1,189,000 and the
                  aggregate cost of the retention program is not more than
                  $297,250.

                  4.       PSD Sale or Closure: Debtors propose a program of
                  $111,326 in the aggregate for eight key employees of the
                  remaining Project Services Division which would be payable in
                  one installment upon the sale of that business or, if there is
                  no sale for the applicable portion of the business, upon
                  conclusion of the winddown of that business.

                  If any employee in these programs voluntarily terminates prior
                  to the applicable trigger date or is terminated for cause, the
                  applicable amounts allocated to such employee would not be
                  spent and would not be reallocated.

                           II. JURISDICTION AND VENUE

         3.       This Court has jurisdiction over these cases pursuant to 28
U.S.C. Section 1334. This is a core proceeding under 28 U.S.C. Section
157(b)(2)(A) and (O).

         4.       Venue of the Debtors' Chapter 11 cases is proper in this
district pursuant to 28 U.S.C. Sections 1408(1) and (2).

<PAGE>

                                III. BACKGROUND

         5.       On June 2, 2003 (the "Petition Date"), the Debtors filed
voluntary petitions for relief under Chapter 11 of Title 11 of the Bankruptcy
Code, 11 U.S.C. Sections 101 et seq. (the "Bankruptcy Code").

         6.       The Debtors continue to operate their businesses and manage
their properties as debtors-in-possession pursuant to Sections 1107 and 1108 of
the Bankruptcy Code.

         7.       No trustee or examiner has been appointed in the Debtors'
jointly administered bankruptcy cases. An official committee of unsecured
creditors was appointed on June 6, 2003.

         8.       On June 2, 2003, this Court entered an Order jointly
administering each of the Debtors' cases under Case No. 03-37718-H2-11.

         9.       Debtor, Philip Services Corporation, is a holding company that
owns, directly or indirectly, a series of industrial and metals services
companies that operate throughout North America. The Debtors consist of Philip
Services Corporation, a Delaware corporation, with its principal place of
business in Houston, Texas, and 43 wholly owned subsidiaries. There are two
primary business units: (i) the Industrial Services Group and (ii) the Metals
Services Group. Certain foreign subsidiaries, captive insurance related entities
and inactive subsidiaries are not debtors in these chapter 11 cases.

         10.      The Industrial Services Group was recently created through the
integration of the industrial cleaning services provided by the former
Industrial Outsourcing Group and services formerly delivered by the
Environmental Services Group, including commercial and industrial waste
collection, recycling, processing and disposal, laboratory analytical services,
container and tank cleaning, and emergency response services. The Industrial
Services Group operates in

<PAGE>

approximately 86 locations and has a significant presence in the heavily
industrialized regions of the Northeast, Northwest, Midwest and Southeast United
States and Southern Ontario.

         11.      The Metal Services Group provides ferrous and non-ferrous
scrap collection and processing services, brokerage and transportation and
on-site mill services as well as processing and distribution of steel products.
The group is one of the largest providers of ferrous scrap processing and
brokerage services in North America. The Metals Services Group operates at
approximately 30 locations with its operations concentrated in the Southeast
United States, the Ohio-Pittsburgh corridor, and the Southern Great Lakes Basin.

         12.      The Debtors have been severely impacted by the general
economic slowdown in the industrial sector and the Metal Services Group has been
affected by periods of low scrap prices.

         13.      The Debtors' primary competitive strengths are: (i) a range of
industrial services, (ii) a strong safety record and (iii) skilled and
experienced employees. In addition, the Debtors have attempted to improve their
profitability through key restructuring efforts. Notably, prior to the merging
of the industrial and environmental groups in November 2002, the Industrial
Outsourcing Group began the process of divesting a portion of their Project
Services Division, which was highly affected by seasonal demand. The divestiture
was completed on March 2, 2003, for approximately $21 million. The working
capital of the divested portion of approximately $43 million was retained by the
Debtors. As a result of the Project Services Division divestiture, the Debtors'
overall business volatility has been reduced.

         14.      The Debtors' revolving loan agreement matured in April 2003
and while this loan was extended until June 2, 2003, no further prepetition
financing was available.

         15.      The Debtors have a number of strong core businesses and intend
to reorganize

<PAGE>

around those businesses which, together with rejection of certain burdensome
contracts and leases and certain other operational improvements, is expected to
be the basis for a viable reorganization plan in which most of the Debtors'
existing secured debt is converted to equity or the businesses sold through a
going concern asset sale.

         16.      The Debtors' consolidated revenues for calendar year 2002 were
$1.1 billion and their consolidated EBITDA for the year ended December 31, 2002
was $48.3 million. As of the Petition Date, the Debtors employed approximately
7,500 full-time employees, approximately 1,000 of which are represented by
unions.

                    IV. EXPEDITED HEARING ON EMPLOYEE MOTION

         17.      As previously mentioned, the proposed employee program is
necessary and pressing given that (i) this is the Debtors' second Chapter 11
filing in four years, (ii) to date, there is no long term DIP financing or other
long-term liquidity source and (iii) the Debtors have proposed an auction
process with a sale in three months which cannot guarantee that particular
business units will be purchased or that employees within such units will be
offered employment. The Debtors' business is primarily a service business and
retention of knowledgeable employees is necessary to maintain customer and
vendor relationships and collect the receivables which are the heart of the
value of each business either to going concern buyers or in a standalone
reorganization. Debtors are concerned that, absent prompt ratification of this
program by the Court, key employees may leave in the interim, thereby severely
harming the Debtors' business operations and seriously impairing the Debtors'
reorganization and sale efforts.

                              V. RELIEF REQUESTED

A.       KEY EMPLOYEE RETENTION PLAN

         18.      The program focuses on 89 key employees (the "Key Employees")
critical to operation of the Debtors' businesses and their efforts to attract
going concern buyers. The

<PAGE>

aggregate cost of the program is $2.2 million, of which 30% ($660,000) is
payable on June 30, 2003, 30% ($660,000) is payable on October 31, 2003, and the
remaining 40% ($880,000) is payable on March 31, 2004. This provides an
incentive for the Key Employees to maintain their employment with the Debtors
through any reorganization and/or recapitalization process. If, however, an
asset sale involving that Key Employee's business unit occurs, then the
remainder of the bonus would be payable at the closing of such sale.

         19.      The Key Employees are very knowledgeable in their areas and
would be difficult to replace. Given the present circumstances, it would be
extremely hard for the Debtors to attract replacements for the Key Employees if
they were to resign. Further, the departure of such persons would impair the
Debtors' operations and sales efforts.

         20.      The Debtors employed approximately 7,500 individuals as of the
Petition Date and have an annual payroll of approximately $270 million. The $2.2
million requested by the Debtors to fund the Key Employee Retention Plan is
quite modest relative to the overall size of the Debtors and their payroll.
Relief similar to that requested herein has been authorized in other complex
chapter 11 cases in this jurisdiction. See, e.g., In re Metals USA, Inc., Case
Number O142530-H4-11 (Bankr. S.D. Tex. Order dated June 6, 2002); In re Sterling
Chemicals Holdings, Inc., Case Number 01-37805-H4-11 (Bankr. S.D. Tex. Order
dated November 2, 2001); In re First Wave Marine, Inc., Case Number
01-31161-H2-11 (Bankr. S.D. Tex. Order dated March 13, 2001); In re Stage
Stores, Inc., Case Number 00-35078-H2-11 (Bankr. S.D. Tex. Order dated August
29, 2000).

         21.      The allocation of awards among the Key Employees under the
categories listed in the summary section of this Motion, is being provided to
Wells Fargo/Foothill, Inc., as Agent, CIBC, as Agent, and the Committee on a
confidential basis. No individual award exceeds

<PAGE>

$65,000. On average, awards are approximately 24% of annual base salary.

B.       SEVERANCE PROGRAM

         22.      Prior to their chapter 11 filings, the Debtors maintained a
long-standing severance program for all employees that provided two weeks of
severance pay for every year of service, with a maximum payment of 52 weeks of
pay. The Debtors honored these severance payments in the normal course of
business through several downsizings. Since the Debtors' chapter 11 filings,
they have halted severance payments under the prepetition program.

         23.      Shortly before the filing, the compensation committee and the
board of directors determined that the existing program (i) was too extensive in
light of the Debtors' financial crisis and (ii) should be replaced with a more
modest program.

         24.      The new program proposed herein provides that an employee is
eligible to participate in the program after completion of at least one year of
service with the Debtors. Thereafter, such employee will receive two weeks of
severance for every year of service, with the maximum payout amount reduced to
12 weeks.

         25.      The Debtors believe that a severance program is critical for
employee morale. The Severance Program will provide employees with reasonable
transition as further layoffs occur (which have and will continue to occur to
some degree postpetition). To date, five employees have been laid off
postpetition. The severance payments owing to them are approximately $74,100.
Given that there is no certainty for employees that their particular business
units will be purchased or that they will be offered employment upon such a
purchase, the severance program, if approved, will be the one certainty they
have if they maintain their employment through the sale process. The guarantee
of payment represented by the proposed Severance Program acts as a retention
incentive for the general employee base. The severance is not payable in the
event they are offered a job by a going concern buyer or upon emergence as a
standalone reorganization.

<PAGE>

         26.      Since severance was paid over time on normal paycycles under
the prepetition plan, several recently terminated employees did not receive the
full amount of their prepetition severance benefits. To the extent they have
already received 12 weeks of severance (or such lesser amount as they were
eligible to receive), the Debtors do not seek to make further payments to them.
To the extent, however, that recently terminated employees have not received up
to 12 weeks of severance, the Debtors seek authority to pay them 12 weeks of
severance less any severance they have already been paid. Fourteen former
employees terminated in March, April and May of 2003 would be eligible for such
payments for an aggregate payment of less than $120,000. Not only do the Debtors
believe this is fair to the former employees but it is also important to
maintain the morale of current employees. Any severance payments made hereunder
would be deemed to satisfy any priority severance claim that the former employee
might otherwise assert.

C.       TOP EXECUTIVE PLAN

         27.      The Debtors are proposing a separate retention and incentive
program (the "Top Executive Plan") for five of their top executives (the
"Executives"), namely:

                  a.       James Boggs, Senior Vice President of Health, Safety,
                           and Environmental;

                  b.       Donald Forlani, President of the Metals Services
                           Group;

                  c.       Robert Millstone, General Counsel;

                  d.       Michael Ramirez, Senior Vice President and Chief
                           Financial Officer; and

                  e.       Brian Recatto, President of the Industrial Services
                           Group.

         28.      The Top Executive Plan would only take effect upon a sale of
the whole company or of Metals Services Group and Industrial Services Group at
certain targeted levels, which information is being provided on a confidential
basis to Wells Fargo/Foothill, Inc., as Agent, CIBC, as Agent, and the
Committee. The aggregate cost of the incentive program is not more than
$1,189,000 and the aggregate cost of the retention program per Executive does
not exceed $297,250.

<PAGE>

         29.      In addition to playing a critical role in operating their
respective areas and maintaining morale for employees within their groups, the
Executives are working actively with Jefferies & Company, Inc., the Debtors'
financial advisors, to interact with prospective bidders and respond to their
inquiries.

D.       PSD SALE OR CLOSURE

         30.      The Project Services Division, a substantial portion of which
was divested earlier this year, currently employs approximately eight employees.
These employees are essential for the management of the remaining business.

         31.      The refractory business is already in the process of a
winddown and the union business is being marketed for a potential August sale.
Debtors propose a program of $111,326 in the aggregate for eight key employees
of the remaining Project Services Division which would be payable in one
installment upon the sale of that business or, if there is no sale for the
applicable portion of the business, upon conclusion of the winddown of that
business.

                         VI. BASIS FOR RELIEF REQUESTED

         32.      Section 363(b) of the Bankruptcy Code authorizes a debtor to
use property of the estate other than in the ordinary course of business after
notice and hearing for purposes of implementing an employee retention program.
See In re Montgomery Ward Holding Corp., 242 B.R. 147 (Bankr. D. Del. 1999). The
Fifth Circuit has held, however, that the debtor-in possession must demonstrate
"some articulated business justification for using, selling or leasing property
outside the ordinary course of business." In re Continental Airlines, Inc., 780
F.2d 1223, 1226 (5th Cir. 1986). The debtor is also required to show the court
that the proposed use of estate property will assist with the debtor's
reorganization. See In re Lionel Corp., 722 F. 2d 1063, 1071 (2d Cir 1983).

         33.      Once a debtor has articulated a valid business justification,
the debtor's business

<PAGE>

judgment is given significant weight. "[T]he business judgement rule is a
presumption that in making a business decision the directors of a corporation
acted on an informed basis, in good faith and in the honest belief that the
action was in the best interest of the company."' In re Integrated Resources,
Inc., 147 B.R. 650, 656 (S.D.N.Y 1992) (quoting Smith v. Van Gorkam, 488 A.2d
858, 872 (Del. 1985)).

         34.      The business judgment rule is respected within the context of
a chapter 11 case and shields a debtor's management from judicial
second-guessing. Id.; In re John-Manville Corp., 60 B.R. 612, 615-16 (Bankr.
S.D.N.Y. 1986) (stating that "the Code favors the continued operation of a
business by a debtor and a presumption of reasonableness attaches to a Debtor's
management decisions.").

         35.      If the Retention Program is approved, the Debtors submit that
they will be better equipped to prevent further decline in employee morale and
the correlative decline in the value of their estates. The proposed Retention
Program has been reviewed and approved by the Debtors' Board of Directors and
Compensation Committee. The Debtors believe that the Retention Program is
necessary and justified in light of their business needs.

         36.      Given the importance of the Key Employees to the Debtors'
continued operations, this Court should approve implementation of the Retention
Program. Courts have consistently recognized the needs of chapter 11 debtors to
retain their employees in order to assure continued business functions in
chapter 11 and therefore, have approved retention and severance programs under
11 U.S.C. Section 363(b)(1) similar to, or more costly than, the Retention
Program proposed by the Debtors. See, e.g., In re Montgomery Ward Holding Corp.,
242 B.R. 147 (D. Del 1999) (approving an employee retention program estimated at
$17.6 million and 24 months severance pay to 119 high level managers); In re
America West Airlines, Inc., 171 B.R. 674, 678 (Bankr. D.

<PAGE>

Ariz. 1994) (proposal to pay bonuses upon confirmation of plan was reasonable
exercise of debtor's business judgement); In re Interco, Inc., 128 B.R. 229, 331
(Bankr. E.D. Mo. 1991) (finding that implementation of critical employee
retention plan, including confirmation bonuses and severance benefits, was a
proper exercise of the debtor's business judgement).

         37.      Due to the Debtor's urgent need to protect and preserve their
workforce, request expedited consideration of the relief requested in the
Motion.

                                 VII. CONCLUSION

         WHEREFORE, the Debtors request entry of the form of order attached
hereto and such other and further relief as is just and proper.

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