Document:

Exhibit 10.36

           CONVERTIBLE PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT

                                     Between

                                Compositech Ltd.

                                       and

                         the Investors Signatory Hereto

     CONVERTIBLE  PREFERRED STOCK AND WARRANTS PURCHASE  AGREEMENT,  dated as of
July 7, 2000 (the "Agreement"),  between the Investors signatory hereto (each an
"Investor" and together the  "Investors"),  and Compositech  Ltd., a corporation
organized and existing under the laws of the State of Delaware (the "Company").

     WHEREAS,  the  parties  desire  that,  upon the  terms and  subject  to the
conditions  contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase in the aggregate, (i) 500 shares of Convertible
Preferred  Stock (as defined  below) and (ii)  Warrants  (as  defined  below) to
purchase shares of the Common Stock (as defined below) at 130% of the average of
the  closing  bid prices for such  Common  Stock  over the thirty  Trading  Days
immediately preceding the Closing (as defined below).

     WHEREAS,  such  investments will be made in reliance upon the provisions of
Section 4(2) ("Section  4(2)") and/or 4(6) ("Section 4(6)") of the United States
Securities Act of 1933, as amended, and/or Regulation D ("Regulation D") and the
other rules and  regulations  promulgated  thereunder  (the  "Securities  Act"),
and/or  upon such other  exemption  from the  registration  requirements  of the
Securities Act as may be available with respect to any or all of the investments
in securities to be made hereunder.

     NOW, THEREFORE, the parties hereto agree as follows:

                                   ARTICLE I

                               Certain Definitions

Section 1.1.  "Capital Shares" shall mean the Common Stock and any shares of any
other class of common  stock  whether now or  hereafter  authorized,  having the
right to participate in the  distribution of earnings and assets of the Company.

Section 1.2. "Capital Shares Equivalents" shall mean any securities,  rights, or
obligations  that are convertible  into or exchangeable for or give any right to
subscribe  for any  Capital  Shares of the Company or any  Warrants,  options or
other rights to subscribe for or purchase Capital Shares or any such convertible
or exchangeable securities.

<PAGE>

Section  1.3.  "Certificate  of  Designation"  shall  mean  the  Certificate  of
Designation  setting  forth  the  terms  of  the  Convertible   Preferred  Stock
substantially in the form of Exhibit A hereto.

Section  1.4.  "Closing"  shall mean the closing of the purchase and sale of the
Convertible Preferred Stock and Warrants pursuant to Section 2.1.

Section 1.5.  "Closing  Date" shall mean the date on which all conditions to the
Closing  have been  satisfied  (as  defined in Section  2.1 (a)  hereto) and the
Closing shall have occurred.

Section 1.6.  "Common  Stock" shall mean the Company's  common stock,  $0.01 par
value per share.

Section 1.7.  "Conversion Shares" shall mean the shares of Common Stock issuable
upon  conversion  of the  Convertible  Preferred  Stock and any shares of Common
Stock issued as dividends upon the Convertible Preferred Stock.

Section 1.8. "Convertible Preferred Stock" shall mean the 500 shares of Series D
8% Convertible  Preferred Stock, as described in the Certificate of Designation,
to be issued to the Investors pursuant to this Agreement.

Section 1.9. "Damages" shall mean any loss, claim,  damage,  judgment,  penalty,
deficiency,  liability,  costs  and  expenses  (including,  without  limitation,
reasonable  attorney's fees and  disbursements and reasonable costs and expenses
of expert witnesses and investigation).

Section  1.10.  "Effective  Date"  shall  mean the date on which  the SEC  first
declares  effective  a  Registration  Statement  registering  the  resale of the
Registrable Securities as set forth in the Registration Rights Agreement.

Section  1.11.  "Escrow  Agent"  shall have the  meaning set forth in the Escrow
Agreement.

Section  1.12.   "Escrow   Agreement"   shall  mean  the  Escrow   Agreement  in
substantially   the  form  of   Exhibit   D  hereto   executed   and   delivered
contemporaneously with this Agreement.

Section 1.13.  "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

Section 1.14. "Legend" shall mean the legend set forth in Section 9.1.

Section  1.15.  "Market  Price" on any given date shall mean the  average of the
three lowest closing bid prices on the Principal  Market or, if the Common Stock
is not  listed on the  Principal  Market,  on the pink  sheets (as  reported  by
Bloomberg  L.P.) of the Common  Stock  during the thirty (30) Trading Day period
ending on the  Trading  Day  immediately  prior to the date for which the Market
Price is to be  determined.  If the Common  Stock is not listed on any market or
exchange,  then the Market  Price shall be the fair  market  value of the Common
Stock as determined in good faith by the Board of Directors of the Company.

Section 1.16.  "Material  Adverse Effect" shall mean any effect on the business,
operations,  properties,  prospects,  stock price or financial  condition of the
Company  that is material  and

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adverse to the Company and its  subsidiaries  and affiliates,  taken as a whole,
and/or  any  condition,  circumstance,  or  situation  that  would  prohibit  or
otherwise  interfere  with the  ability of the Company to enter into and perform
any of its obligations under this Agreement,  the Registration Rights Agreement,
the Escrow  Agreement,  the  Certificate  of  Designation or the Warrants in any
material respect.

Section 1.17.  "Outstanding"  when used with reference to shares of Common Stock
or Capital Shares  (collectively  the  "Shares"),  shall mean, at any date as of
which the number of such Shares is to be determined,  all issued and outstanding
Shares,  and shall  include all such Shares  issuable in respect of  outstanding
scrip or any  certificates  representing  fractional  interests  in such Shares;
provided,  however,  that  "Outstanding"  shall  not mean any such  Shares  then
directly or indirectly owned or held by or for the account of the Company.

Section 1.18. "Person" shall mean an individual, a corporation, a partnership, a
limited  liability  company,  an  association,   a  trust  or  other  entity  or
organization,  including a government or political  subdivision  or an agency or
instrumentality thereof.

Section 1.19. "Principal Market" shall mean the American Stock Exchange, the New
York Stock Exchange,  the NASDAQ National Market, or the NASDAQ Small-Cap Market
or the OTC  Bulletin  Board,  whichever  is at the  time the  principal  trading
exchange or market for the Common Stock, based upon share volume.

Section  1.20.  "Purchase  Price"  shall mean  $1,000  per share of  Convertible
Preferred Stock, as defined in the Certificate of Designation.

Section 1.21. "Registrable  Securities" shall mean the Conversion Shares and the
Warrant Shares until (i) the Registration  Statement has been declared effective
by the SEC, and all  Conversion  Shares and Warrant Shares have been disposed of
pursuant to the Registration  Statement,  (ii) all Conversion Shares and Warrant
Shares  have been sold under  circumstances  under  which all of the  applicable
conditions  of Rule 144 (or any  similar  provision  then in  force)  under  the
Securities  Act ("Rule 144") are met,  (iii) all  Conversion  Shares and Warrant
Shares  have been  otherwise  transferred  to holders  who may trade such shares
without  restriction  under the Securities  Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive  legend  or (iv)  such time as, in the  opinion  of  counsel  to the
Company,  all Conversion Shares and Warrant Shares may be sold without any time,
volume or manner  limitations  pursuant to Rule 144(k) (or any similar provision
then in effect) under the Securities Act.

Section 1.22. "Registration Rights Agreement" shall mean the agreement regarding
the  filing of the  Registration  Statement  for the  resale of the  Registrable
Securities,  entered into between the Company and the Investor as of the Closing
Date in the form annexed hereto as Exhibit C.

Section 1.23.  "Registration  Statement" shall mean a registration  statement on
Form S-3 (if use of such form is then  available to the Company  pursuant to the
rules of the SEC and,  if not,  on such  other form  promulgated  by the SEC for
which the Company then  qualifies  and which  counsel for the Company shall deem
appropriate,  and which form shall be available  for the resale by the Investors
of the Registrable Securities to be registered thereunder in accordance with the

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<PAGE>

provisions  of  this  Agreement,   the  Registration  Rights  Agreement  and  in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable  Securities  under
the Securities Act.

Section 1.24. "Regulation D" shall have the meaning set forth in the recitals of
this Agreement.

Section 1.25. "SEC" shall mean the Securities and Exchange Commission.

Section  1.26.  "Section  4(2)" and  "Section  4(6)" shall have the meanings set
forth in the recitals of this Agreement.

Section  1.27.  "Securities  Act"  shall  mean the  Securities  Act of 1933,  as
amended.

Section 1.28.  "SEC  Documents"  shall mean the Company's  Annual Report on Form
10-K for the  fiscal  year  ended  December  31,  1999 and  each  report,  proxy
statement or  registration  statement filed by the Company with the SEC pursuant
to the Exchange Act or the Securities Act since the filing of such Annual Report
through the date hereof.

Section 1.29. "Shares" shall have the meaning set forth in Section 1.17.

Section  1.30.  "Stated  Value"  shall  mean  $1,000  per  share of  Convertible
Preferred Stock.

Section 1.31. "Trading Day" shall mean any day during which the Principal Market
for the Common Stock shall be open for business.

Section 1.32.  "Warrants"  shall mean the Warrants  substantially in the form of
Exhibit B to be issued to the Investors hereunder.  The number of Warrants to be
issued at Closing shall represent  warrant  coverage of eighty percent (80%), of
which  one-half shall be exercisable  immediately,  three-quarters  of the total
number shall be exercisable if the  Convertible  Preferred Stock is not redeemed
within  120 days  from the  Closing  Date,  and the  balance  of which  shall be
exercisable if the  Convertible  Preferred Stock is not redeemed within 180 days
from the Closing Date.  Warrant  coverage  shall be calculated as eighty percent
(80%) of the Stated  Value of  Convertible  Preferred  Stock sold divided by the
average of the closing bid prices of the Common Stock on the Principal Market on
the thirty (30) Trading Days prior to the Closing Date.

Section  1.33.  "Warrant  Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Warrants.

                                   ARTICLE II

          Purchase and Sale of Convertible Preferred Stock and Warrants

Section 2.1. Investment.

     (a) Upon the terms and  subject to the  conditions  set forth  herein,  the
Company agrees to sell,  and the Investors  agree to purchase,  the  Convertible
Preferred  Stock together with the Warrants at the Purchase Price on the Closing
Date as follows:

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       (i)    Upon execution and delivery of this Agreement, each Investor shall
              deliver to the Escrow Agent  immediately  available funds in their
              proportionate  amount  of the  Purchase  Price as set forth on the
              signature  pages  hereto,   and  the  Company  shall  deliver  the
              Convertible  Preferred Stock  certificates and the Warrants to the
              Escrow Agent, in each case to be held by the Escrow Agent pursuant
              to the Escrow Agreement.

       (ii)   Upon  satisfaction  of the conditions set forth in Section 2.1(b),
              the Closing  ("Closing")  shall occur at the offices of the Escrow
              Agent at which the Escrow Agent (x) shall release the  Convertible
              Preferred  Stock and the Warrants to the  Investors  and (y) shall
              release the  Purchase  Price (after all fees have been paid as set
              forth  in the  Escrow  Agreement),  pursuant  to the  terms of the
              Escrow Agreement.

     (b) The Closing is subject to the satisfaction or waiver by the party to be
benefited thereby of the following conditions:

       (i)    acceptance and execution by the Company and by the  Investors,  of
              this Agreement and all Exhibits hereto;

       (ii)   delivery  into escrow by each  Investor of  immediately  available
              funds in the  amount  of the  Purchase  Price  of the  Convertible
              Preferred  Stock and the Warrants,  as more fully set forth in the
              Escrow Agreement;

       (iii)  all  representations  and  warranties of the  Investors  contained
              herein  shall remain true and correct as of the Closing Date (as a
              condition to the Company's obligations);

       (iv)   all representations and warranties of the Company contained herein
              shall  remain  true  and  correct  as of the  Closing  Date  (as a
              condition to the Investors' obligations);

       (v)    the Company  shall have  obtained  all permits and  qualifications
              required  by any state  for the offer and sale of the  Convertible
              Preferred  Stock and Warrants,  or shall have the  availability of
              exemptions therefrom;

       (vi)   the sale and issuance of the  Convertible  Preferred Stock and the
              Warrants  hereunder,  and the proposed  issuance by the Company to
              the  Investors  of the Common  Stock  underlying  the  Convertible
              Preferred  Stock and the Warrants upon the  conversion or exercise
              thereof shall be legally  permitted by all laws and regulations to
              which the Investors and the Company are subject and there shall be
              no  ruling,   judgment  or  writ  of  any  court  prohibiting  the
              transactions contemplated by this Agreement;

       (vii)  delivery of the  original  fully  executed  Convertible  Preferred
              Stock certificates and Warrants certificates to the Escrow Agent;

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       (viii) delivery to the Escrow  Agent of an opinion of  Patterson  Belknap
              Webb & Tyler LLP, counsel to the Company, in the form of Exhibit E
              hereto;

       (ix)   delivery to the Escrow Agent of the  Irrevocable  Instructions  to
              Transfer  Agent  substantially  in the  form  attached  hereto  as
              Exhibit F; and

       (x)    delivery to the Escrow Agent of the Registration Rights Agreement.

Section 2.2. Liquidated  Damages.  The parties hereto acknowledge and agree that
the sums payable pursuant to the Registration  Rights Agreement shall constitute
liquidated damages and not penalties.  The parties further  acknowledge that (a)
the amount of loss or damages likely to be incurred is incapable or is difficult
to  precisely  estimate,  (b) the  amounts  specified  in such  Sections  bear a
reasonable  proportion  and are not plainly or grossly  disproportionate  to the
probable  loss likely to be incurred by the  Investors  in  connection  with the
failure  by the  Company to timely  cause the  registration  of the  Registrable
Securities and (c) the parties are sophisticated  business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.

                                  ARTICLE III

                   Representations and Warranties of Investor

Each Investor, severally and not jointly, represents and warrants to the Company
that:

Section 3.1.  Intent.  The Investor is entering into this  Agreement for its own
account and not with a view to or for sale in connection  with any  distribution
of the Common  Stock.  The Investor has no present  arrangement  (whether or not
legally  binding)  at any  time to sell the  Convertible  Preferred  Stock,  the
Warrants,  any  Conversion  Shares or Warrant Shares to or through any person or
entity;  provided,  however,  that by making  the  representations  herein,  the
Investor  does not  agree  to hold  such  securities  for any  minimum  or other
specific  term and  reserves the right to dispose of the  Conversion  Shares and
Warrant Shares at any time in accordance with federal and state  securities laws
applicable to such disposition.

Section 3.2.  Sophisticated  Investor.  The Investor is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited  investor
(as defined in Rule 501 of  Regulation  D), and Investor has such  experience in
business  and  financial  matters  that it has the  capacity  to protect its own
interests in connection  with this  transaction and is capable of evaluating the
merits  and risks of an  investment  in the  Convertible  Preferred  Stock,  the
Warrants and the  underlying  Common Stock.  The Investor  acknowledges  that an
investment in the Convertible  Preferred  Stock, the Warrants and the underlying
Common Stock is speculative and involves a high degree of risk.

Section 3.3. Authority. This Agreement and each agreement attached as an Exhibit
hereto which is required to be executed by Investor has been duly authorized and
validly  executed  and  delivered  by the  Investor  and is a valid and  binding
agreement of the Investor  enforceable  against it in accordance with its terms,
subject to applicable  bankruptcy,  insolvency,  or similar

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laws relating to, or affecting  generally the enforcement of,  creditors' rights
and remedies or by other equitable principles of general application.

Section  3.4.  Not an  Affiliate.  The  Investor is not an officer,  director or
"affiliate"  (as that term is defined in Rule 405 of the Securities  Act) of the
Company.

Section 3.5. Absence of Conflicts.  The execution and delivery of this Agreement
and each  agreement  which is attached as an Exhibit  hereto and executed by the
Investor  in  connection  herewith,  and the  consummation  of the  transactions
contemplated hereby and thereby, and compliance with the requirements hereof and
thereof by the  Investor,  will not violate any law,  rule,  regulation,  order,
writ, judgment,  injunction,  decree or award binding on Investor or (a) violate
any provision of any  indenture,  instrument or agreement to which Investor is a
party or is subject,  or by which  Investor  or any of its assets is bound;  (b)
conflict with or  constitute a material  default  thereunder;  (c) result in the
creation or imposition of any lien pursuant to the terms of any such  indenture,
instrument  or agreement,  or constitute a breach of any fiduciary  duty owed by
Investor to any third  party;  or (d) require  the  approval of any  third-party
(which has not been  obtained)  pursuant to any  material  contract,  agreement,
instrument,  relationship or legal obligation to which Investor is subject or to
which any of its assets, operations or management may be subject.

Section 3.6.  Disclosure;  Access to Information.  The Investor has received all
documents, records, books and other publicly available information pertaining to
Investor's  investment in the Company that have been  requested by the Investor.
The Company is subject to the periodic  reporting  requirements  of the Exchange
Act, and the Investor has reviewed  copies of all SEC Documents  deemed relevant
by Investor.

Section 3.7. Manner of Sale. At no time was Investor presented with or solicited
by or through any leaflet, public promotional meeting,  television advertisement
or any other form of general solicitation or advertising.

                                   ARTICLE IV

                  Representations and Warranties of the Company

The Company  represents and warrants to the Investors that,  except as set forth
on the  disclosure  schedule  prepared by the Company and  attached  hereto (the
"Disclosure Schedule"):

Section 4.1.  Organization  of the Company.  The Company is a  corporation  duly
incorporated  and  existing  in good  standing  under  the laws of the  State of
Delaware and has all requisite  corporate authority to own its properties and to
carry on its  business as now being  conducted.  The  Company  does not have any
subsidiaries  and does not own more that fifty  percent  (50%) of or control any
other business  entity except as set forth in the SEC Documents.  The Company is
duly  qualified and is in good standing as a foreign  corporation to do business
in every  jurisdiction in which the nature of the business conducted or property
owned by it makes such  qualification  necessary,  other than those in which the
failure so to qualify  would not have a Material  Adverse  Effect.

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Section 4.2.  Authority.  (i) The Company has the requisite  corporate power and
corporate  authority  to enter  into and  perform  its  obligations  under  this
Agreement,  the Registration  Rights Agreement,  the Escrow  Agreement,  and the
Warrants and to issue the Convertible  Preferred Stock,  the Conversion  Shares,
the Warrants and the Warrant Shares pursuant to their respective terms, (ii) the
execution,  issuance and delivery of this  Agreement,  the  Registration  Rights
Agreement, the Escrow Agreement, the Certificate of Designation, the Convertible
Preferred  Stock   certificates   and  the  Warrants  by  the  Company  and  the
consummation  by it of the  transactions  contemplated  hereby  have  been  duly
authorized  by  all  necessary  corporate  action  and  no  further  consent  or
authorization  of the  Company  or its Board of  Directors  or  stockholders  is
required,  and (iii) this Agreement,  the  Registration  Rights  Agreement,  the
Escrow Agreement,  the Convertible Preferred Stock certificates and the Warrants
have been duly  executed and  delivered by the Company and at the Closing  shall
constitute valid and binding  obligations of the Company enforceable against the
Company in accordance  with their terms,  except as such  enforceability  may be
limited by applicable  bankruptcy,  insolvency,  or similar laws relating to, or
affecting  generally the  enforcement of,  creditors'  rights and remedies or by
other  equitable  principles  of general  application.  The Company has duly and
validly  authorized and reserved for issuance shares of Common Stock  sufficient
in number for the  conversion  of the  Convertible  Preferred  Stock and for the
exercise  of  the  Warrants.   The  Company  understands  and  acknowledges  the
potentially  dilutive  effect  to  the  Common  Stock  of  the  issuance  of the
Conversion Shares. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Convertible Preferred Stock and Warrant
Shares upon exercise of the Warrants in accordance  with this  Agreement and the
Certificate  of  Designation  is absolute and  unconditional  regardless  of the
dilutive effect that such issuance may have on the ownership  interests of other
stockholders  of the Company and  notwithstanding  the  commencement of any case
under 11 U.S.C. ss. 101 et seq. (the "Bankruptcy  Code").  The Company shall not
seek  judicial  relief from its  obligations  hereunder  except  pursuant to the
Bankruptcy Code. In the event the Company is a debtor under the Bankruptcy Code,
the Company hereby waives to the fullest  extent  permitted any rights to relief
it may have  under  11  U.S.C.  ss.  362 in  respect  of the  conversion  of the
Convertible  Preferred  Stock and the  exercise  of the  Warrants.  The  Company
agrees, without cost or expense to the Investors,  to take or consent to any and
all action necessary to effectuate relief under 11 U.S.C. ss. 362.

Section  4.3.  Capitalization.  The  authorized  capital  stock  of the  Company
consists of  50,000,000  shares of Common Stock,  $0.01 par value per share,  of
which  19,862,259  shares  are  issued and  outstanding  as of May 31,  2000 and
4,714,161 shares of preferred  stock, par value $0.01 per share,  which have the
designations set forth on the Company's  balance sheet of December 31, 1999. The
Company has duly and validly  designated  500 shares of its  preferred  stock as
Series D Convertible  Preferred Stock.  Except as described in the SEC Documents
and as set forth in the Disclosure  Schedule,  there are no outstanding  Capital
Shares  Equivalents nor any agreements or  understandings  pursuant to which any
Capital Shares  Equivalents may become  outstanding.  Except as set forth on the
Disclosure  Schedule,  the  Company  is not a party  to any  agreement  granting
registration  or  anti-dilution  rights to any person with respect to any of its
equity or debt securities.  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.

Section 4.4. Common Stock.  The Company has registered its Common Stock pursuant
to Section 12(b) or (g) of the Exchange Act and is in full  compliance  with all
reporting

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requirements  of the Exchange  Act, and,  except as set forth on the  Disclosure
Schedule,  the Company is in compliance with all  requirements for the continued
listing or  quotation  of its Common  Stock,  and such Common Stock is currently
listed or quoted on, the Principal Market. As of the date hereof,  the Principal
Market is the Nasdaq  SmallCap Market and, except as set forth on the Disclosure
Schedule,  the  Company  has  not  received  any  notice  regarding,  and to its
knowledge  there is no  threat,  of the  termination  or  discontinuance  of the
eligibility  of the Common Stock for such listing.

Section 4.5. SEC Documents. The Company has made available to the Investors true
and complete  copies of the SEC  Documents.  The Company has not provided to the
Investors any information that, according to applicable law, rule or regulation,
should have been disclosed publicly prior to the date hereof by the Company, but
which has not been so disclosed. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act, and
rules and  regulations of the SEC  promulgated  thereunder and the SEC Documents
did not  contain  any untrue  statement  of a  material  fact or omit to state a
material  fact  required to be stated  therein or necessary in order to make the
statements  therein,  in light of the circumstances  under which they were made,
not  misleading.  The financial  statements  of the Company  included in the SEC
Documents   complied  in  all  material  respects  with  applicable   accounting
requirements  and the  published  rules  and  regulations  of the  SEC or  other
applicable  rules  and  regulations  with  respect  thereto  at the time of such
inclusion.  Such  financial  statements  have been prepared in  accordance  with
generally  accepted  accounting  principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements  or the  notes  thereto  or (ii) in the  case  of  unaudited  interim
statements,  to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material  respects the financial  position
of the Company as of the dates  thereof and the results of  operations  and cash
flows for the periods  then ended  (subject,  in the case of  unaudited  interim
statements,  to normal year-end audit adjustments).  Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become  due) that would  have been  required  to be  reflected  in,  reserved
against or  otherwise  described  in the  financial  statements  or in the notes
thereto in accordance  with GAAP,  which was not fully  reflected  in,  reserved
against or otherwise described in the financial  statements or the notes thereto
included in the SEC  Documents  or was not  incurred in the  ordinary  course of
business  consistent  with the Company's past  practices  since the last date of
such financial statements.

Section  4.6.  Exemption  from  Registration;  Valid  Issuances.  Subject to the
accuracy  of the  Investors'  representations  in Article  III,  the sale of the
Convertible Preferred Stock, the Conversion Shares, the Warrants and the Warrant
Shares  will not  require  registration  under the  Securities  Act  and/or  any
applicable state securities law. When issued and paid for in accordance with the
Warrants and validly  converted in accordance  with the terms of the Convertible
Preferred Stock,  the Conversion  Shares and the Warrant Shares will be duly and
validly  issued,  fully  paid,  and  non-assessable.  Neither  the  sales of the
Convertible  Preferred Stock, the Conversion Shares, the Warrants or the Warrant
Shares pursuant to, nor the Company's performance of its obligations under, this
Agreement,   the  Registration  Rights  Agreement,  the  Escrow  Agreement,  the
Certificate  of  Designation  or the Warrants will (i) result in the creation or
imposition by the Company of any liens,  charges,  claims or other

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<PAGE>

encumbrances upon the Convertible  Preferred Stock, the Conversion  Shares,  the
Warrants or the Warrant  Shares or, except as  contemplated  herein,  any of the
assets of the Company, or (ii) entitle the holders of Outstanding Capital Shares
to preemptive or other rights to subscribe for or acquire the Capital  Shares or
other securities of the Company. The Convertible Preferred Stock, the Conversion
Shares,  the Warrants and the Warrant  Shares shall not subject the Investors to
personal  liability to the Company or its creditors by reason of the  possession
thereof.

Section  4.7.  No  General   Solicitation  or  Advertising  in  Regard  to  this
Transaction. Neither the Company nor any of its affiliates nor, to the knowledge
of the Company,  any person  acting on its or their behalf (i) has  conducted or
will  conduct any general  solicitation  (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to the sale of the Convertible
Preferred  Stock  or the  Warrants,  or (ii)  made  any  offers  or sales of any
security or  solicited  any offers to buy any security  under any  circumstances
that  would  require  registration  of  the  Convertible  Preferred  Stock,  the
Conversion Shares, the Warrants or the Warrant Shares under the Securities Act.

Section 4.8. No  Conflicts.  The  execution,  delivery and  performance  of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of and payment of
dividends upon the  Convertible  Preferred  Stock,  the Conversion  Shares,  the
Warrants and the Warrant  Shares,  do not and will not (i) result in a violation
of the  Company's  Restated  Certificate  of  Incorporation  or  By-Laws or (ii)
conflict with, or constitute a material default (or an event that with notice or
lapse of time or both  would  become a  default)  under,  or give to others  any
rights of termination,  amendment, acceleration or cancellation of, any material
agreement, indenture or instrument, or any "lock-up" or similar provision of any
underwriting  or similar  agreement  to which the  Company is a party,  or (iii)
result in a violation  of any  federal,  state or local law,  rule,  regulation,
order,  judgment  or decree  (including  federal and state  securities  laws and
regulations)  applicable  to the  Company or by which any  material  property or
asset of the  Company is bound or  affected,  nor is the  Company  otherwise  in
violation of,  conflict  with or default  under any of the foregoing  (except in
each case for such conflicts, defaults, terminations, amendments, accelerations,
cancellations  and  violations  as  would  not  have,  individually  or  in  the
aggregate,  a Material Adverse Effect). The business of the Company is not being
conducted in violation of any law,  ordinance or regulation of any  governmental
entity,  except for possible  violations  that either singly or in the aggregate
would not have a Material Adverse Effect.  The Company is not required under any
Federal,  state  or  local  law,  rule or  regulation  to  obtain  any  consent,
authorization or order of, or make any filing or registration with, any court or
governmental  agency in order for it to  execute,  deliver or perform any of its
obligations  under this  Agreement or issue and sell the  Convertible  Preferred
Stock or the Warrants in  accordance  with the terms hereof (other than any SEC,
Principal Market or state securities  filings that may be required to be made by
the Company subsequent to Closing, any registration  statement that may be filed
pursuant hereto,  and any shareholder  approval required by the rules applicable
to companies whose common stock trades on the Principal Market and the filing of
a Certificate  of  Designation  with the State of Delaware);  provided that, for
purposes of the  representation  made in this sentence,  the Company is assuming
and relying upon the accuracy of the relevant  representations and agreements of
the Investors herein.

                                       10
<PAGE>

Section  4.9. No Material  Adverse  Change.  Since March 31,  2000,  no Material
Adverse  Effect has occurred or exists with  respect to the  Company,  except as
disclosed in the SEC Documents.

Section 4.10. No Undisclosed  Events or Circumstances.  Since March 31, 2000, no
event or circumstance  has occurred or exists with respect to the Company or its
businesses,  properties,  prospects,  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 SEC Documents.

Section  4.11.  No  Integrated  Offering.  Other than  pursuant to an  effective
registration  statement under the Securities Act, or pursuant to the issuance or
exercise of employee  stock  options,  or  pursuant to its  discussion  with the
Investors in connection with the transactions  contemplated hereby and except as
set forth on the  Disclosure  Schedule,  the Company has not issued,  offered or
sold the Convertible Preferred Stock, the Warrants or any shares of Common Stock
(including for this purpose any securities of the same or a similar class as the
Convertible  Preferred  Stock,  the Warrants or Common Stock,  or any securities
convertible  into a exchangeable or exercisable  for the  Convertible  Preferred
Stock or Common Stock or any such other securities)  within the six-month period
next  preceding  the date  hereof,  and the Company  shall not permit any of its
directors,  officers or affiliates  directly or  indirectly to take,  any action
(including,  without  limitation,  any  offering  or sale to any  Person  of the
Convertible  Preferred Stock, Warrants or shares of Common Stock), so as to make
unavailable the exemption from Securities Act registration  being relied upon by
the Company for the offer and sale to  Investors  of the  Convertible  Preferred
Stock (and the  Conversion  Shares) or the Warrants (and the Warrant  Shares) as
contemplated by this Agreement.

Section 4.12.  Litigation and Other Proceedings.  Except as disclosed in the SEC
Documents,  there are no lawsuits or proceedings pending or, to the knowledge of
the  Company,  threatened,  against the Company or any  subsidiary,  nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation,  which could reasonably be expected to have a Material Adverse
Effect.  Except as set forth in the SEC Documents or the Disclosure Schedule, no
judgment,  order, writ,  injunction or decree or award has been issued by or, to
the knowledge of the Company, requested of any court, arbitrator or governmental
agency which could result in a Material Adverse Effect.

Section 4.13. No  Misleading  or Untrue  Communication.  The Company and, to the
knowledge  of the Company,  any person  representing  the Company,  or any other
person  selling  or  offering  to sell the  Convertible  Preferred  Stock or the
Warrants in connection with the transaction contemplated by this Agreement, have
not made, at any time, any oral  communication  in connection  with the offer or
sale of the same which  contained  any untrue  statement  of a material  fact or
omitted to state any material fact necessary in order to make the statements, in
the light of the circumstances under which they were made, not misleading.

Section 4.14. Material Non-Public Information.  The Company has not disclosed to
the Investors any material non-public  information that (i) if disclosed,  would
reasonably  be  expected  to have a  material  effect on the price of the Common
Stock or (ii) according to applicable law, rule or regulation,  should have been
disclosed  publicly  by the  Company  prior to the date hereof but which has not
been so disclosed.

                                       11
<PAGE>

Section 4.15. Insurance.  The Company and each subsidiary maintains property and
casualty,  general  liability,  workers'  compensation,   environmental  hazard,
personal injury and other similar types of insurance with financially  sound and
reputable insurers that is adequate,  consistent with industry standards and the
Company's  historical claims  experience.  Except as set forth in the Disclosure
Schedule,  the Company has not received notice from, and has no knowledge of any
threat by, any insurer  (that has issued any  insurance  policy to the  Company)
that such insurer  intends to deny coverage under or cancel,  discontinue or not
renew any insurance policy presently in force.

Section 4.16. Tax Matters.

     (a) The Company and each  subsidiary  has filed all Tax Returns which it is
required  to file  under  applicable  laws;  all such Tax  Returns  are true and
accurate and has been  prepared in  compliance  with all  applicable  laws;  the
Company has paid all Taxes due and owing by it or any subsidiary (whether or not
such Taxes are required to be shown on a Tax Return) and have  withheld and paid
over to the  appropriate  taxing  authorities  all Taxes which it is required to
withhold  from amounts paid or owing to any employee,  stockholder,  creditor or
other third  parties;  and since  December 31, 1999,  the charges,  accruals and
reserves for Taxes with respect to the Company  (including  any  provisions  for
deferred  income  taxes)  reflected  on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.

     (b) No claim has been made by a taxing  authority in a  jurisdiction  where
the Company does not file tax returns that the Company or any  subsidiary  is or
may be subject to taxation by that jurisdiction.  There are no foreign, federal,
state or local tax audits or administrative or judicial  proceedings  pending or
being  conducted with respect to the Company or any  subsidiary;  no information
related to Tax matters has been  requested  by any  foreign,  federal,  state or
local taxing  authority;  and,  except as  disclosed  above,  no written  notice
indicating  an intent to open an audit or other review has been  received by the
Company or any  subsidiary  from any  foreign,  federal,  state or local  taxing
authority.  There are no material unresolved  questions or claims concerning the
Company's  Tax  liability.  The Company (A) has not  executed or entered  into a
closing  agreement  pursuant to ss.  7121 of the  Internal  Revenue  Code or any
predecessor  provision  thereof  or any  similar  provision  of state,  local or
foreign  law; or (B) has not agreed to or is  required  to make any  adjustments
pursuant to ss. 481 (a) of the Internal Revenue Code or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by the Company or any of its  subsidiaries or has any knowledge that the IRS has
proposed  any  such  adjustment  or  change  in  accounting  method,  or has any
application  pending with any taxing  authority  requesting  permission  for any
changes in  accounting  methods that relate to the business or operations of the
Company.  The  Company  has not  been a  United  States  real  property  holding
corporation  within the meaning of ss.  897(c)(2) of the  Internal  Revenue Code
during the applicable period specified in ss.  897(c)(1)(A)(ii)  of the Internal
Revenue Code.

     (c) The Company has not made an election  under ss.  341(f) of the Internal
Revenue Code.  The Company is not liable for the Taxes of another person that is
not a  subsidiary  of the  Company  under  (A)  Treas.  Reg.  ss.  1.1502-6  (or
comparable  provisions of state,  local or foreign law),  (B) as a transferee or
successor,  (C) by contract or indemnity or (D) otherwise.  The Company is not a
party to any tax sharing  agreement.  The Company has not made any

                                       12
<PAGE>

payments, is obligated to make payments or is a party to an agreement that could
obligate it to make any payments that would not be deductible  under ss. 280G of
the Internal Revenue Code.

     (d) For purposes of this Section 4.16:

          "IRS" means the United States Internal Revenue Service.

          "Tax" or "Taxes" means federal,  state,  county,  local,  foreign,  or
          other income, gross receipts, ad valorem, franchise, profits, sales or
          use,   transfer,   registration,   excise,   utility,   environmental,
          communications,  real or personal  property,  capital stock,  license,
          payroll,  wage or  other  withholding,  employment,  social  security,
          severance, stamp, occupation, alternative or add-on minimum, estimated
          and other taxes of any kind whatsoever (including, without limitation,
          deficiencies,  penalties,  additions to tax, and interest attributable
          thereto) whether disputed or not.

          "Tax  Return"  means any  return,  information  report or filing  with
          respect  to  Taxes,  including  any  schedules  attached  thereto  and
          including any amendment thereof.

Section 1.17. Property. Neither the Company nor any of its subsidiaries owns any
real  property.  Except as set  forth on the  Disclosure  Schedule,  each of the
Company  and its  subsidiaries  has good and  marketable  title to all  personal
property  owned by it,  free and clear of all liens,  encumbrances  and  defects
except such as do not  materially  affect the value of such  property and do not
materially  interfere with the use made and proposed to be made of such property
by the Company;  and to the Company's  knowledge any real  property,  mineral or
water rights,  and buildings  held under lease by the Company as tenant are held
by it under valid, subsisting and enforceable leases with such exceptions as are
not material and do not  interfere  with the use made and intended to be made of
such property, mineral or water rights, and buildings by the Company.

Section 4.18.  Intellectual  Property.  Each of the Company and its subsidiaries
owns or possesses  adequate and  enforceable  rights to use all patents,  patent
applications,  trademarks,  trademark applications,  trade names, service marks,
copyrights, copyright applications,  licenses, know-how (including trade secrets
and  other   unpatented   and/or   unpatentable   proprietary  or   confidential
information,  systems or procedures)  and other similar  rights and  proprietary
knowledge  (collectively,  "Intangibles")  necessary  for  the  conduct  of  its
business as now being conducted. To the Company's knowledge, except as disclosed
in the  SEC  Documents  neither  the  Company  nor  any of its  subsidiaries  is
infringing  upon or in conflict  with any right of any other person with respect
to any Intangibles.  Except as disclosed in the SEC Documents, no adverse claims
have been asserted by any person to the ownership or use of any  Intangibles and
the Company has no knowledge of any basis for such claim.

Section 4.19. Internal Controls and Procedures.  The Company maintains books and
records and internal accounting controls which provide reasonable assurance that
(i) all  transactions  to which the Company or any  subsidiary  is a party or by
which its  properties  are bound are executed with  management's  authorization;
(ii) the recorded  accounting of the Company's  consolidated  assets is compared
with  existing  assets at  regular  intervals;  (iii)  access  to the  Company's
consolidated   assets  is  permitted  only  in  accordance   with   management's
authorization;  and (iv) all transactions

                                       13
<PAGE>

to which the Company or any subsidiary is a party or by which its properties are
bound  are  recorded  as  necessary  to  permit  preparation  of  the  financial
statements of the Company in accordance with U.S. generally accepted  accounting
principles.

Section 4.20. Payments and Contributions.  Neither the Company,  any subsidiary,
nor any of its directors, officers or, to its knowledge, other employees has (i)
used  any  Company  funds  for any  unlawful  contribution,  endorsement,  gift,
entertainment  or other unlawful expense  relating to political  activity;  (ii)
made any direct or indirect  unlawful payment of Company funds to any foreign or
domestic government  official or employee;  (iii) violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977, as amended;  or (iv)
made any bribe,  rebate,  payoff,  influence payment,  kickback or other similar
payment to any person with respect to Company matters.

Section 4.21. No  Misrepresentation.  The  representations and warranties of the
Company contained in this Agreement,  any schedule,  annex or exhibit hereto and
any  agreement,  instrument  or  certificate  furnished  by the  Company  to the
Investors  pursuant to this Agreement,  do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated  therein or
necessary to make the statements  therein,  in light of the circumstances  under
which they were made, not misleading.

                                   ARTICLE V

                           Covenants of the Investors

     Each Investor, severally and not jointly, covenants with the Company that:

Section 5.1. Compliance with Law. The Investor's trading activities with respect
to  shares  of the  Company's  Common  Stock  will  be in  compliance  with  all
applicable  state and federal  securities  laws, rules and regulations and rules
and regulations of the Principal  Market on which the Company's  Common Stock is
listed.

                                   ARTICLE VI

                            Covenants of the Company

Section  6.1.  Registration  Rights.  The Company  shall cause the  Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof.

Section 6.2. Reservation of Common Stock. As of the date hereof, the Company has
reserved  and the Company  shall  continue to reserve and keep  available at all
times,  free of  preemptive  rights,  shares of Common  Stock for the purpose of
enabling  the  Company to issue the  Conversion  Shares and the  Warrant  Shares
pursuant to any conversion of the Convertible Preferred Stock or exercise of the
Warrants.  The number of shares so reserved  from time to time,  as  theretofore
increased or reduced as  hereinafter  provided,  may be reduced by the number of
shares  actually  delivered  pursuant  to  any  conversion  of  the  Convertible
Preferred Stock or

                                       14
<PAGE>

exercise of the Warrants and the number of shares so reserved shall be increased
or  decreased  to reflect  potential  increases or decreases in the Common Stock
that the Company may  thereafter be obligated to issue by reason of  adjustments
to the Warrants.

Section 6.3.  Listing of Common Stock. The Company hereby agrees to use its best
efforts to maintain the listing of the Common Stock on a Principal  Market,  and
as soon as reasonably  practicable  following the Closing to list the Conversion
Shares and the Warrant  Shares on the  Principal  Market.  The  Company  further
agrees,  if the  Company  applies to have the Common  Stock  traded on any other
Principal  Market, it will include in such application the Conversion Shares and
the Warrant Shares, and will take such other action as is necessary or desirable
in the  opinion of the  Investors  to cause the  Conversion  Shares and  Warrant
Shares to be listed on such other Principal Market as promptly as possible.  The
Company  will use its best  efforts to  continue  the listing and trading of its
Common Stock on a Principal Market and comply in all respects with the Company's
reporting,  filing  and  other  obligations  under  the  bylaws  or rules of the
Principal Market and shall provide  Investors with copies of any  correspondence
to or from such Principal  Market which questions or threatens  delisting of the
Common Stock,  within three (3) Trading Days of the Company's  receipt  thereof,
until the Investors have disposed of all of their  Registrable  Securities.  The
Company  agrees to  present a  proposal  for  stockholder  approval  at the next
meeting of  stockholders  to permit the Company to issue a number of  Conversion
Shares  and  Warrant  Shares  which is in excess  of 19.9% of the  number of the
Company's  issued and  outstanding  shares of Common Stock on the Closing  Date,
with the  recommendation  of the  Board  of  Directors  that  such  proposal  be
approved.

Section 6.4. Exchange Act Registration.  The Company will cause its Common Stock
to continue to be  registered  under  Section  12(b) or (g) of the Exchange Act,
will use its best  efforts  to comply in all  respects  with its  reporting  and
filing  obligations under the Exchange Act, and will not take any action or file
any  document  (whether  or not  permitted  by  the  Exchange  Act or the  rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting  and filing  obligations  under said Act until the Investors  have
disposed of all of their Registrable Securities.

Section 6.5.  Legends.  The certificates  evidencing the Registrable  Securities
shall be free of legends, except as set forth in Article IX.

Section 6.6. Corporate Existence;  Conflicting Agreements. The Company will take
all steps  necessary to preserve and  continue  the  corporate  existence of the
Company.  The  Company  shall not enter into any  agreement,  the terms of which
agreement  would  restrict  or impair  the right or  ability  of the  Company to
perform  any  of its  obligations  under  this  Agreement  or  any of the  other
agreements attached as exhibits hereto or under the Certificate of Designation.

Section 6.7. Consolidation; Merger. Except for the proposed merger with The Aeon
Group,  Inc.,  the Company shall not, at any time after the date hereof,  effect
any merger or consolidation of the Company with or into, or a transfer of all or
substantially   all  of  the  assets  of  the  Company  to,  another  entity  (a
"Consolidation  Event") unless the resulting  successor or acquiring  entity (if
not the  Company)  assumes  by written  instrument  or by  operation  of law the
obligation to deliver to the Investors such shares of stock and/or securities as
the  Investors  are  entitled  to receive  pursuant  to this  Agreement  and the
Certificate of Designation.

                                       15
<PAGE>

Section 6.8.  Issuance of Convertible  Preferred Stock and Warrant  Shares.  The
sale of the Convertible Preferred Stock and the Warrants and the issuance of the
Warrant Shares  pursuant to exercise of the Warrants and the  Conversion  Shares
upon conversion of the  Convertible  Preferred Stock shall be made in accordance
with the provisions and  requirements  of Section 4(2), 4(6) or Regulation D and
any applicable  state  securities  law. The Company shall make any necessary SEC
and "blue sky" filings required to be made by the Company in connection with the
sale of the securities to the Investors as required by all applicable  laws, and
shall provide a copy thereof to the Investors promptly after such filing.

Section 6.9.  Limitation on Future  Financing.  Except  pursuant to  outstanding
securities  of the Company on the date hereof,  the Company  agrees that it will
not enter into any sale of its securities for cash at a discount to Market Price
until 90 days after the effective date of the Registration  Statement except for
any sales (i) pursuant to any  presently  existing  employee  benefit plan which
plan has been  approved  by the  Company's  stockholders,  (ii)  pursuant to any
compensatory  plan  for  a  full-time  employee  or  key  consultant,  (iii)  in
connection  with a strategic  partnership  or other  business  transaction,  the
principal purpose of which is not simply to raise money, (iv) in connection with
the previously announced acquisition of The Aeon Group, Inc., (v) pursuant to an
equity line of credit  type  transaction  or other  financing  arranged  through
Ladenburg  Thalmann  & Co.  Inc.  or (vi) to  which  the  Investors  give  their
approval.

Section  6.10.  Use of  Proceeds.  The Company  shall  utilize not less than one
hundred  thousand  ($100,000)  dollars  of the  net  proceeds  of  this  sale of
Convertible Preferred Stock to provide a working capital loan to The Aeon Group,
Inc., and the balance shall be used for working capital of the Company.

Section 6.11.  Pro-Rata  Redemption.  The Company agrees that if it shall redeem
any of the  Convertible  Preferred  Stock,  that it shall  make such  redemption
pro-rata among all Investors in proportion their respective initial purchases of
such securities pursuant to this Agreement.

                                  ARTICLE VII

                            Survival; Indemnification

Section 7.1.  Survival.  The  representations,  warranties and covenants made by
each of the Company and each Investor in this Agreement, the annexes,  schedules
and exhibits hereto and in each  instrument,  agreement and certificate  entered
into and delivered by them pursuant to this Agreement, shall survive the Closing
and the consummation of the transactions  contemplated hereby. In the event of a
breach or violation of any of such representations, warranties or covenants, the
party to whom such representations, warranties or covenants have been made shall
have all rights and remedies for such breach or violation  available to it under
the provisions of this Agreement,  irrespective of any investigation  made by or
on behalf of such party on or prior to the Closing Date.

Section 7.2.  Indemnity.  (a) The Company  hereby  agrees to indemnify  and hold
harmless the Investors,  their respective  affiliates (as defined in Rule 405 of
the Securities Act) and their

                                       16
<PAGE>

respective  officers,  directors,   partners  and  members  (collectively,   the
"Investor  Indemnitees"),  from and against any and all  Damages,  and agrees to
reimburse the Investor  Indemnitees  for all reasonable  out-of-pocket  expenses
(including  the  reasonable  fees and expenses of legal  counsel),  in each case
promptly as incurred by the Investor  Indemnitees  and to the extent arising out
of or in connection with:

          (i) any  misrepresentation,  omission  of fact or breach of any of the
     Company's  representations or warranties  contained in this Agreement,  the
     annexes,  schedules  or exhibits  hereto or any  instrument,  agreement  or
     certificate  entered  into or  delivered  by the  Company  pursuant to this
     Agreement; or

          (ii) any failure by the Company to perform in any material respect any
     of its covenants, agreements, undertakings or obligations set forth in this
     Agreement,  the annexes,  schedules or exhibits  hereto or any  instrument,
     agreement or certificate  entered into or delivered by the Company pursuant
     to this Agreement; or

          (iii) any action instituted against the Investors,  or any of them, by
     any stockholder of the Company who is not an Affiliate of an Investor, with
     respect to any of the transactions contemplated by this Agreement.

     (b) Each  Investor,  severally and not jointly,  hereby agrees to indemnify
and hold harmless the Company,  its  Affiliates and their  respective  officers,
directors, partners and members (collectively, the "Company Indemnitees"),  from
and against any and all Damages, and agrees to reimburse the Company Indemnitees
for reasonable all  out-of-pocket  expenses  (including the reasonable  fees and
expenses  of legal  counsel),  in each case  promptly as incurred by the Company
Indemnitees   to  the  extent   arising  out  of  or  in  connection   with  any
misrepresentation,  omission  of  fact,  or  breach  of any  of  the  Investor's
representations  or  warranties  contained  in  this  Agreement,   the  annexes,
schedules or exhibits hereto or any instrument, agreement or certificate entered
into or delivered by the Investor  pursuant to this  Agreement.  Notwithstanding
anything to the contrary herein, the Investor shall be liable under this Section
7.2(b) for only that amount as does not exceed the net proceeds to such Investor
as a result of the sale of Registrable  Securities  pursuant to the Registration
Statement.

Section 7.3.  Notice.  Promptly  after  receipt by either  party hereto  seeking
indemnification  pursuant  to Section  7.2 (an  "Indemnified  Party") of written
notice of any  investigation,  claim,  proceeding  or other action in respect of
which  indemnification is being sought (each, a "Claim"),  the Indemnified Party
promptly  shall notify the party from whom  indemnification  pursuant to Section
7.2 is being sought (the "Indemnifying  Party") of the commencement thereof; but
the omission so to notify the  Indemnifying  Party shall not relieve it from any
liability  that it otherwise may have to the  Indemnified  Party,  except to the
extent that the  Indemnifying  Party is actually  prejudiced by such omission or
delay. In connection with any Claim as to which both the Indemnifying  Party and
the Indemnified Party are parties,  the Indemnifying  Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying  Party, the Indemnified  Party shall have the right to
employ  separate  legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall

                                       17
<PAGE>

bear the  reasonable  fees,  out-of-pocket  costs and expenses of such  separate
legal counsel to the  Indemnified  Party if (and only if): (x) the  Indemnifying
Party shall have agreed to pay such fees,  out-of-pocket costs and expenses, (y)
the Indemnified Party reasonably shall have concluded that representation of the
Indemnified Party and the Indemnifying Party by the same legal counsel would not
be  appropriate  due to actual or, as reasonably  determined by legal counsel to
the Indemnified Party,  potentially  differing interests between such parties in
the  conduct of the  defense of such  Claim,  or if there may be legal  defenses
available to the  Indemnified  Party that are in addition to or  disparate  from
those available to the Indemnifying  Party, or (z) the Indemnifying  Party shall
have failed to employ legal counsel  reasonably  satisfactory to the Indemnified
Party within a reasonable  period of time after  notice of the  commencement  of
such  Claim.  If  the  Indemnified  Party  employs  separate  legal  counsel  in
circumstances  other than as described  in clauses  (x),  (y) or (z) above,  the
fees, costs and expenses of such legal counsel shall be borne exclusively by the
Indemnified  Party.  Except as provided above, the Indemnifying Party shall not,
in connection  with any Claim in the same  jurisdiction,  be liable for the fees
and expenses of more than one firm of legal  counsel for the  Indemnified  Party
(together with appropriate  local counsel).  The  Indemnifying  Party shall not,
without the prior written consent of the Indemnified  Party (which consent shall
not unreasonably be withheld),  settle or compromise any Claim or consent to the
entry of any  judgment  that does not  include an  unconditional  release of the
Indemnified Party from all liabilities with respect to such Claim or judgment.

     All fees and expenses of the Indemnified Party (including  reasonable costs
of defense and  investigation in a manner not inconsistent with this Section and
all reasonable  attorneys'  fees and expenses)  shall be paid to the Indemnified
Party,  as incurred,  within ten (10) Trading Days of written  notice thereof to
the Indemnifying  Party (regardless of whether it is ultimately  determined that
an Indemnified  Party is not entitled to  indemnification  hereunder;  provided,
that the Indemnifying  Party may require such Indemnified  Party to undertake to
reimburse  all such fees and  expenses  to the extent it is  finally  judicially
determined  that  such  Indemnified  Party is not  entitled  to  indemnification
hereunder).

Section 7.4. Direct Claims. In the event one party hereunder should have a claim
for indemnification  that does not involve a claim or demand being asserted by a
third party,  the Indemnified  Party promptly shall deliver notice of such claim
to the  Indemnifying  Party. If the Indemnified  Party disputes the claim,  such
dispute shall be resolved by mutual  agreement of the Indemnified  Party and the
Indemnifying  Party or by binding  arbitration  conducted in accordance with the
procedures  and rules of the American  Arbitration  Association  as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.

                                  ARTICLE VIII

         Due Diligence Review; Non-Disclosure of Non-Public Information.

Section 8.1. Due  Diligence  Review.  Subject to Section 8.2, the Company  shall
make  available  for  inspection  and review by the  Investors,  advisors to and
representatives  of the  Investors  (who may or may not be  affiliated  with the
Investors and who are reasonably acceptable to the

                                       18
<PAGE>

Company),  any underwriter  participating  in any disposition of the Registrable
Securities on behalf of the Investors  pursuant to the  Registration  Statement,
any such registration  statement or amendment or supplement  thereto or any blue
sky,  Nasdaq or other filing,  all SEC Documents and other filings with the SEC,
and all other  publicly  available  corporate  documents  and  properties of the
Company as may be reasonably necessary for the purpose of such review, and cause
the  Company's  officers,  directors  and  employees to supply all such publicly
available  information  reasonably  requested  by  the  Investors  or  any  such
representative,  advisor or  underwriter  in connection  with such  Registration
Statement (including, without limitation, in response to all questions and other
inquiries  reasonably made or submitted by any of them),  prior to and from time
to time after the filing and effectiveness of the Registration Statement for the
sole purpose of enabling the  Investors and such  representatives,  advisors and
underwriters and their  respective  accountants and attorneys to conduct initial
and ongoing due  diligence  with  respect to the Company and the accuracy of the
Registration Statement.

Section 8.2. Non-Disclosure of Non-Public Information.

     (a) The Company shall not disclose material  non-public  information to the
Investors,  advisors to or  representatives  of the  Investors  unless  prior to
disclosure of such information the Company  identifies such information as being
non-public   information   and  provides  the   Investors,   such  advisors  and
representatives  with the  opportunity  to  accept  or  refuse  to  accept  such
non-public  information for review. Other than disclosure of any comment letters
received  from the SEC staff with  respect to the  Registration  Statement,  the
Company may, as a condition to disclosing any non-public  information hereunder,
require  the   Investors'   advisors  and   representatives   to  enter  into  a
confidentiality  agreement in form and content  reasonably  satisfactory  to the
Company and the Investors.

     (b)  Nothing  herein  shall  require  the  Company  to  disclose   material
non-public  information to the Investors or their  advisors or  representatives,
and the Company  represents  that it does not  disseminate  material  non-public
information  to any  investors  who  purchase  stock in the  Company in a public
offering, to money managers or to securities analysts,  provided,  however, that
notwithstanding   anything  herein  to  the  contrary,   the  Company  will,  as
hereinabove  provided,  promptly notify the advisors and  representatives of the
Investors  and,  if any,  underwriters,  of any  event or the  existence  of any
circumstance   (without  any  obligation  to  disclose  the  specific  event  or
circumstance)  of which  it  becomes  aware,  constituting  material  non-public
information  (whether or not requested of the Company  specifically or generally
during the course of due diligence by such persons or entities),  which,  if not
disclosed in the prospectus  included in the Registration  Statement would cause
such  prospectus to include a material  misstatement  or to omit a material fact
required to be stated therein in order to make the statements,  therein in light
of the circumstances in which they were made, not misleading.  Nothing contained
in this  Section 8.2 shall be  construed  to mean that such  persons or entities
other than the Investors  (without the written consent of the Investors prior to
disclosure of such  information  as set forth in Section  8.2(a)) may not obtain
non-public  information  in the course of conducting due diligence in accordance
with the terms of this  Agreement  and  nothing  herein  shall  prevent any such
persons or entities  from  notifying  the Company of their opinion that based on
such due diligence by such persons or entities,  that the Registration Statement
contains  an  untrue  statement  of a  material  fact or omits a  material  fact
required to be stated in the

                                       19
<PAGE>

Registration Statement or necessary to make the statements contained therein, in
light of the circumstances in which they were made, not misleading.

                                   ARTICLE IX

                      Legends; Transfer Agent Instructions

Section  9.1.  Legends.   Unless  otherwise  provided  below,  each  certificate
representing  Registrable  Securities  and each share of  Convertible  Preferred
Stock will bear the following legend or equivalent (the "Legend"):

THE SECURITIES  EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S.  SECURITIES ACT OF 1933, AS AMENDED (THE  "SECURITIES  ACT"),  OR ANY OTHER
APPLICABLE  SECURITIES  LAWS AND HAVE BEEN ISSUED IN RELIANCE  UPON AN EXEMPTION
FROM  THE  REGISTRATION  REQUIREMENTS  OF THE  SECURITIES  ACT  AND  SUCH  OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION  HEREIN
MAY BE SOLD, ASSIGNED,  TRANSFERRED,  PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE  REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.

Section  9.2.  Transfer  Agent  Instructions.  Upon the  execution  and delivery
hereof,  the Company is issuing to the transfer  agent for its Common Stock (and
to any  substitute or  replacement  transfer agent for its Common Stock upon the
Company's  appointment  of any such  substitute or replacement  transfer  agent)
instructions  substantially in the form of Exhibit F hereto.  Such  instructions
shall be  irrevocable  by the Company from and after the date hereof or from and
after the issuance thereof to any such substitute or replacement transfer agent,
as the case may be.

Section 9.3. No Other  Legend or Stock  Transfer  Restrictions.  No legend other
than the one  specified  in Section 9.1 has been or shall be placed on the share
certificates  representing  the  Registrable  Securities and no  instructions or
"stop transfer  orders," "stock transfer  restrictions,"  or other  restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article IX.

Section 9.4. Investors' Compliance.  Nothing in this Article shall affect in any
way each  Investor's  obligations to comply with all applicable  securities laws
upon resale of the Common Stock.

                                       20
<PAGE>

                                   ARTICLE X

                           Choice of Law; Arbitration

Section 10.1. Governing Law/Arbitration. This Agreement shall be governed by and
construed in  accordance  with the laws of the State of New York  applicable  to
contracts  made in New York by persons  domiciled  in New York City and  without
regard to its  principles of conflicts of laws. Any dispute under this Agreement
shall be submitted to  arbitration  under the American  Arbitration  Association
(the "AAA") in New York City,  New York,  and shall be finally and  conclusively
determined  by the decision of a board of  arbitration  consisting  of three (3)
members  (hereinafter  referred  to as  the  "Board  of  Arbitration")  selected
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration)  with  respect to the  amount,  if any,  which the losing  party is
required to pay to the other party in respect of a claim  filed.  In  connection
with  rendering its decisions,  the Board of Arbitration  shall adopt and follow
the laws of the State of New York unless the matter at issue is the  corporation
law of the company's state of incorporation,  in which event the corporation law
of such jurisdiction shall govern such issue. To the extent practical, decisions
of the Board of Arbitration  shall be rendered no more than thirty (30) calendar
days following  commencement of proceedings with respect  thereto.  The Board of
Arbitration  shall cause its written  decision  to be  delivered  to all parties
involved in the dispute.  Any decision made by the Board of Arbitration  (either
prior to or after the  expiration of such thirty (30) calendar day period) shall
be final,  binding and conclusive on the parties to the dispute, and entitled to
be enforced to the fullest  extent  permitted by law and entered in any court of
competent  jurisdiction.  The Board of  Arbitration  shall be authorized  and is
hereby  directed  to enter a  default  judgment  against  any party  failing  to
participate in any proceeding hereunder within the time periods set forth in the
AAA rules.  The  non-prevailing  party to any  arbitration (as determined by the
Board of Arbitration) shall pay the expenses of the prevailing party,  including
reasonable attorney's fees, in connection with such arbitration. Any party shall
be  entitled  to obtain  injunctive  relief  from a court in any case where such
relief  is  available,  and the  non-prevailing  party  to any  such  injunctive
proceeding shall pay the expenses of the prevailing party,  including reasonable
attorney's fees, in connection with such proceeding.

                                   ARTICLE XI

                                   Assignment

Section 11.1. Assignment. Neither this Agreement nor any rights of the Investors
or the Company  hereunder  may be assigned by either party to any other  person.
Notwithstanding the foregoing,  (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any permitted transferee of any of the
Convertible  Preferred  Stock or Warrants  purchased or acquired by any Investor
hereunder with respect to the  Convertible  Preferred  Stock or Warrants held by
such  person,  and (b) upon the prior  written  consent  of the  Company,  which
consent shall not unreasonably be withheld or delayed,  each Investor's interest
in this Agreement may be assigned at any time, in whole or in part, to any other
person or entity  (including  any  Affiliate of the Investor) who agrees to make
the representations and warranties contained in Article III and who agrees to be
bound by the terms of this Agreement.

                                       21
<PAGE>

                                  ARTICLE XII

                                     Notices

Section 12.1. 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) hand delivered,  (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 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 first  business  day
following  the date of sending by  reputable  courier  service,  fully  prepaid,
addressed  to such  address,  or (c) upon  actual  receipt of such  mailing,  if
mailed. The addresses for such communications shall be:

If to the Company:                    Compositech Ltd.
                                      710 Koelher Ave.
                                      Ronkonkoma, NY 11779
                                      Attention: Samuel S. Gross
                                      Telephone: 631-585-7710
                                      Facsimile:   631-585-7713

with a copy to (shall not constitute  Patterson, Belknap, Webb & Tyler, LLP
notice):                              1133 Avenue of the Americas
                                      New York, NY  10036-6710
                                      Attention:  Edward F. Cox, Esq.
                                      Telephone:  (212) 336-2000
                                      Facsimile:  (212) 336-2222

if to the Investors:                  As set forth on the signature pages hereto

with a copy to:                       Epstein Becker & Green, P.C.
(shall not constitute notice)         250 Park Avenue
                                      New York, NY  10177
                                      Attention:  Robert F. Charron
                                      Telephone:  (212) 351 3771
                                      Facsimile:  (212) 661-0989

Either party hereto may from time to time change its address or facsimile number
for notices  under this  Section 12.1 by giving  written  notice of such changed
address  or  facsimile  number to the other  party  hereto as  provided  in this
Section 12.1.

                                       22
<PAGE>

                                  ARTICLE XIII

                                  Miscellaneous

Section  13.1.  Counterparts/  Facsimile/  Amendments.  This  Agreement  may  be
executed  in multiple  counterparts,  each of which may be executed by less than
all of the parties and shall be deemed to be an original  instrument which shall
be enforceable  against the parties actually executing such counterparts and all
of which  together  shall  constitute  one and the same  instrument.  Except  as
otherwise  stated  herein,  in  lieu  of the  original  documents,  a  facsimile
transmission  or  copy of the  original  documents  shall  be as  effective  and
enforceable  as the  original.  This  Agreement may be amended only by a writing
executed by all parties.

Section 13.2. Entire Agreement.  This Agreement,  the schedules attached hereto,
the agreements attached as Exhibits hereto,  which include,  but are not limited
to the Certificate of Designation,  the Warrants, the Escrow Agreement,  and the
Registration Rights Agreement,  set forth the entire agreement and understanding
of the parties  relating to the subject  matter hereof and  supersedes all prior
and  contemporaneous  agreements,  negotiations and  understandings  between the
parties,  both oral and written relating to the subject matter hereof. The terms
and conditions of all Exhibits to this Agreement are incorporated herein by this
reference  and shall  constitute  part of this  Agreement  as is fully set forth
herein.

Section 13.3.  Severability.  In the event that any provision of this  Agreement
becomes or is  declared  by a court of  competent  jurisdiction  to be  illegal,
unenforceable  or void,  this Agreement  shall continue in full force and effect
without said provision;  provided that such severability shall be ineffective if
it  materially  changes the  economic  benefit of this  Agreement  to any party.

Section  13.4.  Headings.  The  headings  used in this  Agreement  are  used for
convenience only and are not to be considered in construing or interpreting this
Agreement.

Section 13.5.  Number and Gender.  There may be one or more Investors parties to
this  Agreement,  which  Investors  may be  natural  persons  or  entities.  All
references to plural Investors shall apply equally to a single Investor if there
is only one  Investor,  and all  references  to an  Investor as "it" shall apply
equally to a natural person.

Section 13.6. Reporting Entity for the Common Stock. The reporting entity relied
upon for the  determination of the trading price or trading volume of the Common
Stock on any given  Trading  Day for the  purposes  of this  Agreement  shall be
Bloomberg,  L.P. or any successor  thereto.  The written  mutual  consent of the
Investors  and the  Company  shall be  required  to employ  any other  reporting
entity.

Section 13.7. Fees and Expenses. Each of the Company and the Investors agrees to
pay its own expenses  incident to the performance of its obligations  hereunder,
except  that the  Company  shall pay the fees,  expenses  and  disbursements  of
Epstein Becker & Green,  P.C.,  counsel to the Investors,  in an amount equal to
$5,000, all as set forth in the Escrow Agreement.

Section 13.8.  Brokerage.  Each of the parties hereto represents that it has had
no dealings in connection  with this  transaction  with any finder or broker who
will demand  payment of any fee or  commission  from the other party  except for
Ladenburg  Thalmann  & Co.  Inc.,  whose fee shall be paid by the  Company.  The
Company  on the one  hand,  and the  Investors,  on the  other  hand,  agree  to
indemnify  the  other  against  and hold  the  other  harmless  from any and all
liabilities  to any person  claiming  brokerage  commissions or finder's fees on
account  of  services   purported  to

                                       23
<PAGE>

have been rendered on behalf of the  indemnifying  party in connection with this
Agreement or the transactions contemplated hereby.

Section 13.9.  Publicity.  Except as required by law, the Company agrees that it
will  not  issue  any  press  release  or  other  public   announcement  of  the
transactions  contemplated  by this  Agreement  without the prior consent of the
Investors, which shall not be unreasonably withheld nor delayed by more than two
(2) Trading Days from their receipt of such proposed  release.  No release shall
name the Investors without their express consent, except as required by law.

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.

                                       Compositech Ltd.

                                       By:
                                              ----------------------------------
                                              Name:
                                              Title:

                                       Investor:

  1660 49th Street                     The Gross Foundation, Inc.
  Brooklyn, NY 11204
  Fax:  (718) 851-3511
                                       By:
                                              ----------------------------------
 Aggregate Purchase Price:                    Chiam Gross, President
 $500,000

                                       24Exhibit 10.37

                                                                       EXHIBIT C

                          REGISTRATION RIGHTS AGREEMENT

     THIS REGISTRATION  RIGHTS AGREEMENT,  dated as of July 7, 2000, between the
investor or  investors  signatory  hereto (each an  "Investor"  and together the
"Investors"), and Compositech Ltd., a Delaware corporation (the "Company").

     WHEREAS,  simultaneously with the execution and delivery of this Agreement,
the Investor is purchasing from the Company, pursuant to a Convertible Preferred
Stock and  Warrants  Purchase  Agreement,  dated the date hereof (the  "Purchase
Agreement"),  500 shares of Convertible Preferred Stock and Warrants to purchase
shares of the  Company's  Common Stock (terms not defined  herein shall have the
meanings ascribed to them in the Purchase Agreement); and

     WHEREAS,  the Company  desires to grant to the Investors  the  registration
rights set forth  herein with respect to the  Conversion  Shares of Common Stock
issuable upon  conversion of, or as dividends  upon, the  Convertible  Preferred
Stock  purchased  pursuant to the Purchase  Agreement and shares of Common Stock
issuable upon exercise of the Warrants  (hereinafter  referred to as the "Stock"
or "Securities" of the Company).

     NOW, THEREFORE, the parties hereto mutually agree as follows:

     Section 1.  Registrable  Securities.  As used herein the term  "Registrable
Security"  means the Securities  until (i) the  Registration  Statement has been
declared  effective by the Commission,  and all Securities have been disposed of
pursuant to the Registration Statement, (ii) all Securities have been sold under
circumstances  under which all of the applicable  conditions of Rule 144 (or any
similar  provision then in force) under the Securities Act ("Rule 144") are met,
(iii) all Securities  have been  otherwise  transferred to holders who may trade
such Securities  without  restriction  under the Securities Act, and the Company
has  delivered  a new  certificate  or  other  evidence  of  ownership  for such
Securities not bearing a restrictive legend or (iv) such time as, in the opinion
of counsel to the Company,  all Securities may be sold without any time,  volume
or manner limitations  pursuant to Rule 144(k) (or any similar provision then in
effect) under the Securities Act. The term  "Registrable  Securities"  means any
and/or all of the  securities  falling  within  the  foregoing  definition  of a
"Registrable   Security."   In  the   event  of  any   merger,   reorganization,
consolidation, recapitalization or other change in corporate structure affecting
the Common Stock,  such adjustment  shall be deemed to be made in the definition
of "Registrable  Security" as is appropriate in order to prevent any dilution or
enlargement of the rights granted pursuant to this Agreement.

     Section  2.  Restrictions  on  Transfer.  Each  Investor  acknowledges  and
understands that prior to the registration of the Securities as provided herein,
the Securities are  "restricted  securities" as defined in Rule 144  promulgated
under the Act. Each Investor  understands that no disposition or transfer of the
Securities  may be made by  Investor in the absence of (i) an opinion of counsel
to the Investor,  in form and substance reasonably

                                       1
<PAGE>

satisfactory to the Company, that such transfer may be made without registration
under the Securities Act or (ii) such registration.

     With a view to making  available to the  Investors the benefits of Rule 144
under  the  Securities  Act or any  other  similar  rule  or  regulation  of the
Commission  that may at any time permit the Investors to sell  securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:

     (a) comply with the provisions of paragraph (c)(1) of Rule 144; and

     (b) file with the  Commission  in a timely  manner  all  reports  and other
documents  required  to be filed with the  Commission  pursuant to Section 13 or
15(d) under the Exchange Act by  companies  subject to either of such  sections,
irrespective   of  whether  the  Company  is  then  subject  to  such  reporting
requirements.

     Section 3. Registration Rights With Respect to the Securities.

     (a) The Company  agrees that it will  prepare and file with the  Securities
and Exchange  Commission  ("Commission"),  within forty-five (45) days after the
Closing  Date a  registration  statement  (on Form  S-3,  or  other  appropriate
registration  statement  form)  under  the  Securities  Act  (the  "Registration
Statement"),  at the sole expense of the Company  (except as provided in Section
3(c) hereof), in respect of the Investors, so as to permit a public offering and
resale of the Securities under the Act by the Investors as selling  stockholders
and not as underwriters.

     The Company shall use its best efforts to cause such Registration Statement
to become  effective  within 120 days from the  Closing  Date,  or, if  earlier,
within five (5) days of SEC clearance to request  acceleration of effectiveness.
The number of shares  designated in the Registration  Statement to be registered
shall  include at least all the Warrant  Shares,  at least 200% of the number of
shares which would be issuable  upon  conversion  of the  Convertible  Preferred
Stock  immediately  prior to the filing  date,  and such number of shares as the
Company  deems  prudent  for the  purpose of issuing  shares of Common  Stock as
dividends on the  Convertible  Preferred  Stock,  and shall include  appropriate
language  regarding  reliance  upon  Rule  416 to the  extent  permitted  by the
Commission.  The Company will notify the Investors of the  effectiveness  of the
Registration  Statement  within one Trading Day of such event. In the event that
the number of shares so registered  shall prove to be  insufficient  to register
the resale of all of the  Securities,  then the Company  shall be  obligated  to
file,  within  thirty  (30)  days  of  notice  from  any  Investor,   a  further
Registration  Statement registering such remaining shares and shall use diligent
best   efforts  to  prosecute   such   additional   Registration   Statement  to
effectiveness within ninety (90) days of the date of such notice.

     (b) The  Company  will use its best  efforts to maintain  the  Registration
Statement or post-effective amendment filed under this Section 3 effective under
the Securities Act until the earlier of (i) the date that none of the Securities
covered by such Registration Statement are or may become issued and outstanding,
(ii) the  date  that all of the  Securities  have  been  sold  pursuant  to such
Registration  Statement,  (iii) the date the  Investors  receive  an  opinion of
counsel to the Company,  which  counsel  shall be  reasonably  acceptable to the
Investors, that

                                       2
<PAGE>

the Securities  may be sold under the provisions of Rule 144 without  limitation
as to volume, (iv) all Securities have been otherwise transferred to persons who
may trade such shares  without  restriction  under the  Securities  Act, and the
Company has delivered a new  certificate or other evidence of ownership for such
securities not bearing a restrictive  legend,  or (v) all Securities may be sold
without any time,  volume or manner  limitations  pursuant to Rule 144(k) or any
similar  provision  then in effect  under the  Securities  Act in the opinion of
counsel to the Company,  which  counsel  shall be  reasonably  acceptable to the
Investor (the "Effectiveness Period").

     (c) All fees,  disbursements and out-of-pocket  expenses and costs incurred
by the Company in connection with the preparation and filing of the Registration
Statement under  subparagraph  3(a) and in complying with applicable  securities
and Blue Sky laws  (including,  without  limitation,  all attorneys' fees of the
Company)  shall be borne by the Company.  The  Investors  shall bear the cost of
underwriting  and/or  brokerage  discounts,   fees  and  commissions,   if  any,
applicable to the Securities being registered and the fees and expenses of their
counsel.  The Investors and their counsel shall have a reasonable period, not to
exceed five (5) Trading Days, to review the proposed  Registration  Statement or
any  amendment  thereto,  prior to filing with the  Commission,  and the Company
shall provide each Investor with copies of any comment letters received from the
Commission with respect thereto within two (2) Trading Days of receipt  thereof.
The Company shall qualify any of the  securities  for sale in such states as any
Investor reasonably  designates and shall furnish  indemnification in the manner
provided  in Section 6 hereof.  However,  the  Company  shall not be required to
qualify in any state which will require an escrow or other restriction  relating
to the Company and/or the sellers,  or which will require the Company to qualify
to do business in such state or require the Company to file  therein any general
consent to service of  process.  The  Company  at its  expense  will  supply the
Investors  with  copies  of  the  applicable   Registration  Statement  and  the
prospectus  included  therein and other related  documents in such quantities as
may be reasonably requested by the Investors.

     (d) The  Company  shall not be  required  by this  Section 3 to  include an
Investor's Securities in any Registration  Statement which is to be filed if, in
the opinion of counsel for both the Investor  and the Company  (or,  should they
not agree,  in the opinion of another  counsel  experienced  in  securities  law
matters  acceptable  to counsel for the  Investor  and the Company) the proposed
offering or other transfer as to which such  registration is requested is exempt
from  applicable  federal  and state  securities  laws and  would  result in all
purchasers  or  transferees  obtaining  securities  which  are  not  "restricted
securities", as defined in Rule 144 under the Securities Act.

     (e) In the event  that (i) the  Registration  Statement  to be filed by the
Company  pursuant to Section 3(a) above is not filed with the Commission  within
forty-five (45) days from the Closing Date, (ii) such Registration  Statement is
not declared effective by the Commission within the earlier of 120 days from the
Closing  Date or five  (5)  days  of  clearance  by the  Commission  to  request
effectiveness,  (iii) such Registration Statement is not maintained as effective
by the  Company  for the  period  set forth in  Section  3(b)  above or (iv) the
additional  Registration  Statement  referred  to in  Section  3(a) is not filed
within  thirty (30) days or declared  effective  within  ninety (90) days as set
forth therein (each a "Registration Default") then the

                                       3
<PAGE>

Company will pay Investor  (pro rated on a daily basis),  as liquidated  damages
for such  failure and not as a penalty two percent per month of the Stated Value
of the  Convertible  Preferred  Stock held by the  Investor  retroactive  to the
Closing  Date  until such  Registration  Statement  has been  filed or  declared
effective,  as  applicable,  and the  Exercise  Price of the  Warrants  shall be
reduced by ten percent (10%) for each such month,  pro-rated daily. Such payment
of the cash portion of the liquidated  damages shall be made to the Investors in
cash,  within five (5)  calendar  days of demand,  provided,  however,  that the
payment of such  liquidated  damages  shall not  relieve  the  Company  from its
obligations  to register  the  Securities  pursuant to this  Section and provide
further in no event shall the Exercise  Price of the  Warrants be reduced  below
$0.01 per Warrant  Share.  Notwithstanding  anything to the  contrary  contained
herein,  a  failure  to  maintain  the  effectiveness  of an filed  Registration
Statement  or  the  ability  of  an  Investor  to  use  an  otherwise  effective
Registration  Statement to effect resales of Securities  during the period after
45 days and within 90 days from the end of the Company's  fiscal year  resulting
solely from the need to update the Company's financial  statements  contained or
incorporated  by  reference  in such  Registration  Statement or required by the
acquisition of The Aeon Group, Inc. shall not constitute a Registration  Default
and shall not trigger the accrual of liquidated damages hereunder.

     If the  Company  does not remit the payment to the  Investors  as set forth
above,  the  Company  will pay the  Investors  reasonable  costs of  collection,
including   attorneys'  fees,  in  addition  to  the  liquidated  damages.   The
registration  of the Securities  pursuant to this provision  shall not affect or
limit the Investors' other rights or remedies as set forth in this Agreement.

     (f) No  provision  contained  herein  shall  preclude  the Company or other
holders of the  Company's  securities  from selling  securities  pursuant to any
Registration Statement in which it is required to include Securities pursuant to
this Section 3.

     (g) If at any time or from  time to time  after the  effective  date of any
Registration  Statement,  the Company  notifies the  Investors in writing of the
existence of a Potential  Material Event (as defined in Section 3(h) below), the
Investors  shall  not  offer or sell  any  Securities  or  engage  in any  other
transaction involving or relating to Securities,  from the time of the giving of
notice with respect to a Potential  Material  Event until the Investors  receive
written  notice from the Company that such  Potential  Material Event either has
been  disclosed  to the public or no longer  constitutes  a  Potential  Material
Event; provided,  however, that the Company may not so suspend the right to such
holders of Securities for more than twenty (20) days in the aggregate during any
twelve month period, during the period the Registration Statement is required to
be in effect, and if such period is exceeded, such event shall be a Registration
Default.  If a  Potential  Material  Event  shall  occur  prior  to  the  date a
Registration Statement is required to be filed, then the Company's obligation to
file such  Registration  Statement shall be delayed without penalty for not more
than  twenty  (20)  days,  and such  delay or  delays  shall  not  constitute  a
Registration  Default. The Company must, if lawful, give the Investors notice in
writing at least two (2)  Trading  Days  prior to the first day of the  blackout
period.

                                       4
<PAGE>

     (h)  "Potential  Material  Event"  means  any of  the  following:  (a)  the
possession by the Company of material  information  not ripe for disclosure in a
registration  statement,  as  determined  in good  faith by the  Executive  Vice
President or Treasurer or the Board of Directors of the Company that  disclosure
of such  information  in a  Registration  Statement  would be detrimental to the
business and affairs of the Company;  or (b) any material engagement or activity
by the Company  which would,  in the good faith  determination  of the Executive
Vice  President  or  Treasurer  or the Board of  Directors  of the  Company,  be
adversely affected by disclosure in a registration statement at such time, which
determination  shall be accompanied by a good faith  determination  by the Chief
Financial  Officer or the Board of Directors of the Company that the  applicable
Registration  Statement would be materially  misleading  absent the inclusion of
such information.

     Section 4. Cooperation with Company.  The Investors will cooperate with the
Company in all respects in  connection  with this  Agreement,  including  timely
supplying  all  information  reasonably  requested  by the Company  (which shall
include all  information  regarding the Investors and proposed manner of sale of
the  Registrable  Securities  required  to  be  disclosed  in  any  Registration
Statement)  and executing and  returning all documents  reasonably  requested in
connection  with the  registration  and sale of the  Registrable  Securities and
entering into and performing their obligations under any underwriting agreement,
if the offering is an underwritten  offering,  in usual and customary form, with
the managing underwriter or underwriters of such underwritten offering.  Nothing
in this  Agreement  shall  obligate  any  Investor  to consent to be named as an
underwriter  in any  Registration  Statement.  The  obligation of the Company to
register the Registrable  Securities  shall be absolute and  unconditional as to
those  Securities  which the  Commission  will permit to be  registered  without
naming  the  Investors  as  underwriters.  Any  delay or  delays  caused  by the
Investors by failure to cooperate as required  hereunder  shall not constitute a
Registration Default.

     Section 5. Registration Procedures. If and whenever the Company is required
by any of the provisions of this Agreement to effect the  registration of any of
the Registrable  Securities  under the Securities Act, the Company shall (except
as otherwise provided in this Agreement), as expeditiously as possible,  subject
to the Investors' assistance and cooperation as reasonably required with respect
to each Registration Statement:

     (a)  (i)  prepare  and  file  with  the  Commission   such  amendments  and
supplements to the Registration  Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration  Statement effective and
to  comply  with the  provisions  of the Act with  respect  to the sale or other
disposition of all securities  covered by such registration  statement  whenever
the Investors  shall desire to sell or otherwise  dispose of the same (including
prospectus supplements with respect to the sales of securities from time to time
in connection  with a registration  statement  pursuant to Rule 415  promulgated
under  the Act) and  (ii)  take all  lawful  action  such  that  each of (A) the
Registration  Statement  and any  amendment  thereto  does not,  when it becomes
effective,  contain an untrue  statement  of a material  fact or omit to state a
material fact required to be stated  therein or necessary to make the statements
therein,  in  light  of the  circumstances  under  which  they  were  made,  not
misleading and (B) the prospectus  forming part of the  Registration  Statement,
and any  amendment  or  supplement  thereto,  does  not at any time  during  the
Registration Period include an untrue statement of a

                                       5
<PAGE>

material fact or omit to state a material fact required to be stated  therein or
necessary to make the statements  therein,  in light of the circumstances  under
which they were made, not misleading;

     (b) (i)  prior  to the  filing  with  the  Commission  of any  Registration
Statement (including any amendments thereto) and the distribution or delivery of
any prospectus (including any supplements thereto), provide draft copies thereof
to the  Investors as required by Section 3(c) and reflect in such  documents all
such  comments  as the  Investors  (and their  counsel)  reasonably  may propose
respecting  the  Selling  Shareholders  and Plan of  Distribution  sections  (or
equivalents)  and (ii)  furnish  to each  Investor  such  numbers of copies of a
prospectus including a preliminary  prospectus or any amendment or supplement to
any prospectus,  as applicable,  in conformity with the requirements of the Act,
and such other  documents,  as such Investor may reasonably  request in order to
facilitate the public sale or other  disposition of the securities owned by such
Investor;

     (c)  register  and  qualify  the  Registrable  Securities  covered  by  the
Registration  Statement  under  such other  securities  or blue sky laws of such
jurisdictions  as  the  Investors  shall  reasonably  request  (subject  to  the
limitations set forth in Section 3(c) above),  and do any and all other acts and
things which may be necessary or advisable to enable each Investor to consummate
the public sale or other  disposition  in such  jurisdiction  of the  securities
owned by such Investor;

     (d) list  such  Registrable  Securities  on the  Principal  Market,  if the
listing of such Registrable Securities is then permitted under the rules of such
Principal Market;

     (e) notify each  Investor at any time when a  prospectus  relating  thereto
covered by the Registration Statement is required to be delivered under the Act,
of the happening of any event of which it has knowledge as a result of which the
prospectus included in the 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 the light of the  circumstances  then  existing,  and the Company
shall  prepare and file a curative  amendment  under  Section 5(a) as quickly as
commercially possible;

     (f) as promptly as practicable  after becoming aware of such event,  notify
each Investor who holds  Registrable  Securities being sold (or, in the event of
an  underwritten  offering,  the managing  underwriters)  of the issuance by the
Commission  of any stop order or other  suspension of the  effectiveness  of the
Registration  Statement at the earliest possible time and take all lawful action
to effect  the  withdrawal,  recession  or  removal  of such stop order or other
suspension;

     (g) cooperate with the Investors to facilitate the timely  preparation  and
delivery of certificates  for the Registrable  Securities to be offered pursuant
to the Registration  Statement and enable such  certificates for the Registrable
Securities to be in such  denominations  or amounts,  as the case may be, as the
Investors  reasonably  may request and registered in such names as the Investors
may request;  and, within three (3) Trading Days after a Registration  Statement
which includes  Registrable  Securities is declared effective by the Commission,
deliver  and cause  legal  counsel  selected  by the  Company  to deliver to the
transfer agent for the

                                       6
<PAGE>

Registrable Securities (with copies to the Investors) an appropriate instruction
and, to the extent necessary, an opinion of such counsel;

     (h) take all such other lawful actions reasonably necessary to expedite and
facilitate the disposition by the Investors of their  Registrable  Securities in
accordance with the intended methods  therefor  provided in the prospectus which
are customary for issuers to perform under the circumstances;

     (i)  in  the  event  of  an  underwritten  offering,  promptly  include  or
incorporate  in a  prospectus  supplement  or  post-effective  amendment  to the
Registration  Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such prospectus  supplement or post-effective  amendment
as soon as  practicable  after it is  notified  of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment; and

     (j) maintain a transfer agent and registrar for its Common Stock.

     Section 6. Indemnification.

     (a) To the maximum extent permitted by law, the Company agrees to indemnify
and hold  harmless  the  Investors  and each  person,  if any,  who  controls an
Investor  within  the  meaning  of the  Securities  Act  (each  a  "Distributing
Investor") against any losses, claims, damages or liabilities,  joint or several
(which shall,  for all purposes of this Agreement,  include,  but not be limited
to,  all  reasonable  costs of  defense  and  investigation  and all  reasonable
attorneys'  fees and expenses),  to which the  Distributing  Investor may become
subject, under the Securities 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,  or any related  final  prospectus or
amendment or supplement  thereto, 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;  provided,
however, that the Company will not be liable in any such case to the extent, 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 such Registration  Statement,  preliminary  prospectus,
final  prospectus or amendment or supplement  thereto in reliance  upon,  and in
conformity  with,   written   information   furnished  to  the  Company  by  the
Distributing Investor, its counsel, affiliates or any underwriter,  specifically
for use in the preparation thereof. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.

     (b) To the maximum  extent  permitted by law,  each  Distributing  Investor
agrees that it will  indemnify and hold  harmless the Company,  and each officer
and director of the Company or person,  if any, who controls the Company  within
the  meaning of the  Securities  Act,  against any  losses,  claims,  damages or
liabilities (which shall, for all purposes of this Agreement,  include,  but not
be  limited  to,  all  reasonable  costs of defense  and  investigation  and all
reasonable  attorneys'  fees and  expenses)  to which  the  Company  or any such
officer,  director or controlling person may become subject under the Securities
Act or otherwise, insofar

                                       7
<PAGE>

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,  or any related
final  prospectus  or amendment or  supplement  thereto,  or arise out of or are
based upon the omission or the alleged omission to state therein a material fact
required to be stated  therein or necessary to make the  statements  therein not
misleading,  but in each case only to the extent that such untrue  statement  or
alleged  untrue  statement  or  omission  or alleged  omission  was made in such
Registration  Statement,  final prospectus or amendment or supplement thereto in
reliance  upon, and in conformity  with,  written  information  furnished to the
Company  by  such  Distributing  Investor,   its  counsel,   affiliates  or  any
underwriter,  specifically  for use in the preparation  thereof.  This indemnity
agreement will be in addition to any liability which the  Distributing  Investor
may  otherwise  have.  Notwithstanding  anything  to the  contrary  herein,  the
Distributing Investor shall not be liable under this Section 6 for any amount in
excess of the net proceeds to such Distributing Investor as a result of the sale
of Registrable Securities pursuant to the Registration Statement.

     (c) Promptly after receipt by an indemnified  party under this Section 6 of
notice of the  commencement of any action against such indemnified  party,  such
indemnified  party will, if a claim in respect thereof is to be made against the
indemnifying  party  under this  Section 6,  notify  the  indemnifying  party in
writing  of  the  commencement  thereof;  but  the  omission  so to  notify  the
indemnifying  party will not relieve the  indemnifying  party from any liability
which it may have to any  indemnified  party except to the extent the failure of
the indemnified party to provide such written  notification  actually prejudices
the ability of the  indemnifying  party to defend such action.  In case any such
action  is  brought  against  any  indemnified   party,   and  it  notifies  the
indemnifying party of the commencement  thereof,  the indemnifying party will be
entitled to  participate  in, and, to the extent that it may wish,  jointly with
any other  indemnifying  party similarly  notified,  assume the defense thereof,
subject to the provisions  herein stated and after notice from the  indemnifying
party to such  indemnified  party  of its  election  so to  assume  the  defense
thereof,  the indemnifying  party will not be liable to such  indemnified  party
under this Section 6 for any legal or other  expenses  subsequently  incurred by
such  indemnified  party in  connection  with the  defense  thereof  other  than
reasonable  costs of  investigation,  unless the  indemnifying  party  shall not
pursue the action to its final  conclusion.  The indemnified  parties as a group
shall have the right to employ one  separate  counsel in any such  action and to
participate  in the defense  thereof,  but the fees and expenses of such counsel
shall not be at the expense of the indemnifying  party if the indemnifying party
has assumed the defense of the action with counsel  reasonably  satisfactory  to
the  indemnified  party  unless  (i) the  employment  of such  counsel  has been
specifically  authorized in writing by the indemnifying party, or (ii) the named
parties to any such action  (including any impleaded  parties)  include both the
indemnified  party and the  indemnifying  party and the indemnified  party shall
have been  advised by its counsel  that there may be one or more legal  defenses
available to the indemnifying party different from or in conflict with any legal
defenses  which  may  be  available  to  the  indemnified  party  or  any  other
indemnified party (in which case the indemnifying party shall not have the right
to assume the defense of such  action on behalf of such  indemnified  party,  it
being understood, however, that the indemnifying party shall, in connection with
any one such action or separate but substantially  similar or related actions in
the  same  jurisdiction   arising  out  of  the  same  general   allegations  or
circumstances,  be  liable  only for the  reasonable  fees and  expenses  of one
separate  firm of  attorneys  for the  indemnified  party,  which  firm shall be
designated in

                                       8
<PAGE>

writing by the  indemnified  party).  No  settlement  of any  action  against an
indemnified  party  shall be made  without  the  prior  written  consent  of the
indemnified party,  which consent shall not be unreasonably  withheld so long as
such settlement includes a full release of claims against the indemnified party.
All  expenses  of  the  indemnified   party  (including  costs  of  defense  and
investigation  incurred  in a manner  not  inconsistent  with this  Section  and
reasonable attorneys' fees and expenses) shall be paid by the indemnifying party
to the indemnified  party within ten (10) Trading Days of written notice thereof
to the indemnifying  party;  provided,  that the indemnifying  party may require
such indemnified party to undertake to reimburse the indemnifying  party for all
of such fees and  expenses  if and to the extent  that it is finally  judicially
determined  that  such  indemnified  party is not  entitled  to  indemnification
hereunder.

     Section  7.  Contribution.  In order  to  provide  for  just and  equitable
contribution  under the Securities Act in any case in which (i) the  indemnified
party  makes a claim for  indemnification  pursuant  to  Section 6 hereof but 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 the express provisions of Section 6 hereof provide
for  indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any indemnified  party,  then the Company and the
applicable  Distributing  Investor  shall  contribute to the  aggregate  losses,
claims,  damages or liabilities  to which they may be subject (which shall,  for
all purposes of this Agreement,  include,  but not be limited to, all reasonable
costs of  defense  and  investigation  and all  reasonable  attorneys'  fees and
expenses),  in either such case (after contribution from others) on the basis of
relative  fault as well as any  other  relevant  equitable  considerations.  The
relative fault shall be determined by reference to, among other things,  whether
the untrue or alleged  untrue  statement  of a material  fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or the  applicable  Distributing  Investor  on the other
hand, and the parties'  relative  intent,  knowledge,  access to information and
opportunity  to correct or prevent such  statement or omission.  The Company and
the  Distributing  Investor  agree  that it would not be just and  equitable  if
contribution  pursuant to this Section 7 were  determined by pro rata allocation
or by any  other  method  of  allocation  which  does  not take  account  of the
equitable  considerations  referred  to in this  Section 7. The  amount  paid or
payable by an indemnified  party as a result of the losses,  claims,  damages or
liabilities (or actions in respect thereof)  referred to above in this Section 7
shall be deemed to include any legal or other  expenses  reasonably  incurred by
such  indemnified  party in connection with  investigating or defending any such
action or claim.  No person guilty of fraudulent  misrepresentation  (within the
meaning  of  Section  11(f)  of  the  Securities   Act)  shall  be  entitled  to
contribution   from  any  person   who  was  not   guilty  of  such   fraudulent
misrepresentation.

Notwithstanding any other provision of this Section 7, in no event shall any (i)
Investor be required to  undertake  liability to any person under this Section 7
for any amounts in excess of the dollar amount of the proceeds  received by such
Investor  from  the  sale  of  such  Investor's  Registrable  Securities  (after
deducting any fees,  discounts and commissions  applicable  thereto) pursuant to
any  Registration   Statement  under  which  such  Registrable   Securities  are
registered  under  the  Securities  Act and  (ii)  underwriter  be  required  to
undertake  liability  to any person  hereunder  for any amounts in excess of the
aggregate discount, commission or other

                                       9
<PAGE>

compensation  payable  to  such  underwriter  with  respect  to the  Registrable
Securities  underwritten  by it and  distributed  pursuant to such  Registration
Statement.

     Section 8. 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) hand  delivered,  (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  facsimile,  addressed  as set  forth  in the
Purchase  Agreement 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 first  business day  following the date of sending
by reputable courier service,  fully prepaid,  addressed to such address, or (c)
upon actual  receipt of such  mailing,  if mailed.  Either party hereto may from
time to time  change its  address or  facsimile  number for  notices  under this
Section 8 by giving at least ten (10) days' prior written notice of such changed
address or facsimile number to the other party hereto.

     Section 9.  Assignment.  This  Agreement  is binding upon and inures to the
benefit  of the  parties  hereto  and their  respective  heirs,  successors  and
permitted assigns.  The rights granted the Investors under this Agreement may be
assigned to any purchaser of substantially all of the Registrable Securities (or
the rights  thereto)  from an Investor,  as otherwise  permitted by the Purchase
Agreement.

     Section 10. Additional Covenants of the Company. The Company agrees that at
such time as it otherwise meets the  requirements  for the use of Securities Act
Registration   Statement  on  Form  S-3  for  the  purpose  of  registering  the
Registrable Securities, it shall file all reports and information required to be
filed  by it with the  Commission  in a timely  manner  and take all such  other
action so as to maintain such eligibility for the use of such form.

     Section 11.  Counterparts/Facsimile.  This Agreement may be executed in two
or more  counterparts,  each of which shall  constitute an original,  but all of
which, when together shall constitute but one and the same instrument, and shall
become  effective when one or more  counterparts  have been signed by each party
hereto and delivered to the other parties. In lieu of the original,  a facsimile
transmission  or copy of the original  shall be as effective and  enforceable as
the original.

     Section  12.  Remedies.   The  remedies  provided  in  this  Agreement  are
cumulative  and not  exclusive  of any  remedies  provided  by law. If any term,
provision,  covenant  or  restriction  of this  Agreement  is held by a court of
competent  jurisdiction  to be  invalid,  illegal,  void or  unenforceable,  the
remainder of the terms, provisions,  covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected,  impaired
or invalidated,  and the parties hereto shall use their best efforts to find and
employ an alternative

                                       10
<PAGE>

means to achieve the same or substantially  the same result as that contemplated
by such term, provision, covenant or restriction.

     Section 13.  Conflicting  Agreements.  The Company shall not enter into any
agreement with respect to its securities  that is  inconsistent  with the rights
granted to the holders of Registrable  Securities in this Agreement or otherwise
prevents the Company from complying with all of its obligations hereunder.

     Section 14.  Headings.  The headings in this  Agreement  are for  reference
purposes only and shall not affect in any way the meaning or  interpretation  of
this Agreement.

     Section 15. Governing Law, Arbitration. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts  made in New York by persons  domiciled  in New York City and  without
regard to its  principles of conflicts of laws. Any dispute under this Agreement
shall be submitted to  arbitration  under the American  Arbitration  Association
(the "AAA") in New York City,  New York,  and shall be finally and  conclusively
determined  by the decision of a board of  arbitration  consisting  of three (3)
members  (hereinafter  referred  to as the "Board of  Arbitration")  selected as
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration)  with  respect to the  amount,  if any,  which the losing  party is
required to pay to the other party in respect of a claim  filed.  In  connection
with  rendering its decisions,  the Board of Arbitration  shall adopt and follow
the laws of the State of New York.  To the extent  practical,  decisions  of the
Board of  Arbitration  shall be rendered no more than thirty (30)  calendar days
following  commencement  of  proceedings  with  respect  thereto.  The  Board of
Arbitration  shall cause its written  decision  to be  delivered  to all parties
involved in the dispute.  Any decision made by the Board of Arbitration  (either
prior to or after the  expiration of such thirty (30) calendar day period) shall
be final,  binding and conclusive on the parties to the dispute, and entitled to
be enforced to the fullest  extent  permitted by law and entered in any court of
competent  jurisdiction.  The Board of  Arbitration  shall be authorized  and is
hereby  directed  to enter a  default  judgment  against  any party  failing  to
participate in any proceeding hereunder within the time periods set forth in the
AAA rules.  The  non-prevailing  party to any  arbitration (as determined by the
Board of Arbitration) shall pay the expenses of the prevailing party,  including
reasonable attorneys' fees, in connection with such arbitration. Any party shall
be  entitled  to obtain  injunctive  relief  from a court in any case where such
relief  is  available,  and the  non-prevailing  party  in any  such  injunctive
proceeding shall pay the expenses of the prevailing party,  including reasonable
attorneys' fees, in connection with such injunctive proceeding.

                                       11
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed, on the day and year first above written.

                                               Compositech Ltd.

                                               By:
                                                  ------------------------------
                                                  Name:
                                                  Title:

                                               INVESTOR:

                                               The Gross Foundation, Inc.

                                               By:
                                                  ------------------------------
                                                  Chiam Gross, President

                                       12

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