Document:

EX-10.1

Exhibit 10.1

SEVERANCE AGREEMENT

THIS AGREEMENT is entered into as of March 14, 2005 (the “Effective Date”), by and between
Anthony Corriggio (the “Employee”) and The St. Joe Company, a Florida corporation (the “Company”).

1. Term of Agreement

This Agreement shall become effective on the Effective Date and, except to the extent
provided in Section 9.5, shall terminate five (5) years after the Effective Date; provided,
however, that if a Qualifying Termination of Employment occurs prior to the expiration of
such five (5) year period, this Agreement shall remain in effect until the Company has met
all of its obligations hereunder.

2. Definitions

	 	2.1.	 	Cause means any of the following: the willful commission of, or the
willful omission to take, an action in bad faith and to the material detriment of the
Company; commission of an act of active and deliberate dishonesty or fraud against the
Company; a material breach of this Agreement or the Company’s policies; conviction
following final disposition of any available appeal of a felony; or pleading guilty or
no contest to a felony.

	 	2.2	 	Change in Control means the occurrence of any of the following events
after the date of this Agreement:

	 	a)	 	The consummation of a merger or other transaction as a result
of which the Company’s shareholders own 50% or less of the combined voting
power, directly or indirectly, of the continuing or surviving entity’s
securities outstanding immediately after such merger or other transaction;

	 	b)	 	The sale, transfer, exchange or other disposition of all or
substantially all of the Company’s assets;

c) The liquidation or dissolution of the Company; or

	 	d)	 	Any transaction as a result of which any person is the
“beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934, as amended), directly or indirectly, of securities of the Company
representing 25% or more of the total voting power represented by the Company’s
then outstanding voting securities. For purposes of this Paragraph, the term
“person” shall have the same meaning as when used in sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, but shall exclude (1) a trustee or
other fiduciary holding securities under an employee benefit plan of the
Company or a parent or subsidiary of the Company, and (2) a corporation owned
directly or indirectly by the stockholders of the Company in substantially the
same proportions as their ownership of the common stock of the Company.

A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company’s incorporation or to create a holding company that
will be owned in substantially the same proportions by the persons who held the
Company’s securities immediately before such transaction.

	 	2.3	 	Disability means the Employee’s disability which constitutes a
long-term disability under the Company’s long-term disability plan then in effect.

2.4 Good Reason means any of the following:

	 	a)	 	The Employee has experienced a demotion with the Company that
results in a substantial and material reduction in duties or responsibilities
with the Company from that in effect immediately prior to a Change in Control;

	 	b)	 	The Employee has incurred a 10% or more reduction in total
compensation as an employee of the Company (consisting of annual base salary
and target bonus percentage);

	 	c)	 	The Employee has been notified that his principal place of work
as an employee of the Company will be relocated, without his permission, by
more than fifty (50) miles; or

d) A successor to the Company fails to comply with Section 10.1.

The Company and the Employee, upon mutual written agreement, may waive any of the
foregoing provisions with respect to an event that otherwise would constitute Good
Reason.

	 	2.5	 	Qualifying Termination of Employment means a termination of the
Employee’s employment under any of the following circumstances:

a) The Employee resigns for Good Reason; or

	 	b)	 	The Company terminates the Employee’s employment for any reason
other than Cause, death or Disability.

The determination of whether the Employee’s employment has terminated shall be made
without regard to whether the Employee continues to provide services to the Company
as a member of its Board of Directors or otherwise in the capacity of an independent
contractor. A transfer of the Employee’s employment from the Company to a successor
of the Company shall not be considered a termination of employment if such successor
complies with the requirements of Section 10.1.

3. Amount of Severance Pay

Within thirty (30) business days after a Qualifying Termination of Employment, the Company
shall pay the Employee as follows:

	 	3.1	 	If the Qualifying Termination of Employment occurs within the first twenty-four
(24) months after the occurrence of a Change in Control, a lump sum equal to the
product of two (2) times the sum of:

	 	a)	 	The Employee’s base salary at the greater of (1) the annual
rate in effect on the date when the Qualifying Termination of Employment is
effective, or (2) the annual rate in effect on the date of the Change in
Control; plus

	 	b)	 	The Employee’s annual bonus based on the target percentage
amount for the most recent year completed prior to the date when the Qualifying
Termination of Employment is effective.

	 	3.2	 	If the Qualifying Termination of Employment does not meet the requirements of
Section 3.1 above, a lump sum equal to the product of one (1) times the sum of:

	 	a)	 	The Employee’s base salary at the annual rate in effect on the
date when the Qualifying Termination of Employment is effective; plus

	 	b)	 	The Employee’s annual bonus based on the target percentage
amount for the most recent year completed prior to the date when the Qualifying
Termination of Employment is effective.

For purposes of determining the Employee’s annual base salary and annual bonus
percentage under Sections 3.1 and 3.2 above, any reduction in annual base salary or
annual target bonus that would constitute Good Reason under this Agreement shall be
deemed not to have occurred.

4. Group Insurance and Outplacement Services

	 	4.1	 	Group Insurance. In the event of a Qualifying Termination of
Employment, the Employee (and, where applicable, the Employee’s dependents) shall be
entitled to medical and dental benefits under the Company’s welfare benefit plans (as
that term is defined in Subsection 3(1) of the Employee Retirement Income Security Act
of 1974, as amended), for a period of 12 months as if the Employee were still employed
during such period. Such medical and dental benefits shall be provided at the same
level and at the same after-tax cost to the Employee as is generally available to
similar Company executives. The Employee’s salary, for purposes of such plans, shall
be determined using the method set forth in Section 3.1 or 3.2, whichever is
applicable. To the extent the Company is unable or does not wish to cover the Employee
under its plans during this 12-month period, the Company shall provide the Employee
with substantially equivalent benefits on an individual basis at no additional
after-tax cost to the Employee. The foregoing notwithstanding, in the event the
Employee becomes eligible for comparable insurance coverage in connection with new
employment, the coverage provided by the Company under this Section shall terminate
immediately. Any medical or dental coverage provided pursuant to this Section shall be
applied, to the extent permitted by law, to reduce the Company’s group health
continuation coverage responsibilities under the Consolidated Omnibus Budget
Reconciliation Act of 1985.

	 	4.2	 	Outplacement Services. In the event of a Qualifying Termination of
Employment, the Employee shall be entitled to senior executive level outplacement
services at the Company’s expense for up to three (3) months. The Company reserves the
right to select the outplacement firm.

5. Excise Taxes

	 	5.1	 	No Gross-Up Payment. In the event it shall be determined by an
Accounting Firm (within the meaning of Section 5.2 below) that any payment or
distribution by the Company to or for the benefit of the Employee, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement or
otherwise (a “Payment”), would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (or any successor thereto) or comparable
state or local tax or any interest or penalties with respect to such excise tax or
comparable state or local tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the “Excise Tax”), then the
amount of the Payment due to the Employee shall be reduced (but not below zero) to the
extent necessary that no portion thereof shall be subject to the Excise Tax and no
gross-up payment shall be made. If the Accounting Firm determines that the total
Payments are to be reduced under the preceding sentence, then the Company shall
promptly give the Employee notice to that effect and a copy of the detailed calculation
thereof. The Employee may then elect, in the Employee’s sole discretion, which and how
much of the total Payments are to be eliminated or reduced (as long as after such
election no Excise Tax will be payable) and shall advise the Company in writing of the
Employee’s election within ten (10) days of receipt of notice. If no such election is
made by the Employee within such ten (10) day period, then the Company may elect which
and how much of the total Payments are to be eliminated or reduced (as long as after
such election, no Excise Tax will be payable) and shall notify the Employee promptly of
such election. No additional payments by the Company or return of payments by the
Employee shall be required or made if a late determination based on case law, an IRS
holding, or otherwise, would result in a recalculation of the Excise Tax implications.

	 	5.2	 	Determination by Accountant. All determinations and calculations
required to be made under this Section shall be made by an independent accounting firm
selected by the Company from among the largest four accounting firms in the United
States (the “Accounting Firm”), which shall provide its determination (the
“Determination”), together with detailed supporting calculations both to the Company
and the Employee within fourteen (14) days of the Qualifying Termination of Employment.
Any Determination by the Accounting Firm shall be binding upon the Company and the
Employee, absent manifest error.

6. Termination Upon Death

In the event of the Employee’s death prior to termination of employment, this Agreement
shall terminate and the Company shall only be obligated to (a) pay to the Employee’s estate
or legal representative the annual base salary to the extent earned by the Employee prior to
the Employee’s death, and (b) pay any other benefits to the extent required by the Company’s
retirement and benefits plans. The Company may, however, pay the estate or legal
representative a bonus that the Employee has earned prior to his death. After making such
payment(s) and providing such benefits, the Company shall have no further obligations under
this Agreement. If the Employee dies after termination of employment but before receiving
all payments to which he has become entitled hereunder, payment shall be made to the estate
of Employee.

7. Disability

In the event of the Employee’s Disability, the Company shall have the right, at its option,
to terminate the Employee’s employment. Unless and until so terminated, during any period
of Disability during which the Employee is unable to perform the services required of him,
the Employee’s salary shall be payable to the extent of, and subject to, the Company’s
policies and practices then in effect with regard to sick leave and disability benefits. In
the event of the Employee’s termination due to the Employee’s Disability, the Company shall
only be obligated to (a) pay to the Employee or his personal representative the Employee’s
annual base salary to the extent earned by the Employee prior to the termination of
employment, (b) pay any disability benefits as provided under the Company’s long-term
disability plan then in effect, and (c) pay any other benefits to the extent required by the
Company’s retirement and benefits plans. After making such payment(s) and providing such
benefits, the Company shall have no further obligations under this Agreement; provided,
however, that nothing contained in this Section shall restrict the Employee’s eligibility to
receive disability and other related benefits offered pursuant to the Company’s plans,
policies, or programs.

8. Termination for Cause or Without Good Reason.

In the event that the Company terminates the Employee’s employment for Cause or the Employee
terminates his employment without Good Reason, the Company shall only be obligated to pay to
the Employee the Employee’s annual base salary to the extent earned by the Employee prior to
the termination of employment. After making such payment, the Company shall have no further
obligations under this Agreement.

9 Restrictive Covenants

	 	9.1	 	Confidential Information. During the period of his employment, the
Employee shall hold in a fiduciary capacity for the benefit of the Company and its
affiliates all trade secrets, proprietary or confidential information, knowledge or
data relating to the Company, its affiliates, and/or their respective businesses, which
shall have been obtained by the Employee. Trade secret information includes, but is
not limited to, customer lists, pricing information, sales reports, financial and
marketing data, reserves estimations, or procedures, techniques, or processes that:
(a) derive independent economic value, actual or potential, from not being generally
known to the public or to persons who can obtain economic value from their disclosure
or use, and (b) are the subject of reasonable efforts under the circumstances to
maintain their secrecy. After termination of the Employee’s employment with the
Company, Employee shall not, without the prior written consent of the Company, use,
communicate or divulge any such information, knowledge or data to anyone at any time.

	 	9.2	 	Solicitation of Company Employees. Unless waived in writing by the
Company, the Employee further agrees that he will not, directly or indirectly, during
the course of employment and for two (2) years after termination of his employment,
solicit or attempt to entice away from the Company or its affiliates any director,
agent or employee of the Company or its affiliates.

	 	9.3	 	Return of Property. Upon termination of the employment period, the
Employee will surrender to the Company all property belonging to the Company or its
affiliates.

	 	9.4	 	Compliance with Business Ethics and Conflict of Interest Policy. During
the Employee’s employment with the Company, the Employee shall comply in all respects
with the Company’s Code of Conduct as may be amended from time to time.

	 	9.5	 	Survival; Injunctive Relief. The Employee agrees that Sections 9.1
through 9.5 shall survive the termination of this Agreement and the period of his
employment hereunder. The Employee acknowledges that the Company and its affiliates
have no adequate remedy at law and would be irreparably harmed if Employee breaches or
threatens to breach any of the provisions of this Section and, therefore, agrees that
the Company and its affiliates shall be entitled to injunctive relief to prevent any
such breach or threatened breach thereof and to specific performance of the terms of
this Section (in addition to any other legal or equitable remedy the Company or the
affiliate may have). The Employee further agrees that the Employee shall not, in any
equity proceeding relating to the enforcement of this Section, raise the defense that
the Company or the affiliate has an adequate remedy at law. Nothing in this Agreement
shall be construed as prohibiting the Company or any affiliate from pursuing any other
remedies at law or in equity that it may have under and in respect of this Agreement or
any other agreement.

10. Successors

	 	10.1	 	Company’s Successors. The Company shall require any successor (whether
direct or indirect by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company’s business or assets, by an agreement in
substance and form satisfactory to the Employee, to assume this Agreement and to agree
expressly to perform this Agreement in the same manner and to the same extent as the
Company would be required to perform it in the absence of a succession. For all
purposes under this Agreement, the term “Company” shall include any successor to the
business or assets of the Company which executes and delivers the assumption agreement
described in this Section 10.1 or which becomes bound by this Agreement by operation of
law.

	 	10.2	 	Employee’s Successors. This Agreement and all rights of the Employee
hereunder shall inure to the benefit of, and be enforceable by, the Employee’s personal
or legal representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.

11. Liquidated Damages

The payments and benefits provided in this Agreement are intended to be liquidated damages
for a termination of the Employee’s employment by the Company or for the actions of the
Company and its affiliates leading to a termination of the Employee’s employment by the
Employee for Good Reason, and shall be the sole and exclusive remedy therefor.

12. Release

Notwithstanding any provision herein to the contrary, the Company may require that, prior to
payment of any amount or provision of any benefit under this Agreement, the Employee shall
have executed a complete release of the Company and its successors, affiliates and related
parties in such form as is reasonably acceptable to both parties and any waiting periods
contained in such release shall have expired.

13. Miscellaneous Provisions

	 	13.1	 	Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Employee, mailed notices
shall be addressed to the Employee at the home address that the Employee most recently
communicated to the Company in writing. In the case of the Company, mailed notices
shall be addressed to its corporate headquarters, and all notices shall be directed to
the attention of its Secretary.

	 	13.2	 	Waiver. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing and
signed by the Employee and by an authorized officer of the Company (other than the
Employee). No waiver by either party of any breach of, or of compliance with, any
condition or provision of this Agreement by the other party shall be considered a
waiver of any other condition or provision or of the same condition or provision at
another time.

	 	13.3	 	Other Agreements; Amendment. This Agreement does not supersede any
stock option, restricted stock or other equity-based incentive compensation agreement
between the Employee and the Company, except to the extent that the benefits provided
by this Agreement are greater than the severance pay and similar benefits provided by
such agreements. In no event shall the Employee be entitled to severance pay both
under this Agreement and under any employment agreement following a termination of
employment. This Agreement may be amended only in writing, by an instrument executed
by both parties.

	 	13.4	 	No Setoff; Withholding Taxes. There shall be no right of setoff or
counterclaim, with respect to any claim, debt or obligation, against payments to the
Employee under this Agreement. All payments made or benefits provided under this
Agreement shall be subject to reduction to reflect taxes required to be withheld by
law. The payments received under this Agreement shall be in lieu of, and not in
addition to, any payments or benefits received in connection with the Company’s general
severance policy then in effect. Should any payment be made or benefits be provided
under any such severance policy, the payments and benefits provided hereunder shall be
correspondingly reduced by such payments and/or benefits.

	 	13.5	 	Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of Florida,
except its choice-of-law provisions.

	 	13.6	 	Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of any
other provision hereof, which shall remain in full force and effect.

	 	13.7	 	Arbitration of Disputes and Related Claims. Any good faith dispute or
controversy arising under or in connection with this Agreement shall be settled by
binding arbitration, which shall be the sole and exclusive method of resolving any
questions, claims or other matters arising under this Agreement or, to the extent
permitted by applicable law, any claim that the Company has in any way violated the
non-discrimination and/or other provisions of Title VII of the Civil Rights Act of
1964, as amended; the Age Discrimination in Employment Act of 1967, as amended; the
Americans with Disabilities Act; the Family and Medical Leave Act, as amended; the
Employee Retirement Income Security Act of 1974, as amended; and, in general, any
federal law or state laws. Such proceeding shall be conducted in Jacksonville,
Florida, by final and binding arbitration before a panel of one or more arbitrators in
accordance with the laws and rules of the American Arbitration Association in effect at
the time the arbitration is commenced, and as subsequently amended while the
arbitration is pending, and under the administration of the American Arbitration
Association. The Federal and state courts located in the United States of America are
hereby given jurisdiction to render judgment upon, and to enforce, each arbitration
award, and the parties hereby expressly consent and submit to the jurisdiction of such
courts. Notwithstanding the foregoing, in the event that a violation of this Agreement
would cause irreparable injury, the Company and the Employee agree that in addition to
the other rights and remedies provided in this Agreement (and without waiving their
rights to have all other matters arbitrated as provided above) the other party may
immediately take judicial action to obtain injunctive relief.

	 	13.8	 	Legal Fees. In the event of any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, the Company shall pay (on an
as-incurred basis) the reasonable fees and costs of the Employee’s attorneys
attributable to such controversy or claim (the “Legal Fees”); provided, that the
Employee shall reimburse the Company for all such Legal Fees if the Employee does not
prevail on at least one material issue arising in such controversy or claim.

	 	13.9	 	Not Compensation for Other Plans. The amounts paid and benefits
provided hereunder are not to be considered compensation, earnings or wages for
purposes of any employee benefit plan of the Company or its successors, affiliates, or
related parties, including but not limited to the SERP, DCAP, and qualified retirement
plans.

	 	13.10	 	No Assignment. Except to the extent provided in Section 10, the
rights of any person to payments or benefits under this Agreement shall not be made
subject to option or assignment, either by voluntary or involuntary assignment or by
operation of law, including (without limitation) bankruptcy, garnishment, attachment or
other creditor’s process, and any action in violation of this Section shall be void.

IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by
its duly authorized officer, as of the day and year first above written.

	 	 	 
	EMPLOYEE: ANTHONY CORRIGGIO

	 	THE ST. JOE COMPANY
	 
	 	 
	By: /s/ Anthony M. Corriggio

	 	By: /s/ Rachelle Gottlieb
	 

	 	 
	 
	 	 
	Title: Chief Financial Officer

	 	Title: SVP – Human Resources
	 
	 	 
	Date: March 16, 2005

	 	Date: March 16, 2005Exhibit 10.1

                          SECURITIES PURCHASE AGREEMENT
                          -----------------------------
     THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of February
18, 2005, by and among Pathogenics, Inc., a Delaware corporation, with
headquarters located at 28 Old Coach Road, Cohasset, Massachusetts 02025 (the
"Company"), and the purchasers named on the signature page hereto (each a
"Purchaser" and collectively "Purchasers").

     WHEREAS, the Company and the Purchasers are executing and delivering this
Agreement in reliance upon an exemption from securities registration afforded by
the rules and regulations promulgated by the United States Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "1933 Act").

     WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Purchasers will purchase and the Company
desires to issue and sell, upon the terms and conditions set forth in this
Agreement 8% convertible preferred stock of the Company, in the aggregate
principal amount of Two Hundred Seventy Five Thousand Dollars ($275,000)
(together with any share(s) issued in replacement thereof or as a dividend
thereon or otherwise with respect thereto in accordance with the terms thereof,
the "PREFERRED STOCK"), convertible into shares of Common Stock, par value $.001
per share, of the Company (the "COMMON STOCK") at a per share conversion price
of $0.029 ("Conversion Price"), upon the terms and subject to the limitations
and conditions set forth in the Certificate of Designations of Preferred Stock
attached hereto as EXHIBIT A. The Preferred Stock and Common Stock are
collectively referred to herein as "SECURITIES"; and

     WHEREAS, the aggregate proceeds of the sale of the Preferred Stock
contemplated hereby shall be held in escrow pursuant to the terms of a Funds
Escrow Agreement to be executed by the parties substantially in the form
attached hereto as EXHIBIT B (the "ESCROW AGREEMENT").

     NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Purchasers hereby
agree as follows:

     1.     Initial Closing.  Subject to the satisfaction or waiver of the terms
            ---------------
and conditions of this Agreement, on the INITIAL CLOSING DATE, each Purchaser
shall purchase and the Company shall sell to each Purchaser, Preferred Stock in
the amount designated on the signature page hereto ("INITIAL CLOSING PREFERRED
STOCK").  The aggregate amount of the Preferred Stock to be purchased by the
Purchasers on the Initial Closing Date shall, in the aggregate, be equal to the
Initial Closing Purchase Price.  The Initial Closing Date shall be the date that
funds representing the net amount due the Company from the Initial Closing
Purchase Price of the Offering is transmitted by wire transfer or otherwise to
or for the benefit of the Company.

     2.     Second Closing.
            --------------

          (a) Second Closing. The closing date in relation to the Second Closing
              --------------
     Purchase Price shall be the fifth (5th) business day after the filing of
     the Registration Statement as defined in Section 12.1(iv) of this Agreement
     (the "SECOND CLOSING DATE"). Subject to the satisfaction or waiver of the
     terms and conditions of this Agreement on the Second Closing Date, each
     Purchaser shall purchase and the Company shall sell to each Purchaser,
     Preferred Stock in the principal amount designated on the signature page
     hereto ("SECOND CLOSING PREFERRED STOCK"). The aggregate Purchase Price of
     the Second Closing Preferred Stock for all Purchasers shall be equal to the
     Second Closing Purchase Price. The Second Closing Preferred Stock shall be
     identical to the Preferred Stock issuable on the Initial Closing Date
     except that the Conversion Price (defined in the Preferred Stock
     Certificate of Designations) shall be equitably adjusted to offset the
     effect of stock splits, stock dividends, pro rata distributions of property
     or equity interests to the Company's shareholders after the Initial Closing
     Date.

<PAGE>

          (b) Conditions to Second Closing. The occurrence of the Second Closing
              ----------------------------
     is expressly contingent on (i) the truth and accuracy, on the Second
     Closing Date of the representations and warranties of the Company and
     Purchaser contained in this Agreement, (ii) continued compliance with the
     covenants of the Company set forth in this Agreement, (iii) the
     non-occurrence of any Redemption Event (as defined in the Preferred Stock)
     or other default by the Company of its obligations and undertakings
     contained in this Agreement, and (iv) the delivery on the Second Closing
     Date of Second Closing Preferred Stock for which the Common Stock issuable
     upon conversion has been included in the Registration Statement.

          (c) Second Closing Deliveries. On the Second Closing Date, the Company
              -------------------------
     will deliver the Second Closing Preferred Stock to the Escrow Agent and
     each Purchaser will deliver his portion of the respective Purchase Price to
     the Escrow Agent. On the Second Closing Date, the Company will deliver a
     certificate ("SECOND CLOSING CERTIFICATE") signed by its chief executive
     officer or chief financial officer (i) representing the truth and accuracy
     of all the representations and warranties made by the Company contained in
     this Agreement, as of the Initial Closing Date, and the Second Closing
     Date, as if such representations and warranties were made and given on all
     such dates, (ii) adopting the covenants and conditions set forth in
     Sections 10, 11, 12, and 13 of this Agreement in relation to the Second
     Closing Preferred Stock, (iii) representing the timely compliance by the
     Company with the Company's registration requirements set forth in Section
     12 of this Agreement, and (iv) certifying that a Redemption Event has not
     occurred. A legal opinion nearly identical to the legal opinion referred to
     in Section 7 of this Agreement shall be delivered to each Purchaser at the
     Second Closing in relation to the Company and Second Closing Preferred
     Stock ("SECOND CLOSING LEGAL OPINION"). The Second Closing Legal Opinion
     must also state that all of the Registrable Securities have been included
     for registration in a registration statement filed with the Commission as
     of the Second Closing Date.

     3.     Third Closing.
            -------------

          (a) Third Closing. The closing date in relation to the Third Closing
              -------------
     Purchase Price shall be the fifth (5th) business day after the actual
     effectiveness ("Actual Effective Date") of the Registration Statement as
     defined in Section 12.1(iv) of this Agreement (the "THIRD CLOSING DATE").
     Subject to the satisfaction or waiver of the terms and conditions of this
     Agreement on the Third Closing Date, each Purchaser shall purchase and the
     Company shall sell to each Purchaser Preferred Stock in the principal
     amount designated on the signature page hereto ("THIRD CLOSING PREFERRED
     STOCK"). The aggregate Purchase Price of the Third Closing Preferred Stock
     for all Purchasers shall be equal to the Third Closing Purchase Price. The
     Third Closing Preferred Stock shall be identical to the Preferred Stock
     issuable on the Initial Closing Date except that the Conversion Price
     (defined in the Preferred Stock Certificate of Designations) shall be
     equitably adjusted to offset the effect of stock splits, stock dividends,
     pro rata distributions of property or equity interests to the Company's
     shareholders after the Initial Closing Date.

          (b) Conditions to Third Closing. The occurrence of the Third Closing
              ---------------------------
     is expressly contingent on (i) the truth and accuracy, on the Effective
     Date, Actual Effective Date and the Third Closing Date of the
     representations and warranties of the Company and Purchaser contained in
     this Agreement, (ii) continued compliance with the covenants of the Company
     set forth in this Agreement, (iii) the non-occurrence of any Redemption
     Event (as defined in the Preferred Stock) or other default by the Company
     of its obligations and undertakings contained in this Agreement, and (iv)
     the delivery on the Third Closing Date of Third Closing Preferred Stock for
     which the Common Stock issuable upon conversion has been included in the
     Registration Statement, which must be effective as of the Third Closing
     Date.

          (c) Third Closing Deliveries. On the Third Closing Date, the Company
              ------------------------
     will deliver the Third Closing Preferred Stock to the Escrow Agent and each
     Purchaser will deliver his portion of the respective Purchase Price to the
     Escrow Agent. On the Third Closing Date, the Company will deliver a
     certificate ("THIRD CLOSING CERTIFICATE") signed by its chief executive
     officer or chief financial officer (i) representing the truth and accuracy
     of all the representations and warranties made by the Company contained in
     this Agreement, as of the Initial Closing Date, the Second Closing Date,
     the Actual Effective Date, and the Third Closing Date, as if such
     representations and warranties were made and given on all such dates, (ii)
     adopting the covenants and conditions set forth in Sections 10, 11, 12, and
     13 of this Agreement in relation to the Third Closing Preferred Stock,
     (iii) representing the timely compliance by the Company with the Company's
     registration requirements set forth in Section 12 of this Agreement, and
     (iv) certifying that a Redemption Event has not occurred. A legal opinion
     nearly identical to the legal opinion referred to in Section 7 of this
     Agreement shall be delivered to each Purchaser at the Third Closing in
     relation to the Company and Third Closing Preferred Stock ("THIRD CLOSING
     LEGAL OPINION"). The Third Closing Legal Opinion must also state that all
     of the Registrable Securities have been included for registration in an
     effective registration statement effective as of the Actual Effective Date
     and Third Closing Date.

                                        2
<PAGE>

     4.     Fourth Closing.
            --------------

          (a) Fourth Closing. The closing date in relation to the Fourth Closing
              --------------
     Purchase Price shall be the thirtieth (30th) business day after the Actual
     Effective Date (the "FOURTH CLOSING DATE"). Subject to the satisfaction or
     waiver of the terms and conditions of this Agreement on the Fourth Closing
     Date, each Purchaser shall purchase and the Company shall sell to each
     Purchaser, Preferred Stock in the principal amount designated on the
     signature page hereto ("FOURTH CLOSING PREFERRED STOCK"). The aggregate
     Purchase Price of the Fourth Closing Preferred Stock for all Purchasers
     shall be equal to the Fourth Closing Purchase Price. The Fourth Closing
     Preferred Stock shall be identical to the Preferred Stock issuable on the
     Initial Closing Date except that the Conversion Price (defined in the
     Preferred Stock Certificate of Designations) shall be equitably adjusted to
     offset the effect of stock splits, stock dividends, pro rata distributions
     of property or equity interests to the Company's shareholders after the
     Initial Closing Date.

          (b) Conditions to Fourth Closing. The occurrence of the Fourth Closing
              ----------------------------
     is expressly contingent on (i) the truth and accuracy, on the Effective
     Date, Actual Effective Date and the Fourth Closing Date of the
     representations and warranties of the Company and Purchaser contained in
     this Agreement, (ii) continued compliance with the covenants of the Company
     set forth in this Agreement, (iii) the non-occurrence of any Redemption
     Event (as defined in the Preferred Stock) or other default by the Company
     of its obligations and undertakings contained in this Agreement, and (iv)
     the delivery on the Fourth Closing Date of Fourth Closing Preferred Stock
     for which the Common Stock issuable upon conversion has been included in
     the Registration Statement, which must be effective as of the Fourth
     Closing Date.

          (c) Fourth Closing Deliveries. On the Fourth Closing Date, the Company
              --------------------------
     will deliver the Fourth Closing Preferred Stock to the Escrow Agent and
     each Purchaser will deliver his portion of the respective Purchase Price to
     the Escrow Agent. On the Fourth Closing Date, the Company will deliver a
     certificate ("FOURTH CLOSING CERTIFICATE") signed by its chief executive
     officer or chief financial officer (i) representing the truth and accuracy
     of all the representations and warranties made by the Company contained in
     this Agreement, as of the Initial Closing Date, the Second Closing Date,
     the Actual Effective Date, and the Fourth Closing Date, as if such
     representations and warranties were made and given on all such dates, (ii)
     adopting the covenants and conditions set forth in Sections 10, 11, 12, and
     13 of this Agreement in relation to the Fourth Closing Preferred Stock,
     (iii) representing the timely compliance by the Company with the Company's
     registration requirements set forth in Section 12 of this Agreement, and
     (iv) certifying that a Redemption Event has not occurred. A legal opinion
     nearly identical to the legal opinion referred to in Section 7 of this
     Agreement shall be delivered to each Purchaser at the Fourth Closing in
     relation to the Company and Fourth Closing Preferred Stock ("FOURTH CLOSING
     LEGAL OPINION"). The Fourth Closing Legal Opinion must also state that all
     of the Registrable Securities have been included for registration in an
     effective registration statement effective as of the Actual Effective Date
     and Fourth Closing Date.

     5.     Purchaser's Representations and Warranties.  Each Purchaser hereby
            ------------------------------------------
represents and warrants to and agrees with the Company only as to such Purchaser
that:

                                        3
<PAGE>

          (a) Information. The Purchaser and its advisors, if any, have been,
              -----------
     and for so long as the Preferred Stock remain outstanding will continue to
     be, furnished with all materials relating to the business, finances and
     operations of the Company and materials relating to the offer and sale of
     the Securities which have been requested by the Purchaser or its advisors.
     The Purchaser and its advisors, if any, have been, and for so long as the
     Preferred Stock remains outstanding will continue to be, afforded the
     opportunity to ask questions of the Company. Notwithstanding the foregoing,
     the Company has not disclosed to the Purchaser any material nonpublic
     information and will not disclose such information unless such information
     is disclosed to the public prior to or promptly following such disclosure
     to the Purchaser. Neither such inquiries nor any other due diligence
     investigation conducted by Purchaser or any of its advisors or
     representatives shall modify, amend or affect Purchaser's right to rely on
     the Company's representations and warranties contained in Section 6 below.
     The Purchaser understands that its investment in the Securities involves a
     significant degree of risk.

          (b) Accredited Investor Status. The Purchaser is, and will be at the
              --------------------------
     time of the conversion of the Preferred Stock, an "accredited investor", as
     such term is defined in Rule 501(a)(3) of Regulation D promulgated by the
     Commission under the 1933 Act, is experienced in investments and business
     matters, has made investments of a speculative nature and has purchased
     securities of United States publicly-owned companies in private placements
     in the past and, with its representatives, has such knowledge and
     experience in financial, tax and other business matters as to enable the
     Purchaser to utilize the information made available by the Company to
     evaluate the merits and risks of and to make an informed investment
     decision with respect to the proposed purchase, which represents a
     speculative investment. The Purchaser has the authority and is duly and
     legally qualified to purchase and own the Securities. The Purchaser is able
     to bear the risk of such investment for an indefinite period and to afford
     a complete loss thereof. The information set forth on the signature page
     hereto regarding the Purchaser is accurate.

          (c) Investment Intent. On each Closing Date, the Purchaser will
              -----------------
     purchase the Preferred Stock as principal for its own account for
     investment only and not with a view toward, or for resale in connection
     with, the public sale or any distribution thereof.

          (d) U.S. Persons. The Purchaser is not a U.S. Person as defined in
              ------------
     Commission Rule 902(k).

          (e) Category 3 Securities. The Purchaser has complied with all of the
              ---------------------
     conditions required of it by Commission Rule 903(b)(3) to be complied with
     by it in connection with the transactions contemplated by this Agreement.

          (f) Compliance with Securities Act. The Purchaser understands and
              ------------------------------
     agrees that the Securities have not been registered under the 1933 Act or
     any applicable state securities laws, by reason of their issuance in a
     transaction that does not require registration under the 1933 Act (based in
     part on the accuracy of the representations and warranties of Purchaser
     contained herein), and that such Securities must be held indefinitely
     unless a subsequent disposition is registered under the 1933 Act or any
     applicable state securities laws or is exempt from such registration.

          (g) Preferred Stock Legend. The Preferred Stock shall bear the
     following legend:

     "THIS  PREFERRED  STOCK  AND  THE COMMON SHARES ISSUABLE UPON CONVERSION OF
     THIS  PREFERRED  STOCK HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
     1933,  AS AMENDED. THIS PREFERRED STOCK AND THE COMMON SHARES ISSUABLE UPON
     CONVERSION  OF  THIS  PREFERRED  STOCK  MAY  NOT BE SOLD, OFFERED FOR SALE,
     PLEDGED  OR  HYPOTHECATED  IN  THE  ABSENCE  OF  AN  EFFECTIVE REGISTRATION
     STATEMENT  AS  TO  THIS  PREFERRED  STOCK  UNDER  SAID ACT OR AN OPINION OF
     COUNSEL REASONABLY SATISFACTORY TO PATHOGENICS, INC. THAT SUCH REGISTRATION
     IS  NOT  REQUIRED."

                                        4

<PAGE>

          (h) Communication of Offer. The offer to sell the Securities was
              ----------------------
     directly communicated to the Purchaser by the Company. At no time was the
     Purchaser presented with or solicited by any leaflet, newspaper or magazine
     article, radio or television advertisement, or any other form of general
     advertising or solicited or invited to attend a promotional meeting
     otherwise than in connection and concurrently with such communicated offer.

          (i) Authority; Enforceability. This Agreement and other agreements
              -------------------------
     delivered together with this Agreement or in connection herewith have been
     duly authorized, executed and delivered by the Purchaser and are valid and
     binding agreements enforceable in accordance with their terms, subject to
     bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
     similar laws of general applicability relating to or affecting creditors'
     rights generally and to general principles of equity; and Purchaser has
     full corporate power and authority necessary to enter into this Agreement
     and such other agreements and to perform its obligations hereunder and
     under all other agreements entered into by the Purchaser relating hereto.

          (j) Restricted Securities. Purchaser understands that the Securities
              ---------------------
     have not been registered under the 1933 Act and such Purchaser will not
     sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any
     of the Securities unless (i) pursuant to an effective registration
     statement under the 1933 Act, (ii) such Purchaser provides the Company with
     an opinion of counsel, in a form reasonably acceptable to the Company, to
     the effect that a sale, assignment or transfer of the Securities may be
     made without registration under the 1933 Act, or (iii) Purchaser provides
     the Company with reasonable assurances (in the form of seller and broker
     representation letters) that the Common Stock can be sold pursuant to (A)
     Rule 144(b) promulgated under the 1933 Act, or (B) Rule 144(k) promulgated
     under the 1933 Act, in each case following the applicable holding period
     set forth therein. Notwithstanding anything to the contrary contained in
     this Agreement, such Purchaser may transfer (without restriction and
     without the need for an opinion of counsel) the Securities to its
     Affiliates (as defined below) provided that each such Affiliate is an
     "accredited investor" under Regulation D and such Affiliate agrees to be
     bound by the terms and conditions of this Agreement.

          For the purposes of this Agreement, an "Affiliate" of any person or
     entity means any other person or entity directly or indirectly controlling,
     controlled by or under direct or indirect common control with such person
     or entity. For purposes of this definition, "control" means the power to
     direct the management and policies of such person or firm, directly or
     indirectly, whether through the ownership of voting securities, by contract
     or otherwise.

          (k) No Governmental Review. Each Purchaser understands that no United
              ----------------------
     States federal or state agency or any other governmental or state agency
     has passed on or made recommendations or endorsement of the Securities or
     the suitability of the investment in the Securities nor have such
     authorities passed upon or endorsed the merits of the offering of the
     Securities.

          (l) No Prior Short Selling. Each Purchaser represents and warrants to
              ----------------------
     the Company that as of the date the Purchaser became aware of the offering
     of the Securities, such Purchaser and such Purchaser's Affiliates have not,
     directly or indirectly had any (i) "short" position (as such term is
     employed in Rule 3b-3 of the Securities and Exchange Act of 1934) in the
     Common Stock, or (ii) a hedged position which would establish a net short
     position with respect to the Common Stock.

          (m) Correctness of Representations. Each Purchaser represents as to
              ------------------------------
     such Purchaser that the foregoing representations and warranties are true
     and correct as of the date hereof and, unless a Purchaser otherwise
     notifies the Company prior to each Closing Date shall be true and correct
     as of each Closing Date.

          (n) Survival. The foregoing representations and warranties shall
              --------
     survive the Fourth Closing Date for a period of two years.

                                        5
<PAGE>

     6.     Company Representations and Warranties.  The Company represents and
            --------------------------------------
warrants to and agrees with each Purchaser that:

          (a) Due Incorporation. The Company and each of its subsidiaries is a
              -----------------
     corporation duly organized, validly existing and in good standing under the
     laws of the respective jurisdictions of their incorporation and have the
     requisite corporate power to own their properties and to carry on their
     business as now being conducted. The Company and each of its subsidiaries
     is duly qualified as a foreign corporation to do business and is in good
     standing in each jurisdiction where the nature of the business conducted or
     property owned by it makes such qualification necessary, other than those
     jurisdictions in which the failure to so qualify would not have a Material
     Adverse Effect. For purpose of this Agreement, a "material adverse effect"
     shall mean a material adverse effect on the financial condition, results of
     operations, properties or business of the Company taken as a whole.

          (b) Outstanding Stock. All issued and outstanding shares of capital
              -----------------
     stock of the Company and each of its subsidiaries have been duly authorized
     and validly issued and are fully paid and non-assessable.

          (c) Authority; Enforceability. This Agreement, the Preferred Stock,
              -------------------------
     the Escrow Agreement and any other agreements delivered together with this
     Agreement or in connection herewith (collectively "Transaction Documents")
     have been duly authorized, executed and delivered by the Company and are
     valid and binding agreements enforceable in accordance with their terms,
     subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
     moratorium and similar laws of general applicability relating to or
     affecting creditors' rights generally and to general principles of equity.
     The Company has full corporate power and authority necessary to enter into
     and deliver the Transaction Documents and to perform its obligations
     thereunder.

          (d) Additional Issuances. There are no outstanding agreements or
              --------------------
     preemptive or similar rights affecting the Company's common stock or equity
     and no outstanding rights, warrants or options to acquire, or instruments
     convertible into or exchangeable for, or agreements or understandings with
     respect to the sale or issuance of any shares of common stock or equity of
     the Company or other equity interest in any of the subsidiaries of the
     Company except as described on SCHEDULE 6(D).

          (e) Consents. No consent, approval, authorization or order of any
              --------
     court, governmental agency or body, arbitrator or stock exchange having
     jurisdiction over the Company, or any of its Affiliates, the OTC Bulletin
     Board(R) nor the Company's shareholders is required for the execution by
     the Company of the Transaction Documents and compliance and performance by
     the Company of its obligations under the Transaction Documents, including,
     without limitation, the issuance and sale of the Securities.

          (f) No Violation or Conflict. Assuming the representations and
              ------------------------
     warranties of the Purchasers in Section 5 are true and correct, neither the
     issuance and sale of the Securities nor the performance of the Company's
     obligations under this Agreement and all other agreements entered into by
     the Company relating thereto by the Company will:

                                        6
<PAGE>

               (i) violate, conflict with, result in a breach of, or constitute
          a default (or an event which with the giving of notice or the lapse of
          time or both would be reasonably likely to constitute a default) under
          (A) the articles or certificate of incorporation, charter or bylaws of
          the Company, (B) to the Company's knowledge, any decree, judgment,
          order, law, treaty, rule, regulation or determination applicable to
          the Company of any court, governmental agency or body, or arbitrator
          having jurisdiction over the Company or any of its subsidiaries or
          over the properties or assets of the Company or any of its Affiliates,
          (C) the terms of any bond, debenture, note or any other evidence of
          indebtedness, or any agreement, stock option or other similar plan,
          indenture, lease, mortgage, deed of trust or other instrument to which
          the Company or any of its Affiliates or subsidiaries is a party, by
          which the Company or any of its Affiliates or subsidiaries is bound,
          or to which any of the properties of the Company or any of its
          Affiliates or subsidiaries is subject, or (D) the terms of any
          "lock-up" or similar provision of any underwriting or similar
          agreement to which the Company, or any of its Affiliates or
          subsidiaries is a party except the violation, conflict, breach, or
          default of which would not have a Material Adverse Effect on the
          Company; or

               (ii) result in the creation or imposition of any lien, charge or
          encumbrance upon the Securities or any of the assets of the Company,
          its subsidiaries or any of its Affiliates; or

               (iii) result in the activation of any anti-dilution rights or a
          reset or repricing of any debt or security instrument of any other
          creditor or equity holder of the Company, nor result in the
          acceleration of the due date of any obligation of the Company; or

               (iv) result in the activation of any piggy-back registration
          rights of any person or entity holding securities of the Company or
          having the right to receive securities of the Company.

          (g)     The Securities.  The Securities upon issuance:
                  --------------

               (i) are, or will be, free and clear of any security interests,
          liens, claims or other encumbrances, subject to restrictions upon
          transfer under the 1933 Act and any applicable state securities laws;

               (ii) have been, or will be, duly and validly authorized and on
          the date of conversion of the Preferred Stock and the Common Stock
          will be duly and validly issued, fully paid and non-assessable (and if
          registered pursuant to the 1933 Act, and resold pursuant to an
          effective registration statement will be unrestricted and freely
          salable by persons who are not Affiliates of the Company, provided
          that each selling person complies with the prospectus delivery
          requirements of the 1933 Act);

               (iii) will not have been issued or sold in violation of any
          preemptive or other similar rights of the holders of any securities of
          the Company; and (iv) will not subject the holders thereof to personal
          liability by reason of being such holders.

          (h) Litigation. There is no pending or, to the best knowledge of the
              ----------
     Company, threatened action, suit, proceeding or investigation before any
     court, governmental agency or body, or arbitrator having jurisdiction over
     the Company, or any of its Affiliates that would affect the execution by
     the Company or the performance by the Company of its obligations under the
     Transaction Documents. Except as disclosed in the Registration Statement,
     there is no pending or, to the best knowledge of the Company, basis for or
     threatened action, suit, proceeding or investigation before any court,
     governmental agency or body, or arbitrator having jurisdiction over the
     Company, or any of its Affiliates which litigation if adversely determined
     would have a Material Adverse Effect on the Company.

          (i) Reporting Company. The Company is a publicly-held company and, on
              -----------------
     the Actual Effective Date will be subject to reporting obligations pursuant
     to Section 13 of the Securities Exchange Act of 1934, as amended (the "1934
     Act") and have a class of common shares registered pursuant to Section
     12(g) of the 1934 Act.

          (j) No Market Manipulation. The Company has not taken, and will not
              ----------------------
     take, directly or indirectly, any action designed to, or that might
     reasonably be expected to, cause or result in stabilization or manipulation
     of the price of the Common Stock of the Company to facilitate the sale or
     resale of the Securities or affect the price at which the Securities may be
     issued or resold.

          (k) Information Concerning Company. The Registration Statement
              ------------------------------
     contains all material information relating to the Company and its
     operations and financial condition as of their respective dates which
     information is required to be disclosed therein. Since the date of the
     financial statements included in the Registration Statement, and except as
     modified in writing furnished to Purchaser (the "Other Written
     Information") or in the Schedules hereto, there has been no material
     adverse change in the Company's business, financial condition or affairs
     not disclosed in the Registration Statement. The Registration Statement
     does not contain any untrue statement of a material fact or omit to state a
     material fact required to be stated therein or necessary to make the
     statements therein not misleading in light of the circumstances when made.

                                        7
<PAGE>

          (l) Stop Transfer. The Preferred Stock will be restricted securities.
              -------------
     The Company will not issue any stop transfer order or other order impeding
     the sale, resale or delivery of any of the Securities, except as may be
     required by any applicable federal or state securities laws and unless
     contemporaneous notice of such instruction is given to the Purchaser.

          (m) Defaults. Except as described on SCHEDULE 6(M), the Company is not
              --------
     in violation of its articles of incorporation or bylaws. The Company is (i)
     not in default under or in violation of any other material agreement or
     instrument to which it is a party or by which it or any of its properties
     are bound or affected, which default or violation would have a Material
     Adverse Effect on the Company, (ii) not in default with respect to any
     order of any court, arbitrator or governmental body or subject to or party
     to any order of any court or governmental authority arising out of any
     action, suit or proceeding under any statute or other law respecting
     antitrust, monopoly, restraint of trade, unfair competition or similar
     matters, or (iii) to its knowledge not in violation of any statute, rule or
     regulation of any governmental authority which violation would have a
     Material Adverse Effect on the Company.

          (n) No Integrated Offering. Neither the Company, nor any of its
              ----------------------
     Affiliates, nor any person acting on its or their behalf, has directly or
     indirectly made any offers or sales of any security or solicited any offers
     to buy any security under circumstances that would cause the offer of the
     Securities pursuant to this Agreement to be integrated with prior offerings
     by the Company for purposes of the 1933 Act or any applicable stockholder
     approval provisions, including, without limitation, under the rules and
     regulations of the OTC Bulletin Board(R). Nor will the Company or any of
     its Affiliates or subsidiaries take any action or steps that would cause
     the offer of the Securities to be integrated with other offerings. The
     Company will not conduct any offering other than the transactions
     contemplated hereby that will be integrated with the offer or issuance of
     the Securities.

          (o) No General Solicitation. Neither the Company, nor any of its
              -----------------------
     Affiliates, nor to its knowledge, any person acting on its or their behalf,
     has engaged in any form of general solicitation or general advertising
     (within the meaning of Regulation D under the 1933 Act) in connection with
     the offer or sale of the Preferred Stock.

          (p) Listing. The Company intends to qualify its common stock for
              -------
     quotation on the OTC Bulletin Board(R). The Company has not received any
     oral or written notice that its common stock is not eligible nor will
     become ineligible for quotation on the OTC Bulletin Board(R) nor that its
     common stock does not meet all requirements for the continuation of such
     quotation and the Company satisfies all the requirements for the continued
     quotation of its common stock on the OTC Bulletin Board(R).

          (q) No Undisclosed Liabilities. The Company has no liabilities or
             ---------------------------
     obligations which are material, individually or in the aggregate, which are
     not disclosed in the Registration Statement and Other Written Information,
     other than those incurred in the ordinary course of the Company's
     businesses since December 31, 2004 and which, individually or in the
     aggregate, would reasonably be expected to have a Material Adverse Effect
     other than as set forth in SCHEDULE 6(Q).

          (r) No Undisclosed Events or Circumstances. Since December 31, 2004,
              --------------------------------------
     no event or circumstance has occurred or exists with respect to the Company
     or its businesses, properties, operations or financial condition, that,
     under applicable law, rule or regulation, requires public disclosure or
     announcement prior to the date hereof by the Company but which has not been
     so publicly announced or disclosed in the Registration Statement.

                                        8
<PAGE>

          (s) Capitalization. The authorized and outstanding capital stock of
              --------------
     the Company as of the date of this Agreement and the Closing Date are set
     forth on SCHEDULE 6(S). Except as set forth in the Registration Statement
     and Other Written Information and SCHEDULE 6(D), there are no options,
     warrants, or rights to subscribe to, securities, rights or obligations
     convertible into or exchangeable for or giving any right to subscribe for
     any shares of capital stock of the Company. All of the outstanding shares
     of Common Stock of the Company have been duly and validly authorized and
     issued and are fully paid and non-assessable.

          (t) Dilution. The Company's executive officers and directors
              --------
     understand the nature of the Securities being sold hereby and recognize
     that the issuance of the Securities will have a potential dilutive effect
     on the equity holdings of other holders of the Company's equity or rights
     to receive equity of the Company. The board of directors of the Company has
     concluded, in its good faith business judgment, that the issuance of the
     Securities is in the best interests of the Company. The Company
     specifically acknowledges that its obligation to issue the Common Stock
     upon conversion of the Preferred Stock is binding upon the Company and
     enforceable regardless of the dilution such issuance may have on the
     ownership interests of other shareholders of the Company or parties
     entitled to receive equity of the Company.

          (u) No Disagreements with Accountants and Lawyers. There are no
              ---------------------------------------------
     disagreements of any kind presently existing, or reasonably anticipated by
     the Company to arise, between the Company and the accountants and lawyers
     formerly or presently employed by the Company, including but not limited to
     disputes or conflicts over payment owed to such accountants and lawyers.

          (v) Investment Company. The Company is not an Affiliate of an
              ------------------
     "investment company" within the meaning of the Investment Company Act of
     1940, as amended.

          (w) Correctness of Representations. The Company represents that the
              ------------------------------
     foregoing representations and warranties are true and correct as of the
     date hereof in all material respects, and, unless the Company otherwise
     notifies the Purchasers prior to each Closing Date, shall be true and
     correct in all material respects as of each Closing Date.

          (x) Survival. The foregoing representations and warranties shall
              --------
     survive the Fourth Closing Date for a period of two years.

     7.     Exempt Offering.  The offer and issuance of the Securities to the
            ---------------
Purchasers is being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Section 4(2), or Section 4(6) and
Regulation S of the 1933 Act and Rule 506 of Regulation D promulgated
thereunder.  On the Closing Date, the Company will provide an opinion reasonably
acceptable to Purchaser from the Company's legal counsel opining on the
availability of an exemption from registration under the 1933 Act as it relates
to the offer and issuance of the Securities and other matters reasonably
requested by Purchasers.  A form of the legal opinion is annexed hereto as
EXHIBIT C.  The Company will provide, at the Company's expense, such other legal
opinions in the future as are reasonably necessary for the issuance and resale
of the Common Stock issuable upon conversion of the Preferred Stock.

     8.1.     Conversion of Preferred Stock.
              -----------------------------

          (a) Upon the conversion of Preferred Stock or part thereof, the
     Company shall, at its own cost and expense, take all necessary action,
     including obtaining and delivering, an opinion of counsel to assure that
     the Company's transfer agent shall issue stock certificates in the name of
     Purchaser (or its nominee) or such other persons as designated by Purchaser
     and in such denominations to be specified at conversion representing the
     number of shares of common stock issuable upon such conversion. The Company
     warrants that no instructions other than these instructions have been or
     will be given to the transfer agent of the Company's Common Stock and that,
     unless waived by the Purchaser, the Common Stock will be freely tradable,
     and freely transferable, and will not contain a legend restricting the
     resale or transferability of the Common Stock provided the Common Stock is
     being sold by a person who is not an Affiliate of the Company pursuant to
     an effective registration statement covering the Common Stock or are
     otherwise exempt from registration.

                                        9

<PAGE>

          (b) Purchaser will give notice of its decision to exercise its right
     to convert the Preferred Stock or part thereof by telecopying an executed
     and completed Notice of Conversion (a form of which is annexed as EXHIBIT A
     to the Preferred Stock) to the Company via confirmed telecopier
     transmission or otherwise pursuant to Section 14(a) of this Agreement. The
     Purchaser will not be required to surrender the Preferred Stock until the
     Preferred Stock has been fully converted or satisfied. Each date on which a
     Notice of Conversion is telecopied to the Company in accordance with the
     provisions hereof, shall be deemed a CONVERSION DATE. The Company will
     itself or cause the Company's transfer agent to transmit the Company's
     Common Stock certificates representing the Common Stock issuable upon
     conversion of the Preferred Stock to the Purchaser via express courier for
     receipt by such Purchaser within five (5) business days after receipt by
     the Company of the Notice of Conversion (such fifth day being the "Delivery
     Date"). In the event the Common Stock is electronically transferable, then
     delivery of the Common Stock must be made by electronic transfer provided
     request for such electronic transfer has been made by the Purchaser. A
     certificate representing the balance of the Preferred Stock not so
     converted will be provided by the Company to the Purchaser if requested by
     Purchaser, provided the Purchaser delivers an original Preferred Stock to
     the Company. To the extent that a Purchaser elects not to surrender a
     Preferred Stock certificate for reissuance upon partial redemption or
     conversion, the Purchaser hereby indemnifies the Company against any and
     all loss or damage attributable to a third-party claim in an amount in
     excess of the actual amount then due under the Preferred Stock.

          (c) The Company understands that a delay in the delivery of the Common
     Stock in the form required pursuant to Section 8 hereof, or the Mandatory
     Redemption Amount described in Section 8.2 hereof, later than two business
     days after the Delivery Date or later than the Mandatory Redemption Payment
     Date (as hereinafter defined) could result in economic loss to the
     Purchaser. As compensation to the Purchaser for such loss, the Company
     agrees to pay (as liquidated damages and not as a penalty) to the Purchaser
     for late issuance of Common Stock in the form required pursuant to Section
     8 hereof upon Conversion of the Preferred Stock in the amount of $100 per
     business day after the Delivery Date for each $10,000 of Preferred Stock
     principal amount being converted, of the corresponding Common Stock which
     are not timely delivered. The Company shall pay any payments incurred under
     this Section in immediately available funds upon demand. Furthermore, in
     addition to any other remedies which may be available to the Purchaser, in
     the event that the Company fails for any reason to effect delivery of the
     Common Stock by the Delivery Date or make payment by the Mandatory
     Redemption Payment Date, the Purchaser will be entitled to revoke all or
     part of the relevant Notice of Conversion or rescind all or part of the
     notice of Mandatory Redemption by delivery of a notice to such effect to
     the Company whereupon the Company and the Purchaser shall each be restored
     to their respective positions immediately prior to the delivery of such
     notice, except that the liquidated damages described above shall be payable
     through the date notice of revocation or rescission is given to the
     Company.

          (d) Nothing contained herein or in any document referred to herein or
     delivered in connection herewith shall be deemed to establish or require
     the payment of a rate of interest or other charges in excess of the maximum
     permitted by applicable law. In the event that the rate of interest or
     dividends required to be paid or other charges hereunder exceed the maximum
     permitted by such law, any payments in excess of such maximum shall be
     credited against amounts owed by the Company to the Purchaser and thus
     refunded to the Company.

     8.2.     Mandatory Redemption at Purchaser's Election.  In the event the
              --------------------------------------------
Company is prohibited from issuing Common Stock, or fails to timely deliver
Common Stock on a Delivery Date, or upon the occurrence of any other Redemption
Event (as defined in the Preferred Stock or in this Agreement) or for any reason
other than pursuant to the limitations set forth in Section 8.3 hereof, then at
the Purchaser's election, the Company must pay to the Purchaser ten (10)
business days after request by the Purchaser, at the Purchaser's election, a sum
of money determined by (i) multiplying up to the outstanding principal amount of
the Preferred Stock designated by the Purchaser by 130%, or (ii) multiplying the
number of shares of Common Stock otherwise deliverable upon conversion of an
amount of Preferred Stock principal and/or interest designated by the Purchaser
(with the date of giving of such designation being a DEEMED CONVERSION DATE) at
the then Conversion Price that would be in effect on the Deemed Conversion Date
by the highest closing price of the Common Stock on the principal market for the
period commencing on the Deemed Conversion Date until the day prior to the
receipt of the Mandatory Redemption Payment, whichever is greater, together with
accrued but unpaid interest thereon ("MANDATORY REDEMPTION PAYMENT").  The
Mandatory Redemption Payment must be received by the Purchaser on the same date
as the Common Stock otherwise deliverable or within ten (10) business days after
request, whichever is sooner ("MANDATORY REDEMPTION PAYMENT DATE"). Upon receipt
of the Mandatory Redemption Payment, the corresponding Preferred Stock will be
deemed paid and no longer outstanding.  Liquidated damages calculated pursuant
to Section 8.1(c) hereof, that have been paid or accrued for the thirty day
period prior to the actual receipt of the Mandatory Redemption Payment by the
Purchaser shall be credited against the Mandatory Redemption Payment.

                                       10
<PAGE>

     8.3.     Maximum Conversion.  The Purchaser shall not be entitled to
              ------------------
convert on a Conversion Date that amount of the Preferred Stock in connection
with that number of shares of Common Stock which would be in excess of the sum
of (i) the number of shares of common stock beneficially owned by the Purchaser
and its Affiliates on a Conversion Date, and (ii) the number of shares of Common
Stock issuable upon the conversion of the Preferred Stock with respect to which
the determination of this provision is being made on a Conversion Date, which
would result in beneficial ownership by the Purchaser and its Affiliates of more
than 9.99% of the outstanding shares of common stock of the Company on such
Conversion Date.  For the purposes of the provision to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder.  Subject to the foregoing, the Purchaser shall not be limited to
aggregate conversions of only 9.99% and aggregate conversions by the Purchaser
may exceed 9.99%.  The Purchaser may void the conversion limitation described in
this Section 8.3 upon and effective after 61 days prior written notice to the
Company.  The Purchaser may allocate which of the equity of the Company deemed
beneficially owned by the Purchaser shall be included in the 9.99% amount
described above and which shall be allocated to the excess above 9.99%.

     8.4.     Injunction - Posting of Bond.  In the event a Purchaser shall
              ----------------------------
elect to convert Preferred Stock or part thereof, the Company may not refuse
conversion or exercise based on any claim that such Purchaser or any one
associated or affiliated with such Purchaser has been engaged in any violation
of law, or for any other reason, unless, an injunction from a court, on notice,
restraining and or enjoining conversion of all or part of said Preferred Stock
shall have been sought and obtained by the Company and the Company has posted a
surety bond for the benefit of such Purchaser in the amount of 130% of the
amount of the Preferred Stock, which is subject to the injunction, which bond
shall remain in effect until the completion of arbitration or litigation of the
dispute and the proceeds of which shall be payable to such Purchaser to the
extent Purchaser obtains judgment.

8.5.     Buy-In.  In addition to any other rights available to the Purchaser, if
         ------
the Company fails to deliver to the Purchaser such shares issuable upon
conversion of Preferred Stock by the Delivery Date and if seven (7) business
days after the Delivery Date the Purchaser purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by such Purchaser of the Common Stock which the Purchaser was entitled to
receive upon such conversion (a "Buy-In"), then the Company shall pay in cash to
the Purchaser (in addition to any remedies available to or elected by the
Purchaser) the amount by which (A) the Purchaser's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal amount of the Preferred Stock for
which such conversion was not timely honored, together with interest thereon at
a rate of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty).  For example, if the Purchaser purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of $10,000 of preferred stock principal, the Company
shall be required to pay the Purchaser $1,000, plus interest.  The Purchaser
shall provide the Company written notice indicating the amounts payable to the
Purchaser in respect of the Buy-In.

                                       11
<PAGE>

     8.6     Adjustments.  The Conversion Price and amount of Common Stock
             -----------
issuable upon conversion of the Preferred Stock shall be equitably adjusted to
offset the effect of stock splits, stock dividends, pro rata distributions of
property or equity interests to the Company's shareholders.

     8.7.     Redemption.  The Company may not redeem or call the Preferred
              ----------
Stock without the consent of the holder of the Preferred Stock.

     9.     Finder/Legal Fees.
            ------------------

          (a) Finder's Fee. The Company on the one hand, and each Purchaser (for
              ------------
     himself only) on the other hand, agree to indemnify the other against and
     hold the other harmless from any and all liabilities to any persons
     claiming brokerage commissions or finder's fees on account of services
     purported to have been rendered on behalf of the indemnifying party in
     connection with this Agreement or the transactions contemplated hereby and
     arising out of such party's actions.

          (b) Legal Fees. The Company shall pay to David M. Loev, Esq., a fee of
              ----------
     $25,000 ("Legal Fees"), for services rendered and to be rendered to the
     Company in connection with the Registration Statement defined in Section
     12.1(iv) of this Agreement and the purchase and sale of the Preferred Stock
     (the "Offering") and acting as Escrow Agent for the Offering. Ten Thousand
     Dollars ($10,000) will be payable on the Initial Closing Date and $5,000
     shall be payable respectively on the Second, Third and Fourth Closing
     Dates. Such portions of the Legal Fees will be payable out of funds held
     pursuant to the Escrow Agreement.

     10.     Covenants of the Company.  The Company covenants and agrees with
             ------------------------
the Purchasers as follows:

          (a) Stop Orders. The Company will advise the Purchasers, promptly
              -----------
     after it receives notice of issuance by the Commission, any state
     securities commission or any other regulatory authority of any stop order
     or of any order preventing or suspending any offering of any securities of
     the Company, or of the suspension of the qualification of the Common Stock
     of the Company for offering or sale in any jurisdiction, or the initiation
     of any proceeding for any such purpose.

          (b) Listing. The Company shall promptly secure the listing of the
              -------
     shares of Common Stock upon each national securities exchange, or automated
     quotation system upon which they are or become eligible for listing
     (subject to official notice of issuance) and shall maintain such listing so
     long as any Preferred Stock is outstanding. The Company will maintain the
     listing of its Common Stock on the American Stock Exchange, Nasdaq
     SmallCap(R) Market, Nasdaq National Market System(R), OTC Bulletin
     Board(R), or New York Stock Exchange (whichever of the foregoing is at the
     time the principal trading exchange or market for the Common Stock (the
     "Principal Market")), and will comply in all respects with the Company's
     reporting, filing and other obligations under the bylaws or rules of the
     Principal Market, as applicable. The Company will provide the Purchasers
     copies of all notices it receives notifying the Company of the threatened
     and actual delisting of the Common Stock from any Principal Market. As of
     the date of this Agreement and the Closing Date, the OTC Bulletin Board(R)
     is and will be the Principal Market.

          (c) Market Regulations. The Company shall notify the Commission, the
              ------------------
     Principal Market and applicable state authorities, in accordance with their
     requirements, of the transactions contemplated by this Agreement, and shall
     take all other necessary action and proceedings as may be required and
     permitted by applicable law, rule and regulation, for the legal and valid
     issuance of the Securities to the Purchasers and promptly provide copies
     thereof to Purchaser.

                                       12
<PAGE>

          (d) Reporting Requirements. From the date of this Agreement and until
     the sooner of (i) two (2) years after the Fourth Closing Date, or (ii)
     until all the Common Stock has been resold or transferred by all the
     Purchasers pursuant to the Registration Statement or pursuant to Rule 144,
     without regard to volume limitation, the Company will (w) cause its Common
     Stock to continue to be registered under Section 12(b) or 12(g) of the 1934
     Act, (x) comply in all respects with its reporting and filing obligations
     under the 1934 Act, (y) comply with all reporting requirements that are
     applicable to an issuer with a class of shares registered pursuant to
     Section 12(b) or 12(g) of the 1934 Act, as applicable, and (z) comply with
     all requirements related to any registration statement filed pursuant to
     this Agreement. The Company will use its best efforts not to take any
     action or file any document (whether or not permitted by the 1933 Act or
     the 1934 Act or the rules thereunder) to terminate or suspend such
     registration or to terminate or suspend its reporting and filing
     obligations under said acts until two (2) years after the Fourth Closing
     Date. Until the earlier of the resale of the Common Stock by each Purchaser
     or two (2) years after the Preferred Stock has been converted, the Company
     will use its best efforts to continue the listing or quotation of the
     Common Stock on the Principal Market or other market with the reasonable
     consent of Purchasers holding a majority of the Common Stock, and will
     comply in all respects with the Company's reporting, filing and other
     obligations under the bylaws or rules of the Principal Market. The Company
     agrees to timely file a Form D with respect to the Securities if required
     under Regulation D and to provide a copy thereof to each Purchaser promptly
     after such filing.

          (e) Use of Proceeds. The Company undertakes to use the proceeds of the
              ---------------
     Purchasers' funds for the purposes set forth on SCHEDULE 10(E) hereto.
     Except as set forth on SCHEDULE 10(E), the Purchase Price may not and will
     not be used for accrued and unpaid officer and director salaries, payment
     of financing related debt, redemption of outstanding redeemable notes or
     equity instruments of the Company nor non-trade obligations outstanding on
     the Closing Date.

          (f) Reservation. Prior to the Closing Date, the Company undertakes to
              -----------
     reserve, pro rata, on behalf of each holder of Preferred Stock, from its
     authorized but unissued common stock, a number of common shares equal to
     150% of the amount of Common Stock necessary to allow each holder of
     Preferred Stock to be able to convert all such outstanding Preferred Stock.
     Failure to have sufficient shares reserved pursuant to this Section 9(f)
     for three (3) consecutive business days or ten (10) days in the aggregate
     shall be a material default of the Company's obligations under this
     Agreement.

          (g) Taxes. From the date of this Agreement and until the sooner of (i)
              -----
     two (2) years after the Fourth Closing Date, or (ii) until all the Common
     Stock has been resold or transferred by all the Purchasers pursuant to the
     Registration Statement or pursuant to Rule 144, without regard to volume
     limitations, the Company will promptly pay and discharge, or cause to be
     paid and discharged, when due and payable, all lawful taxes, assessments
     and governmental charges or levies imposed upon the income, profits,
     property or business of the Company; provided, however, that any such tax,
     assessment, charge or levy need not be paid if the validity thereof shall
     currently be contested in good faith by appropriate proceedings and if the
     Company shall have set aside on its books adequate reserves with respect
     thereto, and provided, further, that the Company will pay all such taxes,
     assessments, charges or levies forthwith upon the commencement of
     proceedings to foreclose any lien which may have attached as security
     therefore.

          (h) Insurance. From the date of this Agreement and until the sooner of
              ---------
     (i) two (2) years after the Fourth Closing Date, or (ii) until all the
     Common Stock has been resold or transferred by all the Purchasers pursuant
     to the Registration Statement or pursuant to Rule 144, without regard to
     volume limitations, the Company will keep its assets which are of an
     insurable character insured by financially sound and reputable insurers
     against loss or damage by fire, explosion and other risks customarily
     insured against by companies in the Company's line of business, in amounts
     sufficient to prevent the Company from becoming a co-insurer and not in any
     event less than one hundred percent (100%) of the insurable value of the
     property insured; and the Company will maintain, with financially sound and
     reputable insurers, insurance against other hazards and risks and liability
     to persons and property to the extent and in the manner customary for
     companies in similar businesses similarly situated and to the extent
     available on commercially reasonable terms.

          (i) Books and Records. From the date of this Agreement and until the
              -----------------
     sooner of (i) two (2) years after the Fourth Closing Date, or (ii) until
     all the Common Stock has been resold or transferred by all the Purchasers
     pursuant to the Registration Statement or pursuant to Rule 144, without
     regard to volume limitations, the Company will keep true records and books
     of account in which full, true and correct entries will be made of all
     dealings or transactions in relation to its business and affairs in
     accordance with generally accepted accounting principles applied on a
     consistent basis.

                                       13
<PAGE>

          (j) Governmental Authorities. From the date of this Agreement and
              ------------------------
     until the sooner of (i) two (2) years after the Fourth Closing Date, or
     (ii) until all the Common Stock has been resold or transferred by all the
     Purchasers pursuant to the Registration Statement or pursuant to Rule 144,
     without regard to volume limitations, the Company shall duly observe and
     conform in all material respects to all valid requirements of governmental
     authorities relating to the conduct of its business or to its properties or
     assets.

          (k) Intellectual Property. From the date of this Agreement and until
              ---------------------
     the sooner of (i) two (2) years after the Fourth Closing Date, or (ii)
     until all the Common Stock has been resold or transferred by all the
     Purchasers pursuant to the Registration Statement or pursuant to Rule 144,
     without regard to volume limitations, the Company shall maintain in full
     force and effect its corporate existence, rights and franchises and all
     licenses and other rights to use intellectual property owned or possessed
     by it and reasonably deemed to be necessary to the conduct of its business.

          (l) Properties. From the date of this Agreement and until the sooner
              ----------
     of (i) two (2) years after the Fourth Closing Date, or (ii) until all the
     Common Stock has been resold or transferred by all the Purchasers pursuant
     to the Registration Statement or pursuant to Rule 144, without regard to
     volume limitation, the Company will keep its properties in good repair,
     working order and condition, reasonable wear and tear excepted, and from
     time to time make all necessary and proper repairs, renewals, replacements,
     additions and improvements thereto; and the Company will at all times
     comply with each provision of all leases to which it is a party or under
     which it occupies property if the breach of such provision could reasonably
     be expected to have a Material Adverse Effect.

          (m) Confidentiality/Public Announcement. From the date of this
              -----------------------------------
     Agreement and until the sooner of (i) two (2) years after the Fourth
     Closing Date, or (ii) until all the Common Stock has been resold or
     transferred by all the Purchasers pursuant to the Registration Statement or
     pursuant to Rule 144, without regard to volume limitations, the Company
     agrees that except in connection with a Form 8-K or the Registration
     Statement, it will not disclose publicly or privately the identity of the
     Purchasers unless expressly agreed to in writing by a Purchaser or only to
     the extent required by law and then only upon five days prior notice to
     Purchaser. In any event and subject to the foregoing, the Company
     undertakes to file a Form 8-K or make a public announcement describing the
     Offering not later than the first business day after each Closing Date. In
     the Form 8-K or public announcement, the Company will specifically disclose
     the amount of common stock outstanding immediately after each Closing.

          (n) Further Registration Statements. Except for a registration
              -------------------------------
     statement filed on behalf of the Purchasers pursuant to Section 12 of this
     Agreement or in connection with the securities identified on SCHEDULE 12.1
     hereto, the Company will not file any registration statements, including
     but not limited to Form S-8, with the Commission or with state regulatory
     authorities without the consent of the Purchaser until one hundred and
     eighty (180) days after the Actual Effective Date during which such
     Registration Statement shall have been current and available for use in
     connection with the public resale of the Common Stock ("Exclusion Period").

          (o) Blackout. The Company undertakes and covenants that until the
              --------
     first to occur of (i) the end of the Exclusion Period, or (ii) until all
     the Common Stock has been resold pursuant to a registration statement or
     Rule 144, the Company will not enter into any acquisition, merger, exchange
     or sale or other transaction that could have the effect of delaying the
     effectiveness of any pending registration statement or causing an already
     effective registration statement to no longer be effective or current for a
     period of fifteen (15) or more days.

          (p) Non-Public Information. The Company covenants and agrees that
              ----------------------
     neither it nor any other Person acting on its behalf will provide any
     Purchaser or its agents or counsel with any information that the Company
     believes constitutes material non-public information, unless prior thereto
     such Purchaser shall have agreed in writing to receive such information.
     The Company understands and confirms that each Purchaser shall be relying
     on the foregoing representations in effecting transactions in securities of
     the Company.

                                       14
<PAGE>

          (q) Lockup. The Company will deliver to the Purchasers on or before
              ------
     the Closing Date and enforce the provisions of irrevocable Lockup
     Agreements to be entered into by the parties identified on SCHEDULE 10(Q)
     hereto in the forms annexed hereto as EXHIBIT E.

     11.     Covenants of the Company and Purchaser Regarding Indemnification.
             ----------------------------------------------------------------

          (a) The Company agrees to indemnify, hold harmless, reimburse and
     defend the Purchasers, the Purchasers' officers, directors, agents,
     Affiliates, control persons, and principal shareholders, against any claim,
     cost, expense, liability, obligation, loss or damage (including reasonable
     legal fees) of any nature, incurred by or imposed upon the Purchaser or any
     such person which results, arises out of or is based upon (i) any material
     misrepresentation by Company or breach of any warranty by Company in this
     Agreement or in any Exhibits or Schedules attached hereto, or other
     agreement delivered pursuant hereto; or (ii) after any applicable notice
     and/or cure periods, any breach or default in performance by the Company of
     any covenant or undertaking to be performed by the Company hereunder, or
     any other agreement entered into by the Company and Purchaser relating
     hereto.

          (b) Each Purchaser agrees to indemnify, hold harmless, reimburse and
     defend the Company and each of the Company's officers, directors, agents,
     Affiliates, control persons against any claim, cost, expense, liability,
     obligation, loss or damage (including reasonable legal fees) of any nature,
     incurred by or imposed upon the Company or any such person which results,
     arises out of or is based upon (i) any material misrepresentation by such
     Purchaser in this Agreement or in any Exhibits or Schedules attached
     hereto, or other agreement delivered pursuant hereto; or (ii) after any
     applicable notice and/or cure periods, any breach or default in performance
     by such Purchaser of any covenant or undertaking to be performed by such
     Purchaser hereunder, or any other agreement entered into by the Company and
     Purchasers, relating hereto.

          (c) In no event shall the liability of any Purchaser or permitted
     successor hereunder or under any other agreement delivered in connection
     herewith be greater in amount than the dollar amount of the net proceeds
     actually received by such Purchaser upon the sale of Registrable Securities
     (as defined herein).

          (d) The procedures set forth in Section 12.6 shall apply to the
     indemnification set forth in Sections 11(a) and 11(b) above.

     12.1.     Registration Rights.  The Company hereby grants the following
               -------------------
registration rights to holders of the Securities.

                                       15
<PAGE>

          (i) On one occasion, for a period commencing one hundred and fifty-one
     (151) days after the Closing Date, but not later than two (2) years after
     the Closing Date ("Request Date"), upon a written request therefor from any
     record holder or holders of more than 50% of the Common Stock issued and
     issuable upon conversion of the Preferred Stock, the Company shall prepare
     and file with the Commission a registration statement under the 1933 Act
     registering the Common Stock ("Registrable Securities") which are the
     subject of such request for unrestricted public resale by the holder
     thereof. For purposes of Sections 12.1(i) and 12.1(ii), Registrable
     Securities shall not include Securities which are registered for resale in
     an effective registration statement or included for registration in a
     pending registration statement, or which have been issued without further
     transfer restrictions after a sale or transfer pursuant to Rule 144 under
     the 1933 Act. Upon the receipt of such request, the Company shall promptly
     give written notice to all other record holders of the Registrable
     Securities that such registration statement is to be filed and shall
     include in such registration statement Registrable Securities for which it
     has received written requests within ten (10) days after the Company gives
     such written notice. Such other requesting record holders shall be deemed
     to have exercised their demand registration right under this Section
     12.1(i).

          (ii) If the Company at any time proposes to register any of its
     securities under the 1933 Act for sale to the public, whether for its own
     account or for the account of other security holders or both, except with
     respect to registration statements on Forms S-4 or another form, not
     including Form S-8 not available for registering the Registrable Securities
     for sale to the public, provided the Registrable Securities are not
     otherwise registered for resale by the Purchasers or Holder pursuant to an
     effective registration statement, each such time it will give at least
     fifteen (15) days' prior written notice to the record holder of the
     Registrable Securities of its intention so to do. Upon the written request
     of the holder, received by the Company within ten (10) days after the
     giving of any such notice by the Company, to register any of the
     Registrable Securities not previously registered, the Company will cause
     such Registrable Securities as to which registration shall have been so
     requested to be included with the securities to be covered by the
     registration statement proposed to be filed by the Company, all to the
     extent required to permit the sale or other disposition of the Registrable
     Securities so registered by the holder of such Registrable Securities (the
     "Seller" or "Sellers"). In the event that any registration pursuant to this
     Section 12.1(ii) shall be, in whole or in part, an underwritten public
     offering of common stock of the Company, the number of shares of
     Registrable Securities to be included in such an underwriting may be
     reduced by the managing underwriter if and to the extent that the Company
     and the underwriter shall reasonably be of the opinion that such inclusion
     would adversely affect the marketing of the securities to be sold by the
     Company therein; provided, however, that the Company shall notify the
     Seller in writing of any such reduction. Notwithstanding the foregoing
     provisions, or Section 12.4 hereof, the Company may withdraw or delay or
     suffer a delay of any registration statement referred to in this Section
     12.1(ii) without thereby incurring any liability to the Seller.

          (iii) If, at the time any written request for registration is received
     by the Company pursuant to Section 12.1(i), the Company has determined to
     proceed with the actual preparation and filing of a registration statement
     under the 1933 Act in connection with the proposed offer and sale for cash
     of any of its securities for the Company's own account and the Company
     actually does file such other registration statement, such written request
     shall be deemed to have been given pursuant to Section 12.1(ii) rather than
     Section 12.1(i), and the rights of the holders of Registrable Securities
     covered by such written request shall be governed by Section 12.1(ii).

          (iv) The Company shall file with the Commission not later than thirty
     (30) days after the Closing Date (the "Filing Date"), and cause to be
     declared effective within one hundred and twenty (120) days after the
     Closing Date (the "Effective Date"), a Form SB-2 registration statement
     (the "Registration Statement") (or such other form that it is eligible to
     use) in order to register the Registrable Securities for resale and
     distribution under the 1933 Act. The Company will register not less than a
     number of shares of common stock in the aforedescribed registration
     statement that is equal to 150% of the Common Stock issuable upon
     conversion of the Preferred Stock. The Registrable Securities shall be
     reserved and set aside exclusively for the benefit of each Purchaser, pro
     rata, and not issued, employed or reserved for anyone other than each such
     Purchaser. The Registration Statement will immediately be amended or
     additional registration statements will be immediately filed by the Company
     as necessary to register additional shares of Common Stock to allow the
     public resale of all Common Stock included in and issuable by virtue of the
     Registrable Securities. Without the written consent of the Purchaser, no
     securities of the Company other than the Registrable Securities will be
     included in the Registration Statement except as disclosed on 12.1. It
     shall be deemed a Non-Registration Event if at any time after the Actual
     Effective Date the Company has registered for unrestricted resale on behalf
     of the Purchaser fewer than 125% of the amount of Common Shares issuable
     upon full conversion of all sums due under the Preferred Stock.

     12.2.     Registration Procedures. If and whenever the Company is required
               -----------------------
by the provisions of Section 12.1(i), 12.1(ii), or 12.1(iv) to effect the
registration of any Registrable Securities under the 1933 Act, the Company will,
as expeditiously as possible:

          (a) subject to the timelines provided in this Agreement, prepare and
     file with the Commission a registration statement required by Section 12,
     with respect to such securities and use its best efforts to cause such
     registration statement to become and remain effective for the period of the
     distribution contemplated thereby (determined as herein provided), and
     promptly provide to the holders of the Registrable Securities copies of all
     filings and Commission letters of comment and notify Purchasers and
     Loughran & Co, 38 Hertford Street, London W1Y 7TG (by telecopier 011 44 207
     355 4975 and by email to PLoughran@loughranandco.com) within two (2) hours
     of (i) notice that the Commission has no comments or no further comments on
     the Registration Statement, and (ii) the declaration of effectiveness of
     the registration statement, (failure to timely provide notice as required
     by this Section 12.2(a) shall be a material breach of the Company's
     obligation and a Redemption Event as defined in the Preferred Stock);

                                       16
<PAGE>

          (b) prepare and file with the Commission such amendments and
     supplements to such registration statement and the prospectus used in
     connection therewith as may be necessary to keep such registration
     statement effective until such registration statement has been effective
     for a period of two (2) years, and comply with the provisions of the 1933
     Act with respect to the disposition of all of the Registrable Securities
     covered by such registration statement in accordance with the Sellers'
     intended method of disposition set forth in such registration statement for
     such period;

          (c) furnish to the Sellers, at the Company's expense, such number of
     copies of the registration statement and the prospectus included therein
     (including each preliminary prospectus) as such persons reasonably may
     request in order to facilitate the public sale or their disposition of the
     securities covered by such registration statement;

          (d) use its best efforts to register or qualify the Sellers'
     Registrable Securities covered by such registration statement under the
     securities or "blue sky" laws of such jurisdictions as the Sellers shall
     request in writing, provided, however, that the Company shall not for any
     such purpose be required to qualify generally to transact business as a
     foreign corporation in any jurisdiction where it is not so qualified or to
     consent to general service of process in any such jurisdiction;

          (e) if applicable, list the Registrable Securities covered by such
     registration statement with any securities exchange on which the Common
     Stock of the Company is then listed;

          (f) immediately notify the Sellers when a prospectus relating thereto
     is required to be delivered under the 1933 Act, of the happening of any
     event of which the Company has knowledge as a result of which the
     prospectus contained in such registration statement, as then in effect,
     includes an untrue statement of a material fact or omits to state a
     material fact required to be stated therein or necessary to make the
     statements therein not misleading in light of the circumstances then
     existing; and

          (g) provided same would not be in violation of the provision of
     Regulation FD under the 1934 Act, make available for inspection by the
     Sellers, and any attorney, accountant or other agent retained by the Seller
     or underwriter, all publicly available, non-confidential financial and
     other records, pertinent corporate documents and properties of the Company,
     and cause the Company's officers, directors and employees to supply all
     publicly available, non-confidential information reasonably requested by
     the seller, attorney, accountant or agent in connection with such
     registration statement.

     12.3.     Provision of Documents.  In connection with each registration
               ----------------------
described in this Section 12, each Seller will furnish to the Company in writing
such information and representation letters with respect to itself and the
proposed distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.

                                       17
<PAGE>

     12.4.     Non-Registration Events. The Company and the Purchasers agree
               -----------------------
that the Sellers will suffer damages if the Registration Statement is not filed
by the Filing Date and not declared effective by the Commission by the Effective
Date, and any registration statement required under Section 12.1(i) or 12.1(ii)
is not filed within 60 days after written request and declared effective by the
Commission within 120 days after such request, and maintained in the manner and
within the time periods contemplated by Section 12 hereof, and it would not be
feasible to ascertain the extent of such damages with precision. Accordingly, if
(i) the Registration Statement is not filed on or before the Filing Date, (ii)
is not declared effective on or before the sooner of the Effective Date, or
within three (3) business days of receipt by the Company of a written or oral
communication from the Commission that the Registration Statement will not be
reviewed or that the Commission has no further comments, (iii) if the
registration statement described in Sections 12.1(i) or 12.1(ii) is not filed
within 60 days after such written request, or is not declared effective within
120 days after such written request, or (iv) any registration statement
described in Sections 12.1(i), 12.1(ii) or 12.1(iv) is filed and declared
effective but shall thereafter cease to be effective (without being succeeded
within fifteen (15) business days by an effective replacement or amended
registration statement) for a period of time which shall exceed 30 days in the
aggregate per year (defined as a period of 365 days commencing on the date the
Registration Statement is declared effective) or more than 20 consecutive days
(each such event referred to in clauses (i), (ii), (iii) and (iv) of this
Section 12.4 is referred to herein as a "Non-Registration Event"), then the
Company shall deliver to the holder of Registrable Securities, as Liquidated
Damages, an amount equal to one and one-half percent (1.5%) for each thirty days
or part thereof during the initial sixty (60) days of the pendency of such
Non-Registration Event and two percent (2%) for each thirty (30) days or part
thereof, thereafter of the Purchase Price of the Preferred Stock remaining
unconverted and purchase price of Common Stock issued upon conversion of the
Preferred Stock owned of record by such holder which are subject to such
Non-Registration Event. Liquidated Damages accruing pursuant to a
Non-Registration Event described in Section 12.4(ii) which is cured within
thirty (30) days shall be waived, and such Non-Registration Event shall be
deemed not to have occurred. The Company must pay the Liquidated Damages in the
form of shares of Common Stock at the Conversion Price within ten (10) days
after the end of each thirty (30) day period or shorter part thereof for which
Liquidated Damages are payable. In the event a Registration Statement is filed
by the Filing Date but is withdrawn prior to being declared effective by the
Commission, then such Registration Statement will be deemed to have not been
filed.

     12.5.      Expenses. All expenses incurred by the Company in complying with
                --------
Section 12, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the National Association of Securities Dealers, Inc., transfer
taxes, fees of transfer agents and registrars, costs of insurance and fee of one
counsel for all Sellers (in an amount not to exceed $5,000) are called
"Registration Expenses." All underwriting discounts and selling commissions
applicable to the sale of Registrable Securities, including any fees and
disbursements of any additional counsel to the Seller, are called "Selling
Expenses."  The Company will pay all Registration Expenses in connection with
the registration statement under Section 12.  Selling Expenses in connection
with each registration statement under Section 12 shall be borne by the Seller
and may be apportioned among the Sellers in proportion to the number of shares
sold by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.

     12.6.     Indemnification and Contribution.
               ---------------------------------

          (a) In the event of a registration of any Registrable Securities under
     the 1933 Act pursuant to Section 12, the Company will, to the extent
     permitted by law, indemnify and hold harmless the Seller, each officer of
     the Seller, each director of the Seller, each underwriter of such
     Registrable Securities thereunder and each other person, if any, who
     controls such Seller or underwriter within the meaning of the 1933 Act,
     against any losses, claims, damages or liabilities, joint or several, to
     which the Seller, or such underwriter or controlling person may become
     subject under the 1933 Act or otherwise, insofar as such losses, claims,
     damages or liabilities (or actions in respect thereof) arise out of or are
     based upon any untrue statement or alleged untrue statement of any material
     fact contained in any registration statement under which such Registrable
     Securities was registered under the 1933 Act pursuant to Section 12, any
     preliminary prospectus or final prospectus contained therein, or any
     amendment or supplement thereof, or arise out of or are based upon the
     omission or alleged omission to state therein a material fact required to
     be stated therein or necessary to make the statements therein not
     misleading in light of the circumstances when made, and will subject to the
     provisions of Section 12.6(c) reimburse the Seller, each such underwriter
     and each such controlling person for any legal or other expenses reasonably
     incurred by them in connection with investigating or defending any such
     loss, claim, damage, liability or action; provided, however, that the
     Company shall not be liable to the Seller to the extent that any such
     damages arise out of or are based upon an untrue statement or omission made
     in any preliminary prospectus if (i) the Seller failed to send or deliver a
     copy of the final prospectus delivered by the Company to the Seller with or
     prior to the delivery of written confirmation of the sale by the Seller to
     the person asserting the claim from which such damages arise, (ii) the
     final prospectus would have corrected such untrue statement or alleged
     untrue statement or such omission or alleged omission, or (iii) to the
     extent that any such loss, claim, damage or liability arises out of or is
     based upon an untrue statement or alleged untrue statement or omission or
     alleged omission so made in conformity with information furnished by any
     such Seller, or any such controlling person in writing specifically for use
     in such registration statement or prospectus.

                                       18
<PAGE>

          (b) In the event of a registration of any of the Registrable
     Securities under the 1933 Act pursuant to Section 12, each Seller severally
     but not jointly will, to the extent permitted by law, indemnify and hold
     harmless the Company, and each person, if any, who controls the Company
     within the meaning of the 1933 Act, each officer of the Company who signs
     the registration statement, each director of the Company, each underwriter
     and each person who controls any underwriter within the meaning of the 1933
     Act, against all losses, claims, damages or liabilities, joint or several,
     to which the Company or such officer, director, underwriter or controlling
     person may become subject under the 1933 Act or otherwise, insofar as such
     losses, claims, damages or liabilities (or actions in respect thereof)
     arise out of or are based upon any untrue statement or alleged untrue
     statement of any material fact contained in the registration statement
     under which such Registrable Securities were registered under the 1933 Act
     pursuant to Section 12, any preliminary prospectus or final prospectus
     contained therein, or any amendment or supplement thereof, or arise out of
     or are based upon the omission or alleged omission to state therein a
     material fact required to be stated therein or necessary to make the
     statements therein not misleading, and will reimburse the Company and each
     such officer, director, underwriter and controlling person for any legal or
     other expenses reasonably incurred by them in connection with investigating
     or defending any such loss, claim, damage, liability or action, provided,
     however, that the Seller will be liable hereunder in any such case if and
     only to the extent that any such loss, claim, damage or liability arises
     out of or is based upon an untrue statement or alleged untrue statement or
     omission or alleged omission made in reliance upon and in conformity with
     information pertaining to such Seller, as such, furnished in writing to the
     Company by such Seller specifically for use in such registration statement
     or prospectus, and provided, further, however, that the liability of the
     Seller hereunder shall be limited to the net proceeds actually received by
     the Seller from the sale of Registrable Securities covered by such
     registration statement.

          (c) Promptly after receipt by an indemnified party hereunder of notice
     of the commencement of any action, such indemnified party shall, if a claim
     in respect thereof is to be made against the indemnifying party hereunder,
     notify the indemnifying party in writing thereof, but the omission so to
     notify the indemnifying party shall not relieve it from any liability which
     it may have to such indemnified party other than under this Section 12.6(c)
     and shall only relieve it from any liability which it may have to such
     indemnified party under this Section 12.6(c), except and only if and to the
     extent the indemnifying party is prejudiced by such omission. In case any
     such action shall be brought against any indemnified party and it shall
     notify the indemnifying party of the commencement thereof, the indemnifying
     party shall be entitled to participate in and, to the extent it shall wish,
     to assume and undertake the defense thereof with counsel satisfactory to
     such indemnified party, and, after notice from the indemnifying party to
     such indemnified party of its election so to assume and undertake the
     defense thereof, the indemnifying party shall not be liable to such
     indemnified party under this Section 12.6(c) for any legal expenses
     subsequently incurred by such indemnified party in connection with the
     defense thereof other than reasonable costs of investigation and of liaison
     with counsel so selected, provided, however, that, if the defendants in any
     such action include both the indemnified party and the indemnifying party
     and the indemnified party shall have reasonably concluded that there may be
     reasonable defenses available to it which are different from or additional
     to those available to the indemnifying party or if the interests of the
     indemnified party reasonably may be deemed to conflict with the interests
     of the indemnifying party, the indemnified parties, as a group, shall have
     the right to select one separate counsel and to assume such legal defenses
     and otherwise to participate in the defense of such action, with the
     reasonable expenses and fees of such separate counsel and other expenses
     related to such participation to be reimbursed by the indemnifying party as
     incurred.

          (d) In order to provide for just and equitable contribution in the
     event of joint liability under the 1933 Act in any case in which either (i)
     a Seller, or any controlling person of a Seller, makes a claim for
     indemnification pursuant to this Section 12.6 but it is judicially
     determined (by the entry of a final judgment or decree by a court of
     competent jurisdiction and the expiration of time to appeal or the denial
     of the last right of appeal) that such indemnification may not be enforced
     in such case notwithstanding the fact that this Section 12.6 provides for
     indemnification in such case, or (ii) contribution under the 1933 Act may
     be required on the part of the Seller or controlling person of the Seller
     in circumstances for which indemnification is not provided under this
     Section 12.6; then, and in each such case, the Company and the Seller will
     contribute to the aggregate losses, claims, damages or liabilities to which
     they may be subject (after contribution from others) in such proportion so
     that the Seller is responsible only for the portion represented by the
     percentage that the public offering price of its securities offered by the
     registration statement bears to the public offering price of all securities
     offered by such registration statement, provided, however, that, in any
     such case, (y) the Seller will not be required to contribute any amount in
     excess of the public offering price of all such securities sold by it
     pursuant to such registration statement; and (z) no person or entity guilty
     of fraudulent misrepresentation (within the meaning of Section 11(f) of the
     1933 Act) will be entitled to contribution from any person or entity who
     was not guilty of such fraudulent misrepresentation.

                                       19
<PAGE>

     12.7.     Delivery of Unlegended Common Stock.
               ------------------------------------

          (a) Within five (5) business days (such fifth (5th) business day being
     the "Unlegended Common Stock Delivery Date") after the business day on
     which the Company has received (i) a notice that Registrable Securities
     have been sold either pursuant to the Registration Statement or Rule 144
     under the 1933 Act, (ii) a representation that the prospectus delivery
     requirements, or the requirements of Rule 144, as applicable, have been
     satisfied, and (iii) the original share certificates representing the
     shares of Common Stock that have been sold, and (iv) in the case of sales
     under Rule 144, customary representation letters of the Purchaser and/or
     Purchaser's broker regarding compliance with the requirements of Rule 144,
     the Company at its expense, (y) shall deliver, and shall cause legal
     counsel selected by the Company to deliver, to its transfer agent (with
     copies to Purchaser) an appropriate instruction and opinion of such
     counsel, directing the delivery of shares of Common Stock without any
     legends including the legend set forth in Section 5(g) above, issuable
     pursuant to any effective and current Registration Statement described in
     Section 12 of this Agreement or pursuant to Rule 144 under the 1933 Act
     (the "Unlegended Common Stock"); and (z) cause the transmission of the
     certificates representing the Unlegended Common Stock together with a
     legended certificate representing the balance of the unsold shares of
     Common Stock, if any, to the Purchaser at the address specified in the
     notice of sale, via express courier, by electronic transfer or otherwise on
     or before the Unlegended Common Stock Delivery Date. Transfer fees shall be
     the responsibility of the Seller.

          (b) In lieu of delivering physical certificates representing the
     Unlegended Common Stock, if the Company's transfer agent is participating
     in the Depository Trust Company ("DTC") Fast Automated Securities Transfer
     program, upon request of a Purchaser, so long as the certificates therefor
     do not bear a legend and the Purchaser is not obligated to return such
     certificate for the placement of a legend thereon, the Company shall cause
     its transfer agent to electronically transmit the Unlegended Common Stock
     by crediting the account of Purchaser's prime broker with DTC through its
     Deposit Withdrawal Agent Commission system. Such delivery must be made on
     or before the Unlegended Common Stock Delivery Date.

          (c) The Company understands that a delay in the delivery of the
     Unlegended Common Stock pursuant to Section 12 hereof later than two
     business days after the Unlegended Common Stock Delivery Date could result
     in economic loss to a Purchaser. As compensation to a Purchaser for such
     loss, the Company agrees to pay late payment fees (as liquidated damages
     and not as a penalty) to the Purchaser for late delivery of Unlegended
     Common Stock in the amount of $100 per business day after the Delivery Date
     for each $10,000 of purchase price of the Unlegended Common Stock subject
     to the delivery default. If during any 360 day period, the Company fails to
     deliver Unlegended Common Stock as required by this Section 12.7 for an
     aggregate of thirty (30) days, then each Purchaser or assignee holding
     Securities subject to such default may, at its option, require the Company
     to redeem all or any portion of the Preferred Stock subject to such default
     at a price per share equal to 130% of the Purchase Price of such Preferred
     Stock. The Company shall pay any payments incurred under this Section in
     immediately available funds upon demand.

                                       20
<PAGE>

          (d) In addition to any other rights available to a Purchaser, if the
     Company fails to deliver to a Purchaser Unlegended Common Stock as required
     pursuant to this Agreement, within seven (7) business days after the
     Unlegended Common Stock Delivery Date and the Purchaser purchases (in an
     open market transaction or otherwise) shares of common stock to deliver in
     satisfaction of a sale by such Purchaser of the shares of Common Stock
     which the Purchaser was entitled to receive from the Company (a "Buy-In"),
     then the Company shall pay in cash to the Purchaser (in addition to any
     remedies available to or elected by the Purchaser) the amount by which (A)
     the Purchaser's total purchase price (including brokerage commissions, if
     any) for the shares of common stock so purchased exceeds (B) the aggregate
     purchase price of the shares of Common Stock delivered to the Company for
     reissuance as Unlegended Common Stock, together with interest thereon at a
     rate of 15% per annum, accruing until such amount and any accrued interest
     thereon is paid in full (which amount shall be paid as liquidated damages
     and not as a penalty). For example, if a Purchaser purchases shares of
     Common Stock having a total purchase price of $11,000 to cover a Buy-In
     with respect to $10,000 of purchase price of shares of Common Stock
     delivered to the Company for reissuance as Unlegended Common Stock, the
     Company shall be required to pay the Purchaser $1,000, plus interest. The
     Purchaser shall provide the Company written notice indicating the amounts
     payable to the Purchaser in respect of the Buy-In.

          (e) In the event a Purchaser shall request delivery of Unlegended
     Common Stock as described in Section 12.7(a) and the Company is required to
     deliver such Unlegended Common Stock pursuant to Section 12.7(a), the
     Company may not refuse to deliver Unlegended Common Stock based on any
     claim that such Purchaser or any one associated or affiliated with such
     Purchaser has been engaged in any violation of law, or for any other
     reason, unless, an injunction or temporary restraining order from a court,
     on notice, restraining and or enjoining delivery of such Unlegended Common
     Stock shall have been sought and obtained and the Company has posted a
     surety bond for the benefit of such Purchaser in the amount of 130% of the
     amount of the aggregate purchase price of the Common Stock which is subject
     to the injunction or temporary restraining order, which bond shall remain
     in effect until the completion of arbitration/litigation of the dispute and
     the proceeds of which shall be payable to such Purchaser to the extent
     Purchaser obtains judgment in Purchaser's favor.

     13.     (a)     Prohibited Offerings.  Until the Registration Statement has
                     --------------------
been effective for the public resale of the Common Stock for one hundred and
twenty (120) days, the Company shall not publicly offer or sell its common stock
or other securities or debt obligations without the written consent of the
Purchasers, except (i) as full or partial consideration in connection with any
merger, consolidation or purchase of substantially all of the securities or
assets of any corporation or other entity, or (ii) as has been described in the
Registration Statement or Other Written Information filed with the Commission or
delivered to the Purchasers prior to the Closing Date (collectively "Excepted
Issuances").

     (b)     Offering Restrictions.  From the date of this Agreement and until
             ---------------------
the end of the Exclusion Period, except in connection with the Excepted
Issuances, or the unsold portion of the Offering, the Company will not enter
into any agreement to, nor issue any equity, convertible debt or other
securities convertible into common stock without the prior written consent of
the Purchasers, which consent may be withheld for any reason.

(c)     Favored Nations Provision.  Other than the Excepted Issuances, if at any
        -------------------------
time Preferred Stock is outstanding, if the Company shall offer, issue or agree
to issue any common stock or securities convertible into or exercisable for
shares of common stock (or modify any of the foregoing which may be outstanding
at any time prior to a Closing Date) to any person or entity at a price per
share or conversion or exercise price per share which shall be less than the
Conversion Price, without the consent of each Purchaser holding Preferred Stock
and/or Common Stock, then the Company shall issue, for each such occasion,
additional shares of Common Stock to each Purchaser so that the average per
share purchase price of the shares of Common Stock issued to the Purchaser (of
only the Common Stock still owned by the Purchaser) is equal to such other lower
price per share and the Conversion Price shall automatically be reduced to such
other lower price per share.  The delivery to the Purchaser of the additional
shares of Common Stock shall be not later than the closing date of the
transaction giving rise to the requirement to issue additional shares of Common
Stock.  The Purchaser is granted the registration rights described in Section 13
hereof in relation to such additional shares of Common Stock except that the
Filing Date and Effective Date vis- -vis such additional common shares shall be,
respectively, the sixtieth (60th) and one hundred and twentieth (120th) date
after the closing date giving rise to the requirement to issue the additional
shares of Common Stock.  For purposes of the issuance and adjustment described
in this paragraph, the issuance of any security of the Company carrying the
right to convert such security into shares of Common Stock or of any warrant,
right or option to purchase Common Stock shall result in the issuance of the
additional shares of Common Stock upon the issuance of such convertible
security, warrant, right or option and again upon any subsequent issuances of
shares of Common Stock upon exercise of such conversion or purchase rights if
such issuance is at a price lower than the then Conversion Price.  The rights of
the Purchaser set forth in this Section 13 are in addition to any other rights
the Purchaser has pursuant to this Agreement and any other agreement referred to
or entered into in connection herewith.

                                       21
<PAGE>

(d)     Maximum Exercise of Rights.  In the event the exercise of the rights
        --------------------------
described in Section 13(c) would result in the issuance of an amount of common
stock of the Company that would exceed the maximum amount that may be issued to
a Purchaser calculated in the manner described in Section 8.3 of this Agreement,
then the issuance of such additional shares of common stock of the Company to
such Purchaser will be deferred in whole or in part until such time as such
Purchaser is able to beneficially own such common stock without exceeding the
maximum amount set forth calculated in the manner described in Section 8.3 of
this Agreement.  The determination of when such common stock may be issued shall
be made by each Purchaser as to only such Purchaser.

     14.     Miscellaneous.
             --------------

          (a) Notices. All notices, demands, requests, consents, approvals, and
              -------
     other communications required or permitted hereunder shall be in writing
     and, unless otherwise specified herein, shall be (i) personally served,
     (ii) deposited in the mail, registered or certified, return receipt
     requested, postage prepaid, (iii) delivered by reputable air courier
     service with charges prepaid, or (iv) transmitted by hand delivery,
     telegram, or facsimile, addressed as set forth below or to such other
     address as such party shall have specified most recently by written notice.
     Any notice or other communication required or permitted to be given
     hereunder shall be deemed effective (a) upon hand delivery or delivery by
     facsimile, with accurate confirmation generated by the transmitting
     facsimile machine, at the address or number designated below (if delivered
     on a business day during normal business hours where such notice is to be
     received), or the first business day following such delivery (if delivered
     other than on a business day during normal business hours where such notice
     is to be received) or (b) on the second business day following the date of
     mailing by express courier service, fully prepaid, addressed to such
     address, or upon actual receipt of such mailing, whichever shall first
     occur. The addresses for such communications shall be: (i) if to the
     Company, to: Pathogenics, Inc., 28 Old Coach Road, Cohasset, Massachusetts
     02025, Attn: Frederic P. Zotos, President Chief Executive Officer,
     telecopier: (781) 383-2418, with a copy by telecopier only to: David M.
     Loev, Attorney at Law, 2727 Allen Parkway, Suite PL-01 Houston, Texas
     77019, telecopier: (713) 524-4122, (ii) if to the Purchasers, to: the one
     or more addresses and telecopier numbers indicated on the signature pages
     hereto, with an additional copy by telecopier only to: Pierce Loughran,
     Esq., Loughran & Co, 38 Hertford Street, London W1Y 7TG (by telecopier 011
     44 207 355 4975 and by email to PLoughran@loughranandco.com).

          (b) Closing. The consummation of the transactions contemplated herein
              -------
     shall take place at the offices of Sonfield & Sonfield, 770 South Post Oak
     Lane, Houston, Texas 77056, upon the satisfaction of all conditions to
     Closing set forth in this Agreement. Each of the Initial Closing Date,
     Second Closing Date, Third Closing Date and Fourth Closing Date is referred
     to as a "CLOSING DATE".

          (c) Entire Agreement; Assignment. This Agreement and other documents
              ----------------------------
     delivered in connection herewith represent the entire agreement between the
     parties hereto with respect to the subject matter hereof and may be amended
     only by a writing executed by both parties. Neither the Company nor the
     Purchasers have relied on any representations not contained or referred to
     in this Agreement and the documents delivered herewith. No right or
     obligation of either party shall be assigned by that party without prior
     notice to and the written consent of the other party.

          (d) Counterparts/Execution. This Agreement may be executed in any
              ----------------------
     number of counterparts and by the different signatories hereto on separate
     counterparts, each of which, when so executed, shall be deemed an original,
     but all such counterparts shall constitute but one and the same instrument.
     This Agreement may be executed by facsimile signature and delivered by
     facsimile transmission.

                                       22
<PAGE>

          (e) Law Governing this Agreement. This Agreement shall be governed by
              ----------------------------
     and construed in accordance with the laws of the State of Delaware without
     regard to principles of conflicts of laws. Any action brought by either
     party against the other concerning the transactions contemplated by this
     Agreement shall be brought only in the state courts of Delaware or in the
     federal courts located in the state of Delaware. THE PARTIES AND THE
     INDIVIDUALS EXECUTING THIS AGREEMENT AND OTHER AGREEMENTS REFERRED TO
     HEREIN OR DELIVERED IN CONNECTION HEREWITH ON BEHALF OF THE COMPANY AGREE
     TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY JURY. The
     prevailing party shall be entitled to recover from the other party its
     reasonable attorney's fees and costs. In the event that any provision of
     this Agreement or any other agreement delivered in connection herewith is
     invalid or unenforceable under any applicable statute or rule of law, then
     such provision shall be deemed inoperative to the extent that it may
     conflict therewith and shall be deemed modified to conform with such
     statute or rule of law. Any such provision which may prove invalid or
     unenforceable under any law shall not affect the validity or enforceability
     of any other provision of any agreement.

          (f) Specific Enforcement, Consent to Jurisdiction. The Company and
              ---------------------------------------------
     Purchaser acknowledge and agree that irreparable damage would occur in the
     event that any of the provisions of this Agreement were not performed in
     accordance with their specific terms or were otherwise breached. It is
     accordingly agreed that the parties shall be entitled to an injunction or
     injunctions to prevent or cure breaches of the provisions of this Agreement
     and to enforce specifically the terms and provisions hereof, this being in
     addition to any other remedy to which any of them may be entitled by law or
     equity. Subject to Section 14(e) hereof, each of the Company, Purchaser and
     any signator hereto in his personal capacity hereby waives, and agrees not
     to assert in any such suit, action or proceeding, any claim that it is not
     personally subject to the jurisdiction in Delaware of such court, that the
     suit, action or proceeding is brought in an inconvenient forum or that the
     venue of the suit, action or proceeding is improper. Nothing in this
     Section shall affect or limit any right to serve process in any other
     manner permitted by law.

          (g) Independent Nature of Purchasers. The Company acknowledges that
              --------------------------------
     the obligations of each Purchaser under the Transaction Documents 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 the Transaction Documents. The
     Company acknowledges that the decision of each Purchaser to purchase
     Securities 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 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
     Purchaser (or any other person) relating to or arising from any such
     information, materials, statements or opinions. The Company acknowledges
     that nothing contained in any Transaction Document, and no action taken by
     any Purchaser pursuant hereto or thereto (including, but not limited to,
     the (i) inclusion of a Purchaser in the SB-2 Registration Statement and
     (ii) review by, and consent to, such Registration Statement by a Purchaser)
     shall be deemed to constitute the Purchasers as a partnership, an
     association, a joint venture or any other kind of entity, or create a
     presumption that the Purchasers are in any way acting in concert or as a
     group with respect to such obligations or the transactions contemplated by
     the Transaction Documents. The Company acknowledges that each Purchaser
     shall be entitled to independently protect and enforce its rights,
     including without limitation, the rights arising out of the 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. The
     Company acknowledges that it has elected to provide all Purchasers with the
     same terms and Transaction Documents for the convenience of the Company and
     not because Company was required or requested to do so by the Purchasers.
     The Company acknowledges that such procedure with respect to the
     Transaction Documents in no way creates a presumption that the Purchasers
     are in any way acting in concert or as a group with respect to the
     Transaction Documents or the transactions contemplated thereby.

                                       23
<PAGE>

                      [THIS SPACE INTENTIONALLY LEFT BLANK]

                                       27
<PAGE>

                 SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
                 -----------------------------------------------

     Please acknowledge your acceptance of the foregoing Securities Purchase
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.

PATHOGENICS,  INC.

By: /s/ Frederic P. Zotos
   --------------------------------
       Frederic  P.  Zotos,  President  Chief  Executive  Officer

MANILLO INVESTORS, LTD.

By:
   --------------------------------------
       Daniel  Martin,  Authorized  Signatory.

ADDRESS:     Hunkins Waterfront Plaza
             P.O. Box 556
             Main Street, Memorial Square
             Nevis, West Indies

AGGREGATE  PURCHASE  AMOUNT:

     First Closing Preferred Stock:      $  9,000 USD
     Second Closing Preferred Stock:     $ 10,000 USD
     Third Closing Preferred Stock:      $ 12,000 USD
     Fourth Closing Preferred Stock:     $ 24,000 USD
                                         ============
Aggregate Purchase Price:                $ 55,000 USD

BAYSIDE ASSOCIATES, LTD.

By:  /s/ M. Hedstrom
   --------------------------------------
       Margareta  Hedstrom,  Authorized  Signatory

ADDRESS:     Hunkins Waterfront Plaza
             P.O. Box 556
             Main Street, Memorial Square
             Nevis, West Indies

AGGREGATE  PURCHASE  AMOUNT:

     First Closing Preferred Stock:      $  9,000 USD
     Second Closing Preferred Stock:     $ 10,000 USD
     Third Closing Preferred Stock:      $ 12,000 USD
     Fourth Closing Preferred Stock:     $ 24,000 USD
                                         ============
Aggregate Purchase Price:                $ 55,000 USD

                              Exhibit A - Page 25
<PAGE>

CASTLEGATE GROUP, LTD.

By:  /s/ Pierce Loughran
   --------------------------------------
       Pierce  Loughran,  Authorized  Signatory

ADDRESS:     Suite 4002a, Central Plaza
             18 Harbour Road
             Wanchai, Hong Kong

AGGREGATE  PURCHASE  AMOUNT:

     First Closing Preferred Stock:      $  9,000 USD
     Second Closing Preferred Stock:     $ 10,000 USD
     Third Closing Preferred Stock:      $ 12,000 USD
     Fourth Closing Preferred Stock:     $ 24,000 USD
                                         ============
Aggregate Purchase Price:                $ 55,000 USD

KENSINGTON GROUP, LTD.

By:   /s/ J. Loughran
   --------------------------------------
       James  Loughran,  Authorized  Signatory

ADDRESS:     Suite 4002a, Central Plaza
             18 Harbour Road
             Wanchai, Hong Kong

AGGREGATE  PURCHASE  AMOUNT:

     First Closing Preferred Stock:      $  9,000 USD
     Second Closing Preferred Stock:     $ 10,000 USD
     Third Closing Preferred Stock:      $ 12,000 USD
     Fourth Closing Preferred Stock:     $ 24,000 USD
                                         ============
Aggregate Purchase Price:                $ 55,000 USD

                                       26
<PAGE>

TRUFELLO ASSOCIATES, LTD.

By:  /s/ Sophie Leacacos
   --------------------------------------
       Sophie  Leacacos,  Authorized  Signatory

ADDRESS:     Hunkins Waterfront Plaza
             P.O. Box 556
             Main Street, Memorial Square
             Nevis, West Indies

AGGREGATE  PURCHASE  AMOUNT:

     First Closing Preferred Stock:      $  9,000 USD
     Second Closing Preferred Stock:     $ 10,000 USD
     Third Closing Preferred Stock:      $ 12,000 USD
     Fourth Closing Preferred Stock:     $ 24,000 USD
                                         ============
Aggregate Purchase Price:                $ 55,000 USD

                                       27
<PAGE>

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