Document:

SECURITIES
      PURCHASE AGREEMENT

     

    SECURITIES
      PURCHASE AGREEMENT (this “Agreement”),
      dated
      as of July 28, 2006, by and among Michelex Corporation, a Utah corporation,
      with
      headquarters located at 63 Trade Road, Massena, NY 13662 (the “Company”),
      and
      each of the purchasers set forth on the signature pages hereto (the
“Buyers”).

     

    WHEREAS:
      

     

    A.  The
      Company and the Buyers are executing and delivering this Agreement in reliance
      upon the exemption from securities registration afforded by the rules and
      regulations as promulgated by the United States Securities and Exchange
      Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933
      Act”);

     

    B.  Buyers
      desire to purchase and the Company desires to issue and sell, upon the terms
      and
      conditions set forth in this Agreement (i) 6%
      secured convertible notes of the Company, in the form attached hereto as
Exhibit
      “A”,
      in the
      aggregate principal amount of One Million Two Hundred Thousand ($1,200,000)
      (together with any note(s) issued in replacement thereof or as a dividend
      thereon or otherwise with respect thereto in accordance with the terms thereof,
      the “Notes”),
      convertible into shares of common stock, par value $.001 per share, of the
      Company (the “Common
      Stock”),
      upon
      the terms and subject to the limitations and conditions set forth in such Notes
      and (ii) warrants,
      in the form attached hereto as Exhibit
      “B”,
      to
      purchase 10,000,000 shares of Common Stock (the “Warrants”).

     

    C.  Each
      Buyer wishes to purchase, upon the terms and conditions stated in this
      Agreement, such principal amount of Notes and number of Warrants as is set
      forth
      immediately below its name on the signature pages hereto; and

     

    D.  Contemporaneous
      with the execution and delivery of this Agreement, the parties hereto are
      executing and delivering a Registration Rights Agreement, in the form attached
      hereto as Exhibit
      “C”
      (the
“Registration
      Rights Agreement”),
      pursuant to which the Company has agreed to provide certain registration rights
      under the 1933 Act and the rules and regulations promulgated thereunder, and
      applicable state securities laws.

     

    NOW
      THEREFORE,
      the
      Company and each of the Buyers severally (and not jointly) hereby agree as
      follows:

     

    1.  PURCHASE
      AND SALE OF NOTES AND WARRANTS.

     

    a.  Purchase
      of Notes and Warrants.
      On the
      Closing Date (as defined below), the Company shall issue and sell to each Buyer
      and each Buyer severally agrees to purchase from the Company such principal
      amount of Notes and number of Warrants as is set forth immediately below such
      Buyer’s name on the signature pages hereto.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    b.  Form
      of Payment.
      On the
      Closing Date (as defined below), (i) each
      Buyer shall pay the purchase price for the Notes and the Warrants to be issued
      and sold to it at the Closing (as defined below) (the “Purchase
      Price”)
      by
      wire transfer of immediately available funds to the Company, in accordance
      with
      the Company’s written wiring instructions, against delivery of the Notes in the
      principal amount equal to the Purchase Price and the number of Warrants as
      is
      set forth immediately below such Buyer’s name on the signature pages hereto, and
(ii) the
      Company shall deliver such Notes and Warrants duly executed on behalf of the
      Company, to such Buyer, against delivery of such Purchase Price. 

     

    c.  Closing
      Date.
      Subject
      to the satisfaction (or written waiver) of the conditions thereto set forth
      in
      Section 6 and Section 7 below, the date and time of the issuance and sale of
      the
      Notes and the Warrants pursuant to this Agreement (the “Closing
      Date”)
      shall
      be 12:00 noon, Eastern Standard Time on July 28, 2006, or such other mutually
      agreed upon time. The closing of the transactions contemplated by this Agreement
      (the “Closing”)
      shall
      occur on the Closing Date at such location as may be agreed to by the
      parties.

     

    2.  BUYERS’
      REPRESENTATIONS AND WARRANTIES.
      Each
      Buyer severally (and not jointly) represents and warrants to the Company solely
      as to such Buyer that:

     

    a.  Investment
      Purpose.
      As of
      the date hereof, the Buyer is purchasing the Notes and the shares of Common
      Stock issuable upon conversion of or otherwise pursuant to the Notes (including,
      without limitation, such additional shares of Common Stock, if any, as are
      issuable (i) on
      account of interest on the Notes, (ii) as
      a result of the events described in Sections 1.3 and 1.4(g) of the Notes and
      Section 2(c) of the Registration Rights Agreement or (iii) in
      payment of the Standard Liquidated Damages Amount (as defined in Section 2(f)
      below) pursuant to this Agreement, such shares of Common Stock being
      collectively referred to herein as the “Conversion
      Shares”)
      and
      the Warrants and the shares of Common Stock issuable upon exercise thereof
      (the
“Warrant
      Shares”
and,
      collectively with the Notes, Warrants and Conversion Shares, the “Securities”)
      for
      its own account and not with a present view towards the public sale or
      distribution thereof, except pursuant to sales registered or exempted from
      registration under the 1933 Act; provided,
      however,
      that by
      making the representations herein, the Buyer does not agree to hold any of
      the
      Securities for any minimum or other specific term and reserves the right to
      dispose of the Securities at any time in accordance with or pursuant to a
      registration statement or an exemption under the 1933 Act.

     

    b.  Accredited
      Investor Status.
      The
      Buyer is an “accredited investor” as that term is defined in Rule 501(a) of
      Regulation D (an “Accredited
      Investor”).

     

    c.  Reliance
      on Exemptions.
      The
      Buyer understands that the Securities are being offered and sold to it in
      reliance upon specific exemptions from the registration requirements of United
      States federal and state securities laws and that the Company is relying upon
      the truth and accuracy of, and the Buyer’s compliance with, the representations,
      warranties, agreements, acknowledgments and understandings of the Buyer set
      forth herein in order to determine the availability of such exemptions and
      the
      eligibility of the Buyer to acquire the Securities.

     

    
      
        
        

      

      
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    d.  Information.
      The
      Buyer and its advisors, if any, have been, and for so long as the Notes and
      Warrants remain outstanding will continue to be, furnished with all materials
      relating to the business, finances and operations of the Company and materials
      relating to the offer and sale of the Securities which have been requested
      by
      the Buyer or its advisors. The Buyer and its advisors, if any, have been, and
      for so long as the Notes and Warrants remain outstanding will continue to be,
      afforded the opportunity to ask questions of the Company. Notwithstanding the
      foregoing, the Company has not disclosed to the Buyer any material nonpublic
      information and will not disclose such information unless such information
      is
      disclosed to the public prior to or promptly following such disclosure to the
      Buyer. Neither such inquiries nor any other due diligence investigation
      conducted by Buyer or any of its advisors or representatives shall modify,
      amend
      or affect Buyer’s right to rely on the Company’s representations and warranties
      contained in Section 3 below. The Buyer understands that its investment in
      the
      Securities involves a significant degree of risk.

     

    e.  Governmental
      Review.
      The
      Buyer understands that no United States federal or state agency or any other
      government or governmental agency has passed upon or made any recommendation
      or
      endorsement of the Securities.

     

    f.  Transfer
      or Re-sale.
      The
      Buyer understands that (i) except
      as provided in the Registration Rights Agreement, the sale or re-sale of the
      Securities has not been and is not being registered under the 1933 Act or any
      applicable state securities laws, and the Securities may not be transferred
      unless (a) the
      Securities are sold pursuant to an effective registration statement under the
      1933 Act, (b) the
      Buyer shall have delivered to the Company an opinion of counsel that shall
      be in
      form, substance and scope customary for opinions of counsel in comparable
      transactions to the effect that the Securities to be sold or transferred may
      be
      sold or transferred pursuant to an exemption from such registration, which
      opinion shall be accepted by the Company, (c) the
      Securities are sold or transferred to an “affiliate” (as defined in Rule 144
      promulgated under the 1933 Act (or a successor rule) (“Rule
      144”))
      of
      the Buyer who agrees to sell or otherwise transfer the Securities only in
      accordance with this Section 2(f) and who is an Accredited Investor,
(d) the
      Securities are sold pursuant to Rule 144, or (e) the
      Securities are sold pursuant to Regulation S under the 1933 Act (or a successor
      rule) (“Regulation
      S”),
      and
      the Buyer shall have delivered to the Company an opinion of counsel that shall
      be in form, substance and scope customary for opinions of counsel in corporate
      transactions, which opinion shall be accepted by the Company; (ii) any sale
      of
      such Securities made in reliance on Rule 144 may be made only in accordance
      with
      the terms of said Rule and further, if said Rule is not applicable, any re-sale
      of such Securities under circumstances in which the seller (or the person
      through whom the sale is made) may be deemed to be an underwriter (as that
      term
      is defined in the 1933 Act) may require compliance with some other exemption
      under the 1933 Act or the rules and regulations of the SEC thereunder; and
      (iii)
      neither the Company nor any other person is under any obligation to register
      such Securities under the 1933 Act or any state securities laws or to comply
      with the terms and conditions of any exemption thereunder (in each case, other
      than pursuant to the Registration Rights Agreement). Notwithstanding the
      foregoing or anything else contained herein to the contrary, the Securities
      may
      be pledged as collateral in connection with a bona fide
      margin
      account or other lending arrangement. In the event that the Company does not
      accept the opinion of counsel provided by the Buyer with respect to the transfer
      of Securities pursuant to an exemption from registration, such as Rule 144
      or
      Regulation S, provided that such opinion is deemed proper by the Company’s
      securities counsel within three (3) business days of delivery of the opinion
      to
      the Company, the Company shall pay to the Buyer liquidated damages of three
      percent (3%) of the outstanding amount of the Notes per month plus accrued
      and
      unpaid interest on the Notes, prorated for partial months, in cash or shares
      at
      the option of the Company (“Standard
      Liquidated Damages Amount”).
      If
      the Company elects to be pay the Standard Liquidated Damages Amount in shares
      of
      Common Stock, such shares shall be issued at the Conversion Price at the time
      of
      payment.

     

    
      
        
        

      

      
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    g.  Legends.
      The
      Buyer understands that the Notes and the Warrants and, until such time as the
      Conversion Shares and Warrant Shares have been registered under the 1933 Act
      as
      contemplated by the Registration Rights Agreement or otherwise may be sold
      pursuant to Rule 144 or Regulation S without any restriction as to the number
      of
      securities as of a particular date that can then be immediately sold, the
      Conversion Shares and Warrant Shares may bear a restrictive legend in
      substantially the following form (and a stop-transfer order may be placed
      against transfer of the certificates for such Securities):

     

    “The
      securities represented by this certificate have not been registered under the
      Securities Act of 1933, as amended. The securities may not be sold, transferred
      or assigned in the absence of an effective registration statement for the
      securities under said Act, or an opinion of counsel, in form, substance and
      scope customary for opinions of counsel in comparable transactions, that
      registration is not required under said Act or unless sold pursuant to Rule
      144
      or Regulation S under said Act.”

     

    The
      legend set forth above shall be removed and the Company shall issue a
      certificate without such legend to the holder of any Security upon which it
      is
      stamped, if, unless otherwise required by applicable state securities laws,
      (a)
      such Security is registered for sale under an effective registration statement
      filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
      Regulation S without any restriction as to the number of securities as of a
      particular date that can then be immediately sold, or (b) such holder provides
      the Company with an opinion of counsel, in form, substance and scope customary
      for opinions of counsel in comparable transactions, to the effect that a public
      sale or transfer of such Security may be made without registration under the
      1933 Act, which opinion shall be accepted by the Company so that the sale or
      transfer is effected or (c) such holder provides the Company with reasonable
      assurances that such Security can be sold pursuant to Rule 144 or Regulation
      S.
      The Buyer agrees to sell all Securities, including those represented by a
      certificate(s) from which the legend has been removed, in compliance with
      applicable prospectus delivery requirements, if any.

     

    h.  Authorization;
      Enforcement.
      This
      Agreement and the Registration Rights Agreement have been duly and validly
      authorized. This Agreement has been duly executed and delivered on behalf of
      the
      Buyer, and this Agreement constitutes, and upon execution and delivery by the
      Buyer of the Registration Rights Agreement, such agreement will constitute,
      valid and binding agreements of the Buyer enforceable in accordance with their
      terms.

     

    i.  Residency.
      The
      Buyer is a resident of the jurisdiction set forth immediately below such Buyer’s
      name on the signature pages hereto. 

     

    
      
        
        

      

      
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    3.  REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY.
      The
      Company represents and warrants to each Buyer that:

     

    a.  Organization
      and Qualification.
      The
      Company and each of its Subsidiaries (as defined below), if any, is a
      corporation duly organized, validly existing and in good standing under the
      laws
      of the jurisdiction in which it is incorporated, with full power and authority
      (corporate and other) to own, lease, use and operate its properties and to
      carry
      on its business as and where now owned, leased, used, operated and conducted.
      Schedule
      3(a)
      sets
      forth a list of all of the Subsidiaries of the Company and the jurisdiction
      in
      which each is incorporated. The Company and each of its Subsidiaries is duly
      qualified as a foreign corporation to do business and is in good standing in
      every jurisdiction in which its ownership or use of property or the nature
      of
      the business conducted by it makes such qualification necessary except where
      the
      failure to be so qualified or in good standing would not have a Material Adverse
      Effect. “Material
      Adverse Effect”
means
      any of (i) a material and adverse effect on the legality, validity or
      enforceability of any document executed in connection with this financing,
      (ii)
      a material and adverse effect on the results of operations, assets, prospects,
      business or condition (financial or otherwise) of the Company and the
      Subsidiaries, taken as a whole, or (iii) an adverse impairment to the Company’s
      ability to perform under any of the documents executed in connection with this
      financing. “Subsidiaries”
means
      any corporation or other organization, whether incorporated or unincorporated,
      in which the Company owns, directly or indirectly, any equity or other ownership
      interest.

     

    b.  Authorization;
      Enforcement.
      (i) The
      Company has all requisite corporate power and authority to enter into and
      perform this Agreement, the Registration Rights Agreement, the Notes and the
      Warrants and to consummate the transactions contemplated hereby and thereby
      and
      to issue the Securities, in accordance with the terms hereof and thereof, (ii)
      the execution and delivery of this Agreement, the Registration Rights Agreement,
      the Notes and the Warrants by the Company and the consummation by it of the
      transactions contemplated hereby and thereby (including without limitation,
      the
      issuance of the Notes and the Warrants and the issuance and reservation for
      issuance of the Conversion Shares and Warrant Shares issuable upon conversion
      or
      exercise thereof) have been duly authorized by the Company’s Board of Directors
      and no further consent or authorization of the Company, its Board of Directors,
      or its shareholders is required, (iii) this Agreement has been duly executed
      and
      delivered by the Company by its authorized representative, and such authorized
      representative is the true and official representative with authority to sign
      this Agreement and the other documents executed in connection herewith and
      bind
      the Company accordingly, and (iv) this Agreement constitutes, and upon execution
      and delivery by the Company of the Registration Rights Agreement, the Notes
      and
      the Warrants, each of such instruments will constitute, a legal, valid and
      binding obligation of the Company enforceable against the Company in accordance
      with its terms.

     

    c.  Capitalization.
      As of
      the date hereof, the authorized capital stock of the Company consists of (i)
      [   ] shares of Common Stock of which [   ] shares are
      issued and outstanding, and [   ] shares are reserved for issuance,
      and [   ] shares are reserved for issuance upon conversion of the
      Notes and the Additional Notes (as defined in Section 4(l)) and exercise of
      the
      Warrants (subject to adjustment pursuant to the Company’s covenant set forth in
      Section 4(h) below); and (ii) [   ] shares of preferred stock, of
      which [   ] shares are issued and outstanding. All of such outstanding
      shares of capital stock are, or upon issuance will be, duly authorized, validly
      issued, fully paid and nonassessable. No shares of capital stock of the Company
      are subject to preemptive rights or any other similar rights of the shareholders
      of the Company or any liens or encumbrances imposed through the actions or
      failure to act of the Company. Except as disclosed in Schedule
      3(c),
      as of
      the effective date of this Agreement, (i) there are no outstanding options,
      warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
      agreements, understandings, claims or other commitments or rights of any
      character whatsoever relating to, or securities or rights convertible into
      or
      exchangeable for any shares of capital stock of the Company or any of its
      Subsidiaries, or arrangements by which the Company or any of its Subsidiaries
      is
      or may become bound to issue additional shares of capital stock of the Company
      or any of its Subsidiaries, (ii) there are no agreements or arrangements under
      which the Company or any of its Subsidiaries is obligated to register the sale
      of any of its or their securities under the 1933 Act (except the Registration
      Rights Agreement) and (iii) there are no anti-dilution or price adjustment
      provisions contained in any security issued by the Company (or in any agreement
      providing rights to security holders) that will be triggered by the issuance
      of
      the Notes, the Warrants, the Conversion Shares or Warrant Shares. The Company
      has furnished to the Buyer true and correct copies of the Company’s Certificate
      of Incorporation as in effect on the date hereof (“Certificate
      of Incorporation”),
      the
      Company’s By-laws, as in effect on the date hereof (the “By-laws”),
      and
      the terms of all securities convertible into or exercisable for Common Stock
      of
      the Company and the material rights of the holders thereof in respect thereto.
      The Company shall provide the Buyer with a written update of this representation
      signed by the Company’s Chief Executive or Chief Financial Officer on behalf of
      the Company as of the Closing Date.

     

    
      
        
        

      

      
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    d.  Issuance
      of Shares.
      The
      Conversion Shares and Warrant Shares are duly authorized and reserved for
      issuance and, upon conversion of the Notes and exercise of the Warrants in
      accordance with their respective terms, will be validly issued, fully paid
      and
      non-assessable, and free from all taxes, liens, claims and encumbrances with
      respect to the issue thereof and shall not be subject to preemptive rights
      or
      other similar rights of shareholders of the Company and will not impose personal
      liability upon the holder thereof.

     

    e.  Acknowledgment
      of Dilution.
      The
      Company understands and acknowledges the potentially dilutive effect to the
      Common Stock upon the issuance of the Conversion Shares and Warrant Shares
      upon
      conversion of the Note or exercise of the Warrants. The Company further
      acknowledges that its obligation to issue Conversion Shares and Warrant Shares
      upon conversion of the Notes or exercise of the Warrants in accordance with
      this
      Agreement, the Notes and the Warrants is absolute and unconditional regardless
      of the dilutive effect that such issuance may have on the ownership interests
      of
      other shareholders of the Company.

     

    f.  No
      Conflicts.
      The
      execution, delivery and performance of this Agreement, the Registration Rights
      Agreement, the Notes and the Warrants by the Company and the consummation by
      the
      Company of the transactions contemplated hereby and thereby (including, without
      limitation, the issuance and reservation for issuance of the Conversion Shares
      and Warrant Shares) will not (i) conflict with or result in a violation of
      any
      provision of the Certificate of Incorporation or By-laws or (ii) violate or
      conflict with, or result in a breach of any provision of, or constitute a
      default (or an event which with notice or lapse of time or both could become
      a
      default) under, or give to others any rights of termination, amendment,
      acceleration or cancellation of, any agreement, indenture, patent, patent
      license or instrument to which the Company or any of its Subsidiaries is a
      party, or (iii) result in a violation of any law, rule, regulation, order,
      judgment or decree (including federal and state securities laws and regulations
      and regulations of any self-regulatory organizations to which the Company or
      its
      securities are subject) applicable to the Company or any of its Subsidiaries
      or
      by which any property or asset of the Company or any of its Subsidiaries is
      bound or affected (except for such conflicts, defaults, terminations,
      amendments, accelerations, cancellations and violations as would not,
      individually or in the aggregate, have a Material Adverse Effect). Neither
      the
      Company nor any of its Subsidiaries is in violation of its Certificate of
      Incorporation, By-laws or other organizational documents and neither the Company
      nor any of its Subsidiaries is in default (and no event has occurred which
      with
      notice or lapse of time or both could put the Company or any of its Subsidiaries
      in default) under, and neither the Company nor any of its Subsidiaries has
      taken
      any action or failed to take any action that would give to others any rights
      of
      termination, amendment, acceleration or cancellation of, any agreement,
      indenture or instrument to which the Company or any of its Subsidiaries is
      a
      party or by which any property or assets of the Company or any of its
      Subsidiaries is bound or affected, except for possible defaults as would not,
      individually or in the aggregate, have a Material Adverse Effect. The businesses
      of the Company and its Subsidiaries, if any, are not being conducted, and shall
      not be conducted so long as a Buyer owns any of the Securities, in violation
      of
      any law, ordinance or regulation of any governmental entity. Except as
      specifically contemplated by this Agreement and as required under the 1933
      Act
      and any applicable state securities laws, the Company is not required to obtain
      any consent, authorization or order of, or make any filing or registration
      with,
      any court, governmental agency, regulatory agency, self regulatory organization
      or stock market or any third party in order for it to execute, deliver or
      perform any of its obligations under this Agreement, the Registration Rights
      Agreement, the Notes or the Warrants in accordance with the terms hereof or
      thereof or to issue and sell the Notes and Warrants in accordance with the
      terms
      hereof and to issue the Conversion Shares upon conversion of the Notes and
      the
      Warrant Shares upon exercise of the Warrants. Except as disclosed in
Schedule
      3(f),
      all
      consents, authorizations, orders, filings and registrations which the Company
      is
      required to obtain pursuant to the preceding sentence have been obtained or
      effected on or prior to the date hereof. The Company is not in violation of
      the
      quotation requirements of the Over-the-Counter Pink
      Sheets (the
      “OTCBB/OTCPK”)
      and
      does not reasonably anticipate that the Common Stock will be delisted by the
      OTCBB
      OTCPK
      in
      the
      foreseeable future. The Company and its Subsidiaries are unaware of any facts
      or
      circumstances which might give rise to any of the foregoing. 

     

    
      
        
        

      

      
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    g.  SEC
      Documents; Financial Statements.
      Except
      as disclosed in Schedule
      3(g),
      tsince
      December 31, 2004 the
      Company has timely filed all reports, schedules, forms, statements and other
      documents required to be filed by it with the SEC pursuant to the reporting
      requirements of the Securities Exchange Act of 1934, as amended (the
“1934
      Act”)
      (all
      of the foregoing filed prior to the date hereof and all exhibits included
      therein and financial statements and schedules thereto and documents (other
      than
      exhibits to such documents) incorporated by reference therein, being hereinafter
      referred to herein as the “SEC
      Documents”).
      The
      Company has delivered to each Buyer true and complete copies of the SEC
      Documents, except for such exhibits and incorporated documents. As of their
      respective dates, the SEC Documents complied in all material respects with
      the
      requirements of the 1934 Act and the rules and regulations of the SEC
      promulgated thereunder applicable to the SEC Documents, and none of the SEC
      Documents, at the time they were filed with the SEC, contained any untrue
      statement of a material fact or omitted to state a material fact required to
      be
      stated therein or necessary in order to make the statements therein, in light
      of
      the circumstances under which they were made, not misleading. None of the
      statements made in any such SEC Documents is, or has been, required to be
      amended or updated under applicable law (except for such statements as have
      been
      amended or updated in subsequent filings prior the date hereof). As of their
      respective dates, the financial statements of the Company included in the SEC
      Documents complied as to form in all material respects with applicable
      accounting requirements and the published rules and regulations of the SEC
      with
      respect thereto. Such financial statements have been prepared in accordance
      with
      United States generally accepted accounting principles, consistently applied,
      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 may not include footnotes or may be
      condensed or summary statements) and fairly present in all material respects
      the
      consolidated financial position of the Company and its consolidated Subsidiaries
      as of the dates thereof and the consolidated results of their operations and
      cash flows for the periods then ended (subject, in the case of unaudited
      statements, to normal year-end audit adjustments). Except as set forth in the
      financial statements of the Company included in the SEC Documents, the Company
      has no liabilities, contingent or otherwise, other than (i) liabilities incurred
      in the ordinary course of business subsequent to December 31, 2004 and (ii)
      obligations under contracts and commitments incurred in the ordinary course
      of
      business and not required under generally accepted accounting principles to
      be
      reflected in such financial statements, which, individually or in the aggregate,
      are not material to the financial condition or operating results of the
      Company.

     

    
      
        
        

      

      
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    h.  Absence
      of Certain Changes.
      Since
      December 31, 2004, there has been no material adverse change and no material
      adverse development in the assets, liabilities, business, properties,
      operations, financial condition, results of operations or prospects of the
      Company or any of its Subsidiaries.

     

    i.  Absence
      of Litigation.
      There
      is no action, suit, claim, proceeding, inquiry or investigation before or by
      any
      court, public board, government agency, self-regulatory organization or body
      pending or, to the knowledge of the Company or any of its Subsidiaries,
      threatened against or affecting the Company or any of its Subsidiaries, or
      their
      officers or directors in their capacity as such, that could have a Material
      Adverse Effect. Schedule
      3(i)
      contains
      a complete list and summary description of any pending or threatened proceeding
      against or affecting the Company or any of its Subsidiaries, without regard
      to
      whether it would have a Material Adverse Effect. The Company and its
      Subsidiaries are unaware of any facts or circumstances which might give rise
      to
      any of the foregoing.

     

    j.  Patents,
      Copyrights, etc.
      The
      Company and each of its Subsidiaries owns or possesses the requisite licenses
      or
      rights to use all patents, patent applications, patent rights, inventions,
      know-how, trade secrets, trademarks, trademark applications, service marks,
      service names, trade names and copyrights (“Intellectual
      Property”)
      necessary to enable it to conduct its business as now operated (and, except
      as
      set forth in Schedule
      3(j)
      hereof,
      to the best of the Company’s knowledge, as presently contemplated to be operated
      in the future); there is no claim or action by any person pertaining to, or
      proceeding pending, or to the Company’s knowledge threatened, which challenges
      the right of the Company or of a Subsidiary with respect to any Intellectual
      Property necessary to enable it to conduct its business as now operated (and,
      except as set forth in Schedule
      3(j)
      hereof,
      to the best of the Company’s knowledge, as presently contemplated to be operated
      in the future); to the best of the Company’s knowledge, the Company’s or its
      Subsidiaries’ current and intended products, services and processes do not
      infringe on any Intellectual Property or other rights held by any person; and
      the Company is unaware of any facts or circumstances which might give rise
      to
      any of the foregoing. The Company and each of its Subsidiaries have taken
      reasonable security measures to protect the secrecy, confidentiality and value
      of their Intellectual Property.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    k.  No
      Materially Adverse Contracts, Etc.
      Neither
      the Company nor any of its Subsidiaries is subject to any charter, corporate
      or
      other legal restriction, or any judgment, decree, order, rule or regulation
      which in the judgment of the Company’s officers has or is expected in the future
      to have a Material Adverse Effect. Neither the Company nor any of its
      Subsidiaries is a party to any contract or agreement which in the judgment
      of
      the Company’s officers has or is expected to have a Material Adverse
      Effect.

     

    l.  Tax
      Status.
      Except
      as set forth on Schedule
      3(l),
      the
      Company and each of its Subsidiaries has made or filed all federal, state and
      foreign income and all other tax returns, reports and declarations required
      by
      any jurisdiction to which it is subject (unless and only to the extent that
      the
      Company and each of its Subsidiaries has set aside on its books provisions
      reasonably adequate for the payment of all unpaid and unreported taxes) and
      has
      paid all taxes and other governmental assessments and charges that are material
      in amount, shown or determined to be due on such returns, reports and
      declarations, except those being contested in good faith and has set aside
      on
      its books provisions reasonably adequate for the payment of all taxes for
      periods subsequent to the periods to which such returns, reports or declarations
      apply. There are no unpaid taxes in any material amount claimed to be due by
      the
      taxing authority of any jurisdiction, and the officers of the Company know
      of no
      basis for any such claim. The Company has not executed a waiver with respect
      to
      the statute of limitations relating to the assessment or collection of any
      foreign, federal, state or local tax. Except as set forth on Schedule
      3(l),
      none of
      the Company’s tax returns is presently being audited by any taxing
      authority.

     

    m.  Certain
      Transactions.
      Except
      as set forth on Schedule
      3(m)
      and
      except as disclosed in the SEC Documents except for arm’s length transactions
      pursuant to which the Company or any of its Subsidiaries makes payments in
      the
      ordinary course of business upon terms no less favorable than the Company or
      any
      of its Subsidiaries could obtain from third parties and other than the grant
      of
      stock options disclosed on Schedule
      3(c),
      none of
      the officers, directors, or employees of the Company is presently a party to
      any
      transaction with the Company or any of its Subsidiaries (other than for services
      as employees, officers and directors), including any contract, agreement or
      other arrangement providing for the furnishing of services to or by, providing
      for rental of real or personal property to or from, or otherwise requiring
      payments to or from any officer, director or such employee or, to the knowledge
      of the Company, any corporation, partnership, trust or other entity in which
      any
      officer, director, or any such employee has a substantial interest or is an
      officer, director, trustee or partner.

     

    n.  Disclosure.
      All
      information relating to or concerning the Company or any of its Subsidiaries
      set
      forth in this Agreement and provided to the Buyers pursuant to Section 2(d)
      hereof and otherwise in connection with the transactions contemplated hereby
      is
      true and correct in all material respects and the Company has not omitted to
      state any material fact necessary in order to make the statements made herein
      or
      therein, in light of the circumstances under which they were made, not
      misleading. No event or circumstance has occurred or exists with respect to
      the
      Company or any of its Subsidiaries or its or their business, properties,
      prospects, operations or financial conditions, which, under applicable law,
      rule
      or regulation, requires public disclosure or announcement by the Company but
      which has not been so publicly announced or disclosed (assuming for this purpose
      that the Company’s reports filed under the 1934 Act are being incorporated into
      an effective registration statement filed by the Company under the 1933
      Act).

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    o.  Acknowledgment
      Regarding Buyers’ Purchase of Securities.
      The
      Company acknowledges and agrees that the Buyers are acting solely in the
      capacity of arm’s length purchasers with respect to this Agreement and the
      transactions contemplated hereby. The Company further acknowledges that no
      Buyer
      is acting as a financial advisor or fiduciary of the Company (or in any similar
      capacity) with respect to this Agreement and the transactions contemplated
      hereby and any statement made by any Buyer or any of their respective
      representatives or agents in connection with this Agreement and the transactions
      contemplated hereby is not advice or a recommendation and is merely incidental
      to the Buyers’ purchase of the Securities. The Company further represents to
      each Buyer that the Company’s decision to enter into this Agreement has been
      based solely on the independent evaluation of the Company and its
      representatives.

     

    p.  No
      Integrated Offering.
      Neither
      the Company, nor any of its affiliates, nor any person acting on its or their
      behalf, has directly or indirectly made any offers or sales in any security
      or
      solicited any offers to buy any security under circumstances that would require
      registration under the 1933 Act of the issuance of the Securities to the Buyers.
      The issuance of the Securities to the Buyers will not be integrated with any
      other issuance of the Company’s securities (past, current or future) for
      purposes of any shareholder approval provisions applicable to the Company or
      its
      securities.

     

    q.  No
      Brokers.
      Except
      as set forth in Schedule
      3(q),
      the
      Company has taken no action which would give rise to any claim by any person
      for
      brokerage commissions, transaction fees or similar payments relating to this
      Agreement or the transactions contemplated hereby. 

     

    r.  Permits;
      Compliance.
      The
      Company and each of its Subsidiaries is in possession of all franchises, grants,
      authorizations, licenses, permits, easements, variances, exemptions, consents,
      certificates, approvals and orders necessary to own, lease and operate its
      properties and to carry on its business as it is now being conducted
      (collectively, the “Company
      Permits”),
      and
      there is no action pending or, to the knowledge of the Company, threatened
      regarding suspension or cancellation of any of the Company Permits. Neither
      the
      Company nor any of its Subsidiaries is in conflict with, or in default or
      violation of, any of the Company Permits, except for any such conflicts,
      defaults or violations which, individually or in the aggregate, would not
      reasonably be expected to have a Material Adverse Effect. Since December 31,
      2004, neither the Company nor any of its Subsidiaries has received any
      notification with respect to possible conflicts, defaults or violations of
      applicable laws, except for notices relating to possible conflicts, defaults
      or
      violations, which conflicts, defaults or violations would not have a Material
      Adverse Effect.

     

    
      
        
        

      

      
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    s.  Environmental
      Matters.

     

    (i)  Except
      as
      set forth in Schedule
      3(s),
      there
      are, to the Company’s knowledge, with respect to the Company or any of its
      Subsidiaries or any predecessor of the Company, no past or present violations
      of
      Environmental Laws (as defined below), releases of any material into the
      environment, actions, activities, circumstances, conditions, events, incidents,
      or contractual obligations which may give rise to any common law environmental
      liability or any liability under the Comprehensive Environmental Response,
      Compensation and Liability Act of 1980 or similar federal, state, local or
      foreign laws and neither the Company nor any of its Subsidiaries has received
      any notice with respect to any of the foregoing, nor is any action pending
      or,
      to the Company’s knowledge, threatened in connection with any of the foregoing.
      The term “Environmental
      Laws”
means
      all federal, state, local or foreign laws relating to pollution or protection
      of
      human health or the environment (including, without limitation, ambient air,
      surface water, groundwater, land surface or subsurface strata), including,
      without limitation, laws relating to emissions, discharges, releases or
      threatened releases of chemicals, pollutants contaminants, or toxic or hazardous
      substances or wastes (collectively, “Hazardous
      Materials”)
      into
      the environment, or otherwise relating to the manufacture, processing,
      distribution, use, treatment, storage, disposal, transport or handling of
      Hazardous Materials, as well as all authorizations, codes, decrees, demands
      or
      demand letters, injunctions, judgments, licenses, notices or notice letters,
      orders, permits, plans or regulations issued, entered, promulgated or approved
      thereunder.

     

    (ii)  Other
      than those that are or were stored, used or disposed of in compliance with
      applicable law, no Hazardous Materials are contained on or about any real
      property currently owned, leased or used by the Company or any of its
      Subsidiaries, and no Hazardous Materials were released on or about any real
      property previously owned, leased or used by the Company or any of its
      Subsidiaries during the period the property was owned, leased or used by the
      Company or any of its Subsidiaries, except in the normal course of the Company’s
      or any of its Subsidiaries’ business.

     

    (iii)  Except
      as
      set forth in Schedule
      3(s),
      there
      are no underground storage tanks on or under any real property owned, leased
      or
      used by the Company or any of its Subsidiaries that are not in compliance with
      applicable law. 

     

    t.  Title
      to Property.
      The
      Company and its Subsidiaries have good and marketable title in fee simple to
      all
      real property and good and marketable title to all personal property owned
      by
      them which is material to the business of the Company and its Subsidiaries,
      in
      each case free and clear of all liens, encumbrances and defects except such
      as
      are described in Schedule
      3(t)
      or such
      as would not have a Material Adverse Effect. Any real property and facilities
      held under lease by the Company and its Subsidiaries are held by them under
      valid, subsisting and enforceable leases with such exceptions as would not
      have
      a Material Adverse Effect.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    u.  Insurance.
      The
      Company and each of its Subsidiaries are insured by insurers of recognized
      financial responsibility against such losses and risks and in such amounts
      as
      management of the Company believes to be prudent and customary in the businesses
      in which the Company and its Subsidiaries are engaged. Neither the Company
      nor
      any such Subsidiary has any reason to believe that it will not be able to renew
      its existing insurance coverage as and when such coverage expires or to obtain
      similar coverage from similar insurers as may be necessary to continue its
      business at a cost that would not have a Material Adverse Effect. The Company
      has provided to Buyer true and correct copies of all policies relating to
      directors’ and officers’ liability coverage, errors and omissions coverage, and
      commercial general liability coverage.

     

    v.  Internal
      Accounting Controls.
      The
      Company and each of its Subsidiaries maintain a system of internal accounting
      controls sufficient, in the judgment of the Company’s board of directors, to
      provide reasonable assurance that (i) transactions are executed in accordance
      with management’s general or specific authorizations, (ii) transactions are
      recorded as necessary to permit preparation of financial statements in
      conformity with generally accepted accounting principles and to maintain asset
      accountability, (iii) access to assets is permitted only in accordance with
      management’s general or specific authorization and (iv) the recorded
      accountability for assets is compared with the existing assets at reasonable
      intervals and appropriate action is taken with respect to any
      differences.

     

    w.  Foreign
      Corrupt Practices.
      Neither
      the Company, nor any of its Subsidiaries, nor any director, officer, agent,
      employee or other person acting on behalf of the Company or any Subsidiary
      has,
      in the course of his actions for, or on behalf of, the Company, used any
      corporate funds for any unlawful contribution, gift, entertainment or other
      unlawful expenses relating to political activity; made any direct or indirect
      unlawful payment to any foreign or domestic government official or employee
      from
      corporate funds; violated or is in violation of any provision of the U.S.
      Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate,
      payoff, influence payment, kickback or other unlawful payment to any foreign
      or
      domestic government official or employee.

     

    x.  Solvency.
      The
      Company (after giving effect to the transactions contemplated by this Agreement)
      is solvent (i.e.,
      its
      assets have a fair market value in excess of the amount required to pay its
      probable liabilities on its existing debts as they become absolute and matured)
      and currently the Company has no information that would lead it to reasonably
      conclude that the Company would not, after giving effect to the transaction
      contemplated by this Agreement, have the ability to, nor does it intend to
      take
      any action that would impair its ability to, pay its debts from time to time
      incurred in connection therewith as such debts mature. The Company did not
      receive a qualified opinion from its auditors with respect to its most recent
      fiscal year end and, after giving effect to the transactions contemplated by
      this Agreement, does not anticipate or know of any basis upon which its auditors
      might issue a qualified opinion in respect of its current fiscal
      year.

     

    y.  No
      Investment Company.
      The
      Company is not, and upon the issuance and sale of the Securities as contemplated
      by this Agreement will not be an “investment company” required to be registered
      under the Investment Company Act of 1940 (an “Investment
      Company”).
      The
      Company is not controlled by an Investment Company.

     

    
      
        
        

      

      
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    z.  Breach
      of Representations and Warranties by the Company.
      If the
      Company breaches any of the representations or warranties set forth in this
      Section 3, and in addition to any other remedies available to the Buyers
      pursuant to this Agreement, the Company shall pay to the Buyer the Standard
      Liquidated Damages Amount in cash or in shares of Common Stock at the option
      of
      the Company, until such breach is cured. If the Company elects to pay the
      Standard Liquidated Damages Amounts in shares of Common Stock, such shares
      shall
      be issued at the Conversion Price at the time of payment.

     

    4.  COVENANTS.

     

    a.  Best
      Efforts.
      The
      parties shall use their best efforts to satisfy timely each of the conditions
      described in Section 6 and 7 of this Agreement. 

     

    b.  Form
      D; Blue Sky Laws.
      The
      Company agrees to file a Form D with respect to the Securities as required
      under
      Regulation D and to provide a copy thereof to each Buyer promptly after such
      filing. The Company shall, on or before the Closing Date, take such action
      as
      the Company shall reasonably determine is necessary to qualify the Securities
      for sale to the Buyers at the applicable closing pursuant to this Agreement
      under applicable securities or “blue sky” laws of the states of the United
      States (or to obtain an exemption from such qualification), and shall provide
      evidence of any such action so taken to each Buyer on or prior to the Closing
      Date.

     

    c.  Reporting
      Status; Eligibility to Use Form S-3, SB-2 or Form 

     

    S-1. The
      Company’s Common Stock is registered under Section 12(g) of the 1934 Act. The
      Company represents and warrants that it meets the requirements for the use
      of
      Form S-3 (or if the Company is not eligible for the use of Form S-3 as of the
      Filing Date (as defined in the Registration Rights Agreement), the Company
      may
      use the form of registration for which it is eligible at that time) for
      registration of the sale by the Buyer of the Registrable Securities (as defined
      in the Registration Rights Agreement). So long as the Buyer beneficially owns
      any of the Securities, the Company shall timely file all reports required to
      be
      filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate
      its status as an issuer required to file reports under the 1934 Act even if
      the
      1934 Act or the rules and regulations thereunder would permit such termination.
      The Company further agrees to file all reports required to be filed by the
      Company with the SEC in a timely manner so as to become eligible, and thereafter
      to maintain its eligibility, for the use of Form S-3. The Company shall issue
      a
      press release describing the material terms of the transaction contemplated
      hereby as soon as practicable following the Closing Date but in no event more
      than two (2) business days of the Closing Date, which press release shall be
      subject to prior review by the Buyers. The Company agrees that such press
      release shall not disclose the name of the Buyers unless expressly consented
      to
      in writing by the Buyers or unless required by applicable law or regulation,
      and
      then only to the extent of such requirement.

     

    d.  Use
      of Proceeds.
      The
      Company shall use the net proceeds from the sale of the Notes and the Warrants
      in the manner set forth in Schedule
      4(d)
      attached
      hereto and made a part hereof and shall not, directly or indirectly, use such
      proceeds for (i) any loan to or investment in any other corporation,
      partnership, enterprise or other person (except in connection with its currently
      existing direct or indirect Subsidiaries); (ii) the satisfaction of any portion
      of the Company’s debt (other than payment of trade payables and accrued expenses
      in the ordinary course of the Company’s business and consistent with prior past
      practices), or (iii) the redemption of any Common Stock.

     

    
      
        
        

      

      
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    e.  Future
      Offerings.
      Subject
      to the exceptions described below, the Company will not, without the prior
      written consent of a majority-in-interest of the Buyers, negotiate or contract
      with any party to obtain additional equity financing (including debt financing
      with an equity component) that involves (A) the issuance of Common Stock at
      a
      discount to the market price of the Common Stock on the date of issuance (taking
      into account the value of any warrants or options to acquire Common Stock issued
      in connection therewith) or (B) the issuance of convertible securities that
      are
      convertible into an indeterminate number of shares of Common Stock or (C) the
      issuance of warrants during the period (the “Lock-up
      Period”)
      beginning on the Closing Date and ending on the later of (i) two hundred seventy
      (270) days from the Closing Date and (ii) one hundred eighty (180) days from
      the
      date the Registration Statement (as defined in the Registration Rights
      Agreement) is declared effective (plus any days in which sales cannot be made
      thereunder). In addition, subject to the exceptions described below, the Company
      will not conduct any equity financing (including debt with an equity component)
      (“Future
      Offerings”)
      during
      the period beginning on the Closing Date and ending two (2) years after the
      end
      of the Lock-up Period unless it shall have first delivered to each Buyer, at
      least twenty (20) business days prior to the closing of such Future Offering,
      written notice describing the proposed Future Offering, including the terms
      and
      conditions thereof and proposed definitive documentation to be entered into
      in
      connection therewith, and providing each Buyer an option during the fifteen
      (15)
      day period following delivery of such notice to purchase its pro rata share
      (based on the ratio that the aggregate principal amount of Notes purchased
      by it
      hereunder bears to the aggregate principal amount of Notes purchased hereunder)
      of the securities being offered in the Future Offering on the same terms as
      contemplated by such Future Offering (the limitations referred to in this
      sentence and the preceding sentence are collectively referred to as the
“Capital
      Raising Limitations”). 
      In the
      event the terms and conditions of a proposed Future Offering are amended in
      any
      respect after delivery of the notice to the Buyers concerning the proposed
      Future Offering, the Company shall deliver a new notice to each Buyer describing
      the amended terms and conditions of the proposed Future Offering and each Buyer
      thereafter shall have an option during the fifteen (15) day period following
      delivery of such new notice to purchase its pro rata share of the securities
      being offered on the same terms as contemplated by such proposed Future
      Offering, as amended. The foregoing sentence shall apply to successive
      amendments to the terms and conditions of any proposed Future Offering. The
      Capital Raising Limitations shall not apply to any transaction involving (i)
      issuances of securities in a firm commitment underwritten public offering
      (excluding a continuous offering pursuant to Rule 415 under the 1933 Act, an
      equity line of credit or similar financing arrangement) resulting in net
      proceeds to the Company of in excess of $15,000,000, or (ii) issuances of
      securities as consideration for a merger, consolidation or purchase of assets,
      or in connection with any strategic partnership or joint venture (the primary
      purpose of which is not to raise equity capital), or in connection with the
      disposition or acquisition of a business, product or license by the Company.
      The
      Capital Raising Limitations also shall not apply to the issuance of securities
      upon exercise or conversion of the Company’s options, warrants or other
      convertible securities outstanding as of the date hereof or to the grant of
      additional options or warrants, or the issuance of additional securities, under
      any Company stock option or restricted stock plan approved by the shareholders
      of the Company. Notwithstanding anything in this section 4(e) to the contrary,
      in the event the Company’s Board of Directors decides, in good faith, to enter
      into a transaction or relationship in which the Company issues shares of Common
      Stock or other securities of the Company to a person or any entity which is,
      itself or through its subsidiaries, an operating company in a business
      synergistic with the business of the Company and in which the Company received
      benefits in addition to the investment of funds, but shall not include a
      transaction in which the Company is issuing securities primarily for the purpose
      of raising capital or to an entity whose business is investing in securities,
      the Company shall be permitted to do so.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    f.  Expenses.
      At the
      Closing, the Company shall reimburse Buyers up to $50,000 for expenses incurred
      by them in connection with the negotiation, preparation, execution, delivery
      and
      performance of this Agreement and the other agreements to be executed in
      connection herewith (“Documents”), including, without limitation, attorneys’ and
      consultants’ fees and expenses, transfer agent fees, fees for stock quotation
      services, fees relating to any amendments or modifications of the Documents
      or
      any consents or waivers of provisions in the Documents, fees for the preparation
      of opinions of counsel, escrow fees, and costs of restructuring the transactions
      contemplated by the Documents. When possible, the Company must pay these fees
      directly, otherwise the Company must make immediate payment for reimbursement
      to
      the Buyers for all fees and expenses immediately upon written notice by the
      Buyer or the submission of an invoice by the Buyer If the Company fails to
      reimburse the Buyer in full within three (3) business days of the written notice
      or submission of invoice by the Buyer, the Company shall pay interest on the
      total amount of fees to be reimbursed at a rate of 15% per annum.

     

    g.  Financial
      Information.
      The
      Company agrees to send the following reports to each Buyer until such Buyer
      transfers, assigns, or sells all of the Securities: (i) within
      ten (10) days after the filing with the SEC, a copy of its Annual Report on
      Form
      10-KSB its Quarterly Reports on Form 10-QSB and any Current Reports on Form
      8-K;
(ii) within
      one (1) day after release, copies of all press releases issued by the Company
      or
      any of its Subsidiaries; and (iii) contemporaneously
      with the making available or giving to the shareholders of the Company, copies
      of any notices or other information the Company makes available or gives to
      such
      shareholders.

     

    h.  Authorization
      and Reservation of Shares.
      The
      Company shall at all times have authorized, and reserved for the purpose of
      issuance, a sufficient number of shares of Common Stock to provide for the
      full
      conversion or exercise of the outstanding Notes and Warrants and issuance of
      the
      Conversion Shares and Warrant Shares in connection therewith (based on the
      Conversion Price of the Notes or Exercise Price of the Warrants in effect from
      time to time) and as otherwise required by the Notes. The Company shall not
      reduce the number of shares of Common Stock reserved for issuance upon
      conversion of Notes and exercise of the Warrants without the consent of each
      Buyer. The Company shall at all times maintain the number of shares of Common
      Stock so reserved for issuance at an amount (“Reserved
      Amount”)
      equal
      to no less than two (2) times the number that is then actually issuable upon
      full conversion of the Notes and Additional Notes and upon exercise of the
      Warrants and the Additional Warrants (based on the Conversion Price of the
      Notes
      or the Exercise Price of the Warrants in effect from time to time). If at any
      time the number of shares of Common Stock authorized and reserved for issuance
      (“Authorized
      and Reserved Shares”)
      is
      below the Reserved Amount, the Company will promptly take all corporate action
      necessary to authorize and reserve a sufficient number of shares, including,
      without limitation, calling a special meeting of shareholders to authorize
      additional shares to meet the Company’s obligations under this Section 4(h), in
      the case of an insufficient number of authorized shares, obtain shareholder
      approval of an increase in such authorized number of shares, and voting the
      management shares of the Company in favor of an increase in the authorized
      shares of the Company to ensure that the number of authorized shares is
      sufficient to meet the Reserved Amount. If the Company fails to obtain such
      shareholder approval within thirty (30) days following the date on which the
      number of Reserved Amount exceeds the Authorized and Reserved Shares, the
      Company shall pay to the Borrower the Standard Liquidated Damages Amount, in
      cash or in shares of Common Stock at the option of the Buyer. If the Buyer
      elects to be paid the Standard Liquidated Damages Amount in shares of Common
      Stock, such shares shall be issued at the Conversion Price at the time of
      payment. In order to ensure that the Company has authorized a sufficient amount
      of shares to meet the Reserved Amount at all times, the Company must deliver
      to
      the Buyer at the end of every month a list detailing (1) the current amount
      of
      shares authorized by the Company and reserved for the Buyer; and (2) amount
      of
      shares issuable upon conversion of the Notes and upon exercise of the Warrants
      and as payment of interest accrued on the Notes for one year. If the Company
      fails to provide such list within five (5) business days of the end of each
      month, the Company shall pay the Standard Liquidated Damages Amount, in cash
      or
      in shares of Common Stock at the option of the Buyer, until the list is
      delivered. If the Buyer elects to be paid the Standard Liquidated Damages Amount
      in shares of Common Stock, such shares shall be issued at the Conversion Price
      at the time of payment.

     

    
      
        
        

      

      
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    i.  Listing.
      The
      Company shall promptly secure the listing or quotation, as the case may be,
      of
      the Conversion Shares and Warrant Shares upon each national securities exchange
      or automated quotation system, if any, upon which shares of Common Stock are
      then listed or quoted, as the case may be, (subject to official notice of
      issuance) and, so long as any Buyer owns any of the Securities, shall maintain,
      so long as any other shares of Common Stock shall be so listed or quoted, as
      the
      case may be, such listing or quotation, as the case may be, of all Conversion
      Shares and Warrant Shares from time to time issuable upon conversion of the
      Notes or exercise of the Warrants. The Company will obtain and, so long as
      any
      Buyer owns any of the Securities, maintain the listing or quotation, as the
      case
      may be, and trading of its Common Stock on the OTCBB
      OTCPK
      or
      any
      equivalent replacement exchange, the Nasdaq National Market (“Nasdaq”),
      the
      Nasdaq SmallCap Market (“Nasdaq
      SmallCap”),
      the
      New York Stock Exchange (“NYSE”),
      or
      the American Stock Exchange (“AMEX”)
      and
      will comply in all respects with the Company’s reporting, filing and other
      obligations under the bylaws or rules of the National Association of Securities
      Dealers (“NASD”)
      and
      such exchanges, as applicable. The Company shall promptly provide to each Buyer
      copies of any notices it receives from the OTCBB and any other exchanges or
      quotation systems on which the Common Stock is then listed or quoted, as the
      case may be, regarding the continued eligibility of the Common Stock for listing
      or quotation, as the case may be, on such exchanges and quotation
      systems.

     

    j.  Corporate
      Existence.
      So long
      as a Buyer beneficially owns any Notes or Warrants, the Company shall maintain
      its corporate existence and shall not sell all or substantially all of the
      Company’s assets, except in the event of a merger or consolidation or sale of
      all or substantially all of the Company’s assets, where the surviving or
      successor entity in such transaction (i) assumes the Company’s obligations
      hereunder and under the agreements and instruments entered into in connection
      herewith and (ii) is a publicly traded corporation whose Common Stock is listed
      for trading on the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    k.  No
      Integration.
      The
      Company shall not make any offers or sales of any security (other than the
      Securities) under circumstances that would require registration of the
      Securities being offered or sold hereunder under the 1933 Act or cause the
      offering of the Securities to be integrated with any other offering of
      securities by the Company for the purpose of any stockholder approval provision
      applicable to the Company or its securities.

     

    l.  Subsequent
      Investment.
      The
      Company and the Buyers agree that, upon the filing by the Company of the
      Registration Statement to be filed pursuant to the Registration Rights Agreement
      (the “Filing
      Date”),
      the
      Buyers shall purchase additional Notes (the “Filing
      Notes”)
      in the
      aggregate principal amount of Four Hundred Thousand Dollars ($400,000) for
      an
      aggregate purchase price of Four Hundred Thousand Dollars ($400,000), with
      the
      closing of such purchase to occur within five (5) days of the Filing Date;
      provided,
      however,
      that
      the obligation of each Buyer to purchase the Filing Notes is subject to the
      satisfaction, at or before the closing of such purchase and sale, of the
      conditions set forth in Section 7. The Company and the Buyers further agree
      that, upon the declaration of effectiveness of the Registration Statement to
      be
      filed pursuant to the Registration Rights Agreement (the “Effective
      Date”),
      the
      Buyers shall purchase additional notes (the “Effectiveness
      Notes”
and,
      collectively with the Filing Notes, the “Additional
      Notes”)
      in the
      aggregate principal amount of Four Hundred Thousand Dollars ($400,000) for
      an
      aggregate purchase price of Four Hundred Thousand Dollars ($400,000), with
      the
      closing of such purchase to occur within five (5) days of the Effective Date;
      provided,
      however,
      that
      the obligation of each Buyer to purchase the Additional Notes is subject to
      the
      satisfaction, at or before the closing of such purchase and sale, of the
      conditions set forth in Section 7; and, provided,
      further,
      that
      there shall not have been a Material Adverse Effect as of such effective date.
      The terms of the Additional Notes shall be identical to the terms of the Notes
      to be issued on the Closing Date. The Common Stock underlying the Additional
      Notes shall be Registrable Securities (as defined in the Registration Rights
      Agreement) and shall be included in the Registration Statement to be filed
      pursuant to the Registration Rights Agreement.

     

    m.  Key
      Man Insurance.
      The
      Company shall use its best efforts to obtain, on or before five (5) business
      days from the date hereof, key man life insurance on Thomas
      Gramuglia.

     

    n.  Breach
      of Covenants.
      If the
      Company breaches any of the covenants set forth in this Section 4, and in
      addition to any other remedies available to the Buyers pursuant to this
      Agreement, the Company shall pay to the Buyers the Standard Liquidated Damages
      Amount, in cash or in shares of Common Stock at the option of the Company,
      until
      such breach is cured. If the Company elects to pay the Standard Liquidated
      Damages Amount in shares, such shares shall be issued at the Conversion Price
      at
      the time of payment.

     

    5.  TRANSFER
      AGENT INSTRUCTIONS.
      The
      Company shall issue irrevocable instructions to its transfer agent to issue
      certificates, registered in the name of each Buyer or its nominee, for the
      Conversion Shares and Warrant Shares in such amounts as specified from time
      to
      time by each Buyer to the Company upon conversion of the Notes or exercise
      of
      the Warrants in accordance with the terms thereof (the “Irrevocable
      Transfer Agent Instructions”).
      Prior
      to registration of the Conversion Shares and Warrant Shares under the 1933
      Act
      or the date on which the Conversion Shares and Warrant Shares may be sold
      pursuant to Rule 144 without any restriction as to the number of Securities
      as
      of a particular date that can then be immediately sold, all such certificates
      shall bear the restrictive legend specified in Section 2(g) of this Agreement.
      The Company warrants that no instruction other than the Irrevocable Transfer
      Agent Instructions referred to in this Section 5, and stop transfer instructions
      to give effect to Section 2(f) hereof (in the case of the Conversion Shares
      and
      Warrant Shares, prior to registration of the Conversion Shares and Warrant
      Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
      Shares may be sold pursuant to Rule 144 without any restriction as to the number
      of Securities as of a particular date that can then be immediately sold), will
      be given by the Company to its transfer agent and that the Securities shall
      otherwise be freely transferable on the books and records of the Company as
      and
      to the extent provided in this Agreement and the Registration Rights Agreement.
      Nothing in this Section shall affect in any way the Buyer’s obligations and
      agreement set forth in Section 2(g) hereof to comply with all applicable
      prospectus delivery requirements, if any, upon re-sale of the Securities. If
      a
      Buyer provides the Company with (i) an opinion of counsel in form, substance
      and
      scope customary for opinions in comparable transactions, to the effect that
      a
      public sale or transfer of such Securities may be made without registration
      under the 1933 Act and such sale or transfer is effected or (ii) the Buyer
      provides reasonable assurances that the Securities can be sold pursuant to
      Rule
      144, the Company shall permit the transfer, and, in the case of the Conversion
      Shares and Warrant Shares, promptly instruct its transfer agent to issue one
      or
      more certificates, free from restrictive legend, in such name and in such
      denominations as specified by such Buyer. The Company acknowledges that a breach
      by it of its obligations hereunder will cause irreparable harm to the Buyers,
      by
      vitiating the intent and purpose of the transactions contemplated hereby.
      Accordingly, the Company acknowledges that the remedy at law for a breach of
      its
      obligations under this Section 5 may be inadequate and agrees, in the event
      of a
      breach or threatened breach by the Company of the provisions of this Section,
      that the Buyers shall be entitled, in addition to all other available remedies,
      to an injunction restraining any breach and requiring immediate transfer,
      without the necessity of showing economic loss and without any bond or other
      security being required.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    6.  CONDITIONS
      TO THE COMPANY’S OBLIGATION TO SELL.
      The
      obligation of the Company hereunder to issue and sell the Notes and Warrants
      to
      a Buyer at the Closing is subject to the satisfaction, at or before the Closing
      Date of each of the following conditions thereto, provided that these conditions
      are for the Company’s sole benefit and may be waived by the Company at any time
      in its sole discretion:

     

    a.  The
      applicable Buyer shall have executed this Agreement and the Registration Rights
      Agreement, and delivered the same to the Company.

     

    b.  The
      applicable Buyer shall have delivered the Purchase Price in accordance with
      Section 1(b) above.

     

    c.  The
      representations and warranties of the applicable Buyer shall be true and correct
      in all material respects as of the date when made and as of the Closing Date
      as
      though made at that time (except for representations and warranties that speak
      as of a specific date), and the applicable Buyer shall have performed, satisfied
      and complied in all material respects with the covenants, agreements and
      conditions required by this Agreement to be performed, satisfied or complied
      with by the applicable Buyer at or prior to the Closing Date. 

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    d.  No
      litigation, statute, rule, regulation, executive order, decree, ruling or
      injunction shall have been enacted, entered, promulgated or endorsed by or
      in
      any court or governmental authority of competent jurisdiction or any
      self-regulatory organization having authority over the matters contemplated
      hereby which prohibits the consummation of any of the transactions contemplated
      by this Agreement.

     

    7.  CONDITIONS
      TO EACH BUYER’S OBLIGATION TO PURCHASE.
      The
      obligation of each Buyer hereunder to purchase the Notes and Warrants at the
      Closing is subject to the satisfaction, at or before the Closing Date of each
      of
      the following conditions, provided that these conditions are for such Buyer’s
      sole benefit and may be waived by such Buyer at any time in its sole
      discretion:

     

    a.  The
      Company shall have executed this Agreement and the Registration Rights
      Agreement, and delivered the same to the Buyer.

     

    b.  The
      Company shall have delivered to such Buyer duly executed Notes (in such
      denominations as the Buyer shall request) and Warrants in accordance with
      Section 1(b) above.

     

    c.  The
      Irrevocable Transfer Agent Instructions, in form and substance satisfactory
      to a
      majority-in-interest of the Buyers, shall have been delivered to and
      acknowledged in writing by the Company’s Transfer Agent.

     

    d.  The
      representations and warranties of the Company shall be true and correct in
      all
      material respects as of the date when made and as of the Closing Date as though
      made at such time (except for representations and warranties that speak as
      of a
      specific date) and the Company shall have performed, satisfied and complied
      in
      all material respects with the covenants, agreements and conditions required
      by
      this Agreement to be performed, satisfied or complied with by the Company at
      or
      prior to the Closing Date. The Buyer shall have received a certificate or
      certificates, executed by the chief executive officer of the Company, dated
      as
      of the Closing Date, to the foregoing effect and as to such other matters as
      may
      be reasonably requested by such Buyer including, but not limited to certificates
      with respect to the Company’s Certificate of Incorporation, By-laws and Board of
      Directors’ resolutions relating to the transactions contemplated
      hereby.

     

    e.  No
      litigation, statute, rule, regulation, executive order, decree, ruling or
      injunction shall have been enacted, entered, promulgated or endorsed by or
      in
      any court or governmental authority of competent jurisdiction or any
      self-regulatory organization having authority over the matters contemplated
      hereby which prohibits the consummation of any of the transactions contemplated
      by this Agreement.

     

    f.  No
      event
      shall have occurred which could reasonably be expected to have a Material
      Adverse Effect on the Company.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    g.  The
      Conversion Shares and Warrant Shares shall have been authorized for quotation
      on
      the OTCBB
      OTCPK
      and
      trading in the Common Stock on the OTCBB
      OTCPK
      shall
      not
      have been suspended by the SEC or the OTCBBOTCPK.

     

    h.  The
      Buyer
      shall have received an opinion of the Company’s counsel, dated as of the Closing
      Date, in form, scope and substance reasonably satisfactory to the Buyer and
      in
      substantially the same form as Exhibit
      “D”
      attached
      hereto.

     

    i.  The
      Buyer
      shall have received an officer’s certificate described in Section 3(c) above,
      dated as of the Closing Date.

     

    8.  GOVERNING
      LAW; MISCELLANEOUS.
      

     

    a.  Governing
      Law.
      THIS
      AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
      LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
      ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF
      LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE
      UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO
      ANY
      DISPUTE ARISING UNDER THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN CONNECTION
      HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES
      IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF
      SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS
      UPON
      A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE
      SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN
      SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED
      BY LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH
      SUIT
      OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS
      BY
      SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT
      PREVAIL IN ANY DISPUTE ARISING UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR
      ALL
      FEES AND EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY
      IN CONNECTION WITH SUCH DISPUTE.

     

    b.  Counterparts;
      Signatures by Facsimile.
      This
      Agreement may be executed in one or more counterparts, each of which shall
      be
      deemed an original but all of which shall constitute one and the same agreement
      and shall become effective when counterparts have been signed by each party
      and
      delivered to the other party. This Agreement, once executed by a party, may
      be
      delivered to the other party hereto by facsimile transmission of a copy of
      this
      Agreement bearing the signature of the party so delivering this
      Agreement.

     

    c.  Headings.
      The
      headings of this Agreement are for convenience of reference only and shall
      not
      form part of, or affect the interpretation of, this Agreement. 

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    d.  Severability.
      In the
      event that any provision of this Agreement is invalid or unenforceable under
      any
      applicable statute or rule of law, then such provision shall be deemed
      inoperative to the extent that it may conflict therewith and shall be deemed
      modified to conform with such statute or rule of law. Any provision hereof
      which
      may prove invalid or unenforceable under any law shall not affect the validity
      or enforceability of any other provision hereof.

     

    e.  Entire
      Agreement; Amendments.
      This
      Agreement and the instruments referenced herein contain the entire understanding
      of the parties with respect to the matters covered herein and therein and,
      except as specifically set forth herein or therein, neither the Company nor
      the
      Buyer makes any representation, warranty, covenant or undertaking with respect
      to such matters. No provision of this Agreement may be waived or amended other
      than by an instrument in writing signed by the party to be charged with
      enforcement. 

     

    f.  Notices.
      Any
      notices required or permitted to be given under the terms of this Agreement
      shall be sent by certified or registered mail (return receipt requested) or
      delivered personally or by courier (including a recognized overnight delivery
      service) or by facsimile and shall be effective five days after being placed
      in
      the mail, if mailed by regular United States mail, or upon receipt, if delivered
      personally or by courier (including a recognized overnight delivery service)
      or
      by facsimile, in each case addressed to a party. The addresses for such
      communications shall be:

     

    
      	 	If to the Company:
	 	 
	 	
              Michelex Corporation

              
                63
                  Trade Road

                Massena,
                  NY 13662

                Attention:
                  President 

                Telephone: 

                Facsimile: 

              

            
	 	 
	 	With a copy to:
	 	 
	 	
              Gersten
                Savage, LLP 

              600
                Lexington Avenue  

              New
                York, New York 10022

              Attention:
                Arthur S. Marcus, Esq.

              Telephone:
                (212) 752-9700

              Facsimile:
                (212) 980-5192

            

    

     

    If
      to a
      Buyer: To the address set forth immediately below such Buyer’s name on the
      signature pages hereto.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    
      	 	With copy to:
	 	 
	 	
              Ballard
                Spahr Andrews & Ingersoll, LLP

              1735
                Market Street

              51st
                Floor

              Philadelphia,
                Pennsylvania 19103

              Attention:
                Gerald J. Guarcini, Esq.

              Telephone:
                215-864-8625

              Facsimile:
                215-864-8999

            

    

     

    Each
      party shall provide notice to the other party of any change in
      address.

     

    g.  Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and assigns. Neither the Company nor any Buyer shall assign
      this Agreement or any rights or obligations hereunder without the prior written
      consent of the other. Notwithstanding the foregoing, subject to
      Section 2(f), any Buyer may assign its rights hereunder to any person that
      purchases Securities in a private transaction from a Buyer or to any of its
      “affiliates,” as that term is defined under the 1934 Act, without the consent of
      the Company.

     

    h.  Third
      Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      permitted successors and assigns, and is not for the benefit of, nor may any
      provision hereof be enforced by, any other person.

     

    i.  Survival.
      The
      representations and warranties of the Company and the agreements and covenants
      set forth in Sections 3, 4, 5 and 8 shall survive the closing hereunder
      notwithstanding any due diligence investigation conducted by or on behalf of
      the
      Buyers. The Company agrees to indemnify and hold harmless each of the Buyers
      and
      all their officers, directors, employees and agents for loss or damage arising
      as a result of or related to any breach or alleged breach by the Company of
      any
      of its representations, warranties and covenants set forth in Sections 3 and
      4
      hereof or any of its covenants and obligations under this Agreement or the
      Registration Rights Agreement, including advancement of expenses as they are
      incurred.

     

    j.  Publicity.
      The
      Company and each of the Buyers shall have the right to review a reasonable
      period of time before issuance of any press releases, SEC, OTCBB or NASD
      filings, or any other public statements with respect to the transactions
      contemplated hereby; provided,
      however,
      that
      the Company shall be entitled, without the prior approval of each of the Buyers,
      to make any press release or SEC, OTCBB (or other applicable trading market)
      or
      NASD filings with respect to such transactions as is required by applicable
      law
      and regulations (although each of the Buyers shall be consulted by the Company
      in connection with any such press release prior to its release and shall be
      provided with a copy thereof and be given an opportunity to comment
      thereon).

     

    k.  Further
      Assurances.
      Each
      party shall do and perform, or cause to be done and performed, all such further
      acts and things, and shall execute and deliver all such other agreements,
      certificates, instruments and documents, as the other party may reasonably
      request in order to carry out the intent and accomplish the purposes of this
      Agreement and the consummation of the transactions contemplated
      hereby.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    l.  No
      Strict Construction.
      The
      language used in this Agreement will be deemed to be the language chosen by
      the
      parties to express their mutual intent, and no rules of strict construction
      will
      be applied against any party.

     

    m.  Remedies.
      The
      Company acknowledges that a breach by it of its obligations hereunder will
      cause
      irreparable harm to the Buyers by vitiating the intent and purpose of the
      transaction contemplated hereby. Accordingly, the Company acknowledges that
      the
      remedy at law for a breach of its obligations under this Agreement will be
      inadequate and agrees, in the event of a breach or threatened breach by the
      Company of the provisions of this Agreement, that the Buyers shall be entitled,
      in addition to all other available remedies at law or in equity, and in addition
      to the penalties assessable herein, to an injunction or injunctions restraining,
      preventing or curing any breach of this Agreement and to enforce specifically
      the terms and provisions hereof, without the necessity of showing economic
      loss
      and without any bond or other security being required.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      the
      undersigned Buyers and the Company have caused this Agreement to be duly
      executed as of the date first above written.

     

    

    
      	MICHELEX
              CORPORATION	 	 	 
	 	 	 	 
	 	 	 	 
	
              

              Thomas
                Gramuglia

            	 	 	
            
	Chief Executive Officer	 	 	 

    

     

    

    
      	AJW
              PARTNERS, LLC	 	 	 
	By: SMS Group, LLC	 	 	 
	 	 	 	 
	 	 	 	 
	
              
Corey
              S. Ribotsky	 	 	
            
	Manager	 	 	 

    

     

     

    
      	RESIDENCE:	Delaware
	 	 
	ADDRESS: 	
              1044
                Northern Boulevard

              Suite
                302

              Roslyn,
                New York 11576

              Facsimile:   
                (516) 739-7115

              Telephone:
                (516) 739-7110

            

    

    
    

    AGGREGATE
      SUBSCRIPTION AMOUNT:

     

    
      	 	Aggregate Principal Amount of
              Notes: 	 	$________
	 	Number of Warrants: 	 	 ________
	 	Aggregate Purchase Price: 	 	$________

    

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    

    
      	AJW
              OFFSHORE, LTD.	 	 	 
	By:
              First Street Manager II, LLC	 	 	 
	 	 	 	 
	 	 	 	 
	
              
Corey
              S. Ribotsky 	 	 	
            
	Manager	 	 	 

    
      	RESIDENCE: 	Cayman
              Islands
	 	 
	ADDRESS:	
              AJW
                Offshore, Ltd.

              P.O.
                Box 32021 SMB

              Grand
                Cayman, Cayman Island, B.W.I. 

            

    

     

     

    AGGREGATE
      SUBSCRIPTION AMOUNT:

    
       

      
        	 	Aggregate Principal Amount of
                Notes: 	 	$________
	 	Number of Warrants: 	 	 ________
	 	Aggregate Purchase Price: 	 	$________

      

       

      
        
          
          

        

        
          25

          
            

          

        

        
          
          

        

      

    

    
      

      
        	AJW
                QUALIFIED PARTNERS, LLC	 	 	 
	By:
                AJW Manager, LLC	 	 	 
	 	 	 	 
	 	 	 	 
	
                
Corey
                S. Ribotsky 	 	 	
              
	Manager	 	 	 

      

       

      

      
        	RESIDENCE: 	New
                York
	 	 
	ADDRESS:	
                
                  1044
                    Northern Boulevard

                  Suite
                    302

                  Roslyn,
                    New York 11576

                  Facsimile:   
                    (516)
                    739-7115

                  Telephone: (516)
                    739-7110

                

              

      

    

     

    

    AGGREGATE
      SUBSCRIPTION AMOUNT:

    
       

      
        	 	Aggregate Principal Amount of
                Notes: 	 	$________
	 	Number of Warrants: 	 	 ________
	 	Aggregate Purchase Price: 	 	$________

      

       

      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      

    

    
      

      
        	NEW
                MILLENNIUM CAPITAL PARTNERS II, LLC 	 	 	 
	By: First Street Manager II, LLP	 	 	 
	 	 	 	 
	 	 	 	 
	
                

                Corey
                  S. Ribotsky 

              	 	 	
              
	Manager	 	 	 

      

       

      
        

        
          	RESIDENCE: 	New
                  York
	 	 
	ADDRESS:	
                  
                    1044
                      Northern Boulevard

                    Suite
                      302

                    Roslyn,
                      New York 11576

                    Facsimile:  
                      (516)
                      739-7115

                    Telephone: (516)
                      739-7110

                  

                

        

         

      

    

    

    AGGREGATE
      SUBSCRIPTION AMOUNT:

    
       

      
        	 	Aggregate Principal Amount of
                Notes: 	 	$________
	 	Number of Warrants: 	 	 ________
	 	Aggregate Purchase Price: 	 	$________

      

       

      
        
          
          

        

        
          27NEITHER
      THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
      SECURITIES LAWS AND NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE
      OF THIS WARRANT MAY BE SOLD OR TRANSFERRED UNLESS THE REGISTRATION PROVISIONS
      OF
      THE SAID ACT AND APPLICABLE STATE SECURITIES LAWS HAVE BEEN COMPLIED WITH OR
      UNLESS COMPLIANCE WITH SUCH PROVISIONS IS NOT REQUIRED.

     

    November
      30, 2006

     

     

    NEXMED,
      INC.

    COMMON
      STOCK PURCHASE WARRANT

     

     

    Void
      after November 29, 2010

     

     

    This
      Warrant (the “Warrant”)
      entitles METRONOME
      LPC 1, INC.,
      a
      Delaware corporation,
      including
      any successors or assigns, the “Holder”),
      for
      value received, to purchase from NEXMED,
      INC.,
      a
      Nevada corporation, at any time and from time to time, subject to the terms
      and
      conditions set forth herein, during the period starting from 5:00 p.m. on the
      Initial Exercise Date to 5:00 p.m., Eastern time, on the Expiration Date, at
      which time this Warrant shall expire and become void, all or any portion of
      the
      vested Warrant Shares at the Exercise Price. This Warrant also is subject to
      the
      following terms and conditions:

     

    1.  Definitions.
      As used
      in this Warrant, the following terms shall have the respective meanings set
      forth below or elsewhere in this Warrant as referred to below: 

     

    “Additional
      Stock” has the meaning set forth in Section
      4.5(ii).

     

    “Affiliate”
      of any Person means any Person that, directly or indirectly, through one or
      more
      intermediaries, controls, is controlled by, or is under common control with,
      such Person, as such terms are used and construed under Rule 144 of the
      Securities Act of 1933.

     

    “Closing
      Date” means the date of the closing of the transactions contemplated under the
      Purchase Agreement.

     

    “Common
      Stock” means the common stock, $.001 par value per share, of the Company
      (including any securities into which or for which such shares may be exchanged
      for, or converted into, pursuant to any stock dividend, stock split, stock
      combination, recapitalization, reclassification, reorganization or other similar
      event).

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    “Common
      Stock Outstanding” has the meaning set forth in Section
      4.5(i)(A).

     

    “Company”
      means NexMed, Inc., a Nevada corporation.

     

    “Exercise
      Price” means, as applicable and as adjusted from time to time pursuant to the
      terms of this Warrant, a price per share equal to $0.5535; provided, however,
      the adjustments set forth in Section
      4.5
      shall
      not in any event reduce the Exercise price to a price less than $0.48
      per
      share, which figure shall be appropriately and equitably adjusted for any stock
      splits, stock dividends, spin-offs and similar such events. 

     

    “Expiration
      Date” means November 29, 2010, or such earlier date as may result pursuant to
Section
      4.6.

     

    “Fair
      Market Value” shall mean the value determined by the Company's Board of
      Directors in good faith; provided, however, that where there exists a public
      market for the Common Stock at the time of such exercise, the fair market value
      per shall be the average of the closing bid and asked prices of the Common
      Stock
      quoted in the Over-The-Counter Market Summary or the last reported sale price
      of
      the Common Stock or the closing price quoted on the Nasdaq Capital Market or
      on
      any exchange on which the Common Stock is listed, whichever is applicable,
      as
      published in the Western Edition of The Wall Street Journal for the five trading
      days prior to the date of determination of Fair Market Value.

     

    “Holder”
      has the meaning set forth in the preamble of this Warrant.

     

    "Initial
      Exercise Date" means November 30, 2006.

     

    “Person”
      (whether or not capitalized) means an individual, entity, partnership, limited
      liability company, corporation, association, trust, joint venture,
      unincorporated organization, and any government, governmental department or
      agency or political subdivision thereof.

     

    “Purchase
      Agreement” means that certain Securities Purchase Agreement dated November 30,
      2006, by and between the Company, NexMed (U.S.A.), Inc. and Metronome LPC 1,
      Inc. 

     

    “SEC”
      means the Securities and Exchange Commission.

     

    “Warrant
      Shares” means an aggregate of 500,000 shares of Common Stock, after giving
      effect to all adjustments thereto provided for herein, including, without
      limitation, those set forth in Section
      4
      hereof.

     

    2.  Exercise
      of Warrant

     

    2.1.   Method
      of Exercise; Vesting.
      Subject
      to all of the terms and conditions hereof, this Warrant may be exercised in
      whole or in part, at any time and from time to time during the period commencing
      on the Initial Exercise Date and ending on the Expiration Date. Exercise shall
      be by presentation and surrender to the Company at its principal office of
      this
      Warrant and the notice and subscription form annexed hereto, executed by the
      Holder, which shall indicate the number of shares for which the Holder intends
      to exercise this Warrant, together with payment to the Company in accordance
      with Section
      3
      hereof
      in an amount equal to the product of the Exercise Price multiplied by the number
      of Warrant Shares being purchased upon such exercise. Upon and as of receipt
      by
      the Company of such properly completed and duly executed notice and subscription
      form accompanied by payment as herein provided, the Holder shall be deemed
      to be
      the Holder of record of the Warrant Shares issuable upon such exercise,
      notwithstanding that the stock transfer books of the Company shall then be
      closed or that certificates representing such Warrant Shares shall not then
      actually be, or have been, delivered to the Holder.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    2.2.  Delivery
      of Stock Certificates on Exercise.
      As soon
      as practicable after the exercise of this Warrant, and in any event within
      three
      (3) business days thereafter, the Company, at its expense, and in accordance
      with applicable securities laws, will cause to be issued in the name of and
      delivered to the Holder, or as the Holder may direct (subject in all cases,
      to
      the provisions of Section
      6
      hereof),
      a certificate or certificates for the number of Warrant Shares purchased by
      the
      Holder on such exercise, plus, in lieu of any fractional share to which the
      Holder would otherwise be entitled, cash equal to such fraction multiplied
      by
      the Fair Market Value.

     

    2.3.   Shares
      To Be Fully Paid and Nonassessable.
      All
      Warrant Shares issued upon the exercise of this Warrant shall be validly issued,
      fully paid and nonassessable, free of all liens, taxes, charges and other
      encumbrances or restrictions on sale (other than those set forth
      herein).

     

    2.4.   Fractional
      Shares.
      No
      fractional shares of Common Stock or scrip representing fractional shares of
      Common Stock shall be issued upon the exercise of this Warrant. With respect
      to
      any fraction of a share of Common Stock called for upon any exercise hereof,
      the
      Company shall make a cash payment to the Holder as set forth in Section
      2.2
      hereof.

     

    2.5.   Issuance
      of New Warrants; Company Acknowledgment.
      Upon
      any partial exercise of this Warrant, the Company, at its expense, will
      forthwith and, in any event within three (3) business days, issue and deliver
      to
      the Holder a new warrant or warrants of like tenor, registered in the name
      of
      the Holder, exercisable, in the aggregate, for the balance of the Warrant
      Shares. Moreover, the Company shall, at the time of any exercise of this
      Warrant, upon the request of the Holder, acknowledge in writing its continuing
      obligation to afford to the Holder any rights to which the Holder shall continue
      to be entitled after such exercise in accordance with the provisions of this
      Warrant; provided, however, that if the Holder shall fail to make any such
      request, such failure shall not affect the continuing obligation of the Company
      to afford to the Holder any such rights.

     

    2.6.   Payment
      of Taxes and Expenses.
      The
      Company shall pay any recording, filing, stamp or similar tax which may be
      payable in respect of any transfer involved in the issuance of, and the
      preparation and delivery of certificates (if applicable) representing, (i)
      any
      Warrant Shares purchased upon exercise of this Warrant and/or (ii) new or
      replacement warrants in the Holder's name or the name of any transferee of
      all
      or any portion of this Warrant.

     

    3.  Payment
      of Exercise Price.
      The
      Exercise Price for the Warrant Shares being purchased may be paid (i) in cash,
      by certified check or by wire transfer to an account designated in writing by
      the Company and (ii) by cancellation of indebtedness owing from the Company
      to
      the Holder or (iii) any combination of the methods described in the foregoing
      clauses (i) and (ii). In lieu of exercising this Warrant via clauses (i)-(iii)
      in this Section
      3,
      the
      Holder may elect to receive shares equal to the value of this Warrant (or the
      portion thereof being canceled) by surrender of this Warrant, in which event
      the
      Company shall issue to the Holder a number of shares of Common Stock of the
      Company computed using the following formula:

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    

    X=Y
      (A-B)

    A

    
      	
            	X=	
              the
                number of Shares to be issued to the
                Holder;

            

    

    
      	
            	Y=	
              the
                number of Shares purchasable under this Warrant or, if only a portion
                of
                the Warrant
                is being exercised, the portion of the Warrant being cancelled (at
                the
                date of
                such calculation);

            

    

    
      	
            	A=	
              the
                Fair Market Value (as defined below) of one Share (at the date of
                such
                calculation);
                and

            

    

    
      	
            	B=	
              the
                Exercise Price (as adjusted to the date of such
                calculation).

            

    

    

    If
      the
      above calculation results in a negative number, then no shares of Common Stock
      shall be issued or issuable upon conversion of this Warrant. 

    

    4.  Adjustment
      of Exercise Price and Warrant Shares.
      The
      Exercise Price and Warrant Shares issuable upon exercise of this Warrant shall
      be subject to adjustment from time to time as provided in this Section
      4.
      Upon
      each adjustment of the Exercise Price pursuant to Section
      4.1
      or
4.2,
      the
      Holder shall thereafter be entitled to purchase, at the Exercise Price resulting
      from such adjustment, and the number of Warrant Shares subject to this Warrant
      shall be deemed adjusted to represent, the number of Warrant Shares obtained
      by
      multiplying the Exercise Price in effect immediately prior to the adjustment
      of
      the Exercise Price by the number of Warrant Shares purchasable hereunder
      immediately prior to the adjustment of the Exercise Price and dividing the
      product thereof by the Exercise Price resulting from such
      adjustment.

     

    4.1.   Subdivision
      or Combination of Stock.
      If at
      any time or from time to time after the date hereof, the Company shall subdivide
      (by way of stock dividend, stock split or otherwise) its outstanding shares
      of
      Common Stock, the Exercise Price in effect immediately prior to such subdivision
      shall be reduced proportionately, and conversely, in the event the outstanding
      shares of Common Stock shall be combined (whether by stock combination, reverse
      stock split or otherwise) into a smaller number of shares, the Exercise Price
      in
      effect immediately prior to such combination shall be increased proportionately.
      The Exercise Price, as so adjusted, shall be readjusted in the same manner
      upon
      the happening of any successive event or events described in this Section
      4.1.

     

    4.2.   Adjustment
      for Stock Dividends.
      If at
      any time after the date hereof, the Company shall declare a dividend or make
      any
      other distribution upon any class or series of stock of the Company payable
      in
      shares of Common Stock or securities convertible into shares of Common Stock,
      the Exercise Price shall be adjusted proportionately to reflect the issuance
      of
      any shares of Common Stock or convertible securities, as the case may be,
      issuable in payment of such dividend or distribution. The Exercise Price as
      so
      adjusted, shall be readjusted in the same manner upon the happening of any
      successive event or events described in this Section
      4.2.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    4.3.  Adjustments
      for Reclassifications.
      If the
      Warrant Shares issuable upon the exercise of this Warrant shall be changed
      into
      the same or a different number of shares of any class(es) or series of stock,
      whether by reclassification or otherwise (other than an adjustment under
Sections
      4.1
      and
      4.2
      or a
      merger, consolidation, or sale of assets provided for under Section
      4.4),
      then
      and in each such event, the Holder hereof shall have the right thereafter to
      convert each Warrant Share into the kind and amount of shares of stock and
      other
      securities and property receivable upon such reclassification, or other change
      by holders of the number of shares of Warrant Shares into which such Warrant
      Shares would have been convertible immediately prior to such reclassification
      or
      change, all subject to successive adjustments thereafter from time to time
      pursuant to and in accordance with, the provisions of this Section
      4.

     

    4.4.   Adjustments
      for Merger or Consolidation.
      In the
      event that, at any time or from time to time after the date hereof, the Company
      shall (a) effect a reorganization, (b) consolidate with or merge into any other
      Person, or (c) sell or transfer all or substantially all of its properties
      or
      assets or more than 50% of the voting capital stock of the Company (whether
      issued and outstanding, newly issued, from treasury, or any combination thereof)
      to any other person under any plan or arrangement contemplating the
      consolidation or merger, sale or transfer, or dissolution of the Company, then,
      in each such case, the Holder, upon the exercise of this Warrant as provided
      in
Section
      2.1
      hereof
      at any time or from time to time after the consummation of such reorganization,
      consolidation, merger or sale or the effective date of such dissolution, as
      the
      case may be, shall receive, in lieu of the Warrant Shares issuable on such
      exercise immediately prior to such consummation or such effective date, as
      the
      case may be, the stock and property (including cash) to which the Holder would
      have been entitled upon the consummation of such consolidation or merger, or
      sale or transfer, or in connection with such dissolution, as the case may be,
      if
      the Holder had so exercised this Warrant immediately prior thereto (assuming
      the
      payment by the Holder of the Exercise Price therefor as required hereby in
      a
      form permitted hereby, which payment shall be included in the assets of the
      Company for the purposes of determining the amount available for distribution),
      all subject to successive adjustments thereafter from time to time pursuant
      to,
      and in accordance with, the provisions of this Section
      4.
      

     

    4.5.  Exercise Price
      Adjustments of Warrant for Certain Dilutive Issuances.
      The
      Exercise Price shall be subject to adjustment from time to time as
      follows:

     

    (i)
      (A) If
      the
      Company issues, on or after the date hereof any Additional Stock (as defined
      below) without consideration or for a consideration per share less than the
      Exercise Price in effect immediately prior to the issuance of such Additional
      Stock, the Exercise Price shall forthwith (except as otherwise provided in
      this
      clause (i)) be adjusted to a price determined by multiplying such Exercise
      Price
      by a fraction, the numerator of which shall be the number of shares of Common
      Stock Outstanding (as defined below) immediately prior to such issuance plus
      the
      number of shares of Common Stock that the aggregate consideration received
      by
      the Company for such issuance would purchase at such Exercise Price; and the
      denominator of which shall be the number of shares of Common Stock Outstanding
      (as defined below) immediately prior to such issuance plus the number of shares
      of such Additional Stock. For purposes of this Section
      4.5(i)(A),
      the
      term “Common
      Stock Outstanding”
shall
      mean and include the following: (1) outstanding Common Stock, (2) Common Stock
      issuable upon exercise of outstanding stock options and (3) Common Stock
      issuable upon exercise of outstanding warrants. Shares described in (1) through
      (3) above shall be included whether vested or unvested, whether contingent
      or
      non-contingent and whether exercisable or not yet exercisable.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    (B) No
      adjustment of the Exercise Price for the Warrant shall be made in an amount
      less
      than one cent per share, provided that any adjustments that are not required
      to
      be made by reason of this sentence shall be carried forward and shall be either
      taken into account in any subsequent adjustment made prior to three (3) years
      from the date of the event giving rise to the adjustment being carried forward,
      or shall be made at the end of three (3) years from the date of the event giving
      rise to the adjustment being carried forward. Except to the limited extent
      provided for in Sections
      4.5(i)(E)(3)
      and
      4.5(i)(E)(4),
      no
      adjustment of the Exercise Price pursuant to this Section
      4.5(i)
      shall
      have the effect of increasing the Exercise Price above the Exercise Price in
      effect immediately prior to such adjustment.

     

    (C) In
      the
      case of the issuance of Additional Stock for cash to an Affiliate, the
      consideration shall be deemed to be the amount of cash paid therefor before
      deducting any reasonable discounts, commissions or other expenses allowed,
      paid
      or incurred by the Company for any underwriting or otherwise in connection
      with
      the issuance and sale thereof.

     

    (D) In
      the
      case of the issuance of the Additional Stock for a consideration in whole or
      in
      part other than cash, the consideration other than cash shall be deemed to
      be
      the fair market value thereof as determined in good faith by the Board of
      Directors, irrespective of any accounting treatment.

     

    (E) In
      the
      case of the issuance of options to purchase or rights to subscribe for Common
      Stock, securities by their terms convertible into or exchangeable for Common
      Stock or options to purchase or rights to subscribe for such convertible or
      exchangeable securities, the following provisions shall apply for purposes
      of
      determining the number of shares of Additional Stock issued and the
      consideration paid therefor:

     

    (1) The
      aggregate maximum number of shares of Common Stock deliverable upon exercise
      (assuming the satisfaction of any conditions to exercisability, including
      without limitation, the passage of time, but without taking into account
      potential anti-dilution adjustments) of such options to purchase or rights
      to
      subscribe for Common Stock shall be deemed to have been issued at the time
      such
      options or rights were issued and for a consideration equal to the consideration
      (determined in the manner provided in Sections 4.5(i)(C)
      and
4.5(i)(D)),
      if
      any, received by the Company upon the issuance of such options or rights plus
      the minimum exercise price provided in such options or rights (without taking
      into account potential anti-dilution adjustments) for the Common Stock covered
      thereby.

     

    (2) The
      aggregate maximum number of shares of Common Stock deliverable upon exercise
      of,
      or in exchange (assuming the satisfaction of any conditions to convertibility
      or
      exchangeability, including, without limitation, the passage of time, but without
      taking into account potential anti-dilution adjustments) for, any such
      convertible or exchangeable securities or upon the exercise of options to
      purchase or rights to subscribe for such convertible or exchangeable securities
      and subsequent exercise or exchange thereof shall be deemed to have been issued
      at the time such securities were issued or such options or rights were issued
      and for a consideration equal to the consideration, if any, received by the
      Company for any such securities and related options or rights (excluding any
      cash received on account of accrued interest or accrued dividends), plus the
      minimum additional consideration, if any, to be received by the Company (without
      taking into account potential anti-dilution adjustments) upon the exercise
      or
      exchange of such securities or the exercise of any related options or rights
      (the consideration in each case to be determined in the manner provided in
      Sections
      4.5(i)(C)
      and
4.5(i)(D)).

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    (3) In
      the
      event of any change in the number of shares of Common Stock deliverable or
      in
      the consideration payable to the Company upon exercise of such options or rights
      or upon exercise of or in exchange for such convertible or exchangeable
      securities, the Exercise Price of the Warrant, to the extent in any way affected
      by or computed using such options, rights or securities, shall be recomputed
      to
      reflect such change, but no further adjustment shall be made for the actual
      issuance of Common Stock or any payment of such consideration upon the exercise
      of any such options or rights or the Exercise or exchange of such
      securities.

     

    (4) Upon
      the
      expiration of any such options or rights, the termination of any such rights
      to
      convert or exchange or the expiration of any options or rights related to such
      convertible or exchangeable securities, the Exercise Price of the Warrants,
      to
      the extent in any way affected by or computed using such options, rights or
      securities or options or rights related to such securities, shall be recomputed
      to reflect the issuance of only the number of shares of Common Stock (and
      convertible or exchangeable securities that remain in effect) actually issued
      upon the exercise of such options or rights, upon the exercise or exchange
      of
      such securities or upon the exercise of the options or rights related to such
      securities.

     

    (5) The
      number of shares of Additional Stock deemed issued and the consideration deemed
      paid therefor pursuant to Sections
      4.5(i)(E)(1)
      and
4.5(i)(E)(2)
      shall be appropriately adjusted to reflect any change, termination or expiration
      of the type described in either Sections
      4.5(i)(E)(3)
      or
4.5(i)(E)
      (4).

     

    (ii) “Additional
      Stock”
shall
      mean any shares of Common Stock issued (or deemed to have been issued pursuant
      to Section
      4.5(i)(E))
      by the
      Company on or after the Closing Date other than:

     

    (A) Common
      Stock issued pursuant to a transaction described in Section
      4
      hereof;

     

    (B) Common
      Stock issued pursuant to stock option plan(s) adopted by the
      Company.

     

    (C) Common
      Stock issued pursuant to an underwritten public offering;

     

    (D) Common
      Stock issued in connection with a bona fide business acquisition of or by the
      Company, whether by merger, consolidation, sale of assets, sale or exchange
      of
      stock or otherwise, approved by the Company’s Board of Directors;

     

    (E) Common
      Stock issued or deemed issued pursuant to Section
      4.5(i)(E)
      as a
      result of a decrease in the Exercise Price of any series of Common Stock
      resulting from the operation of this Section
      4.5;
      

     

    (F) Common
      Stock issued for cash, or the foregiveness of bona fide indebtedness of the
      Company, to any non-Affiliate; and

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    (G) Common
      Stock issued to pay interest on Senior Secured Note(s) or the Tailwind Debt
      (each as defined in the Purchase Agreement).

     

    4.6.   Continuation
      of Terms.
      Upon
      any reorganization, consolidation, merger or transfer (and any dissolution
      following any such transfer) referred to in this Section
      4,
      this
      Warrant shall continue in full force and effect and the terms hereof shall
      be
      applicable to the shares of Common Stock and other securities and property
      receivable upon the exercise of this Warrant after the consummation of such
      reorganization, consolidation or merger or the effective date of dissolution
      following any such transfer, as the case may be, and shall be binding upon
      the
      issuer of any such Common Stock or other securities, including, in the case
      of
      any such transfer, the Person acquiring all or substantially all of the
      properties or assets or more than 50% of the voting capital stock of the Company
      (whether issued and outstanding, newly issued or from treasury or any
      combination thereof), whether or not such Person shall have expressly assumed
      the terms of this Warrant.

     

    4.7.   Certificate
      as to Adjustments.
      Upon
      the occurrence of each adjustment or readjustment of the Exercise Price and
      number of Warrant Shares pursuant to this Section
      4,
      this
      Warrant shall, without any action on the part of the Holder, be adjusted in
      accordance with this Section
      4,
      and the
      Company, at its expense, promptly shall compute such adjustment or readjustment
      in accordance with the terms hereof and prepare and furnish to the Holder a
      certificate setting forth such adjustment or readjustment, showing in detail
      the
      facts upon which such adjustment or readjustment is based. The Company will
      forthwith send a copy of each such certificate to the Holder in accordance
      with
Section
      9.4
      below.

     

    5.  Notices
      of Record Date.
      Upon
      (a) any establishment by the Company of a record date of the holders of any
      class of securities for the purpose of determining the holders thereof who
      are
      entitled to receive any dividend or other distribution, or right or option
      to
      acquire securities of the Company, or any other right, or (b) any capital
      reorganization, reclassification, recapitalization, merger or consolidation
      of
      the Company with or into any other corporation, any transfer of all or
      substantially all the assets of the Company, or any voluntary or involuntary
      dissolution, liquidation or winding up of the Company, or the sale, in a single
      transaction, of a majority of the Company’s voting stock (whether newly issued,
      or from treasury, or previously issued and then outstanding, or any combination
      thereof), the Company shall mail to the Holder at least ten (10) business days,
      or such longer period as may be required by law, prior to the record date
      specified therein, a notice specifying (i) the date established as the record
      date for the purpose of such dividend, distribution, option or right and a
      description of such dividend, distribution, option or right, (ii) the date
      on
      which any such reorganization, reclassification, transfer, consolidation,
      merger, dissolution, liquidation or winding up, or sale is expected to become
      effective and (iii) the date, if any, fixed as to when the holders of record
      of
      Common Stock shall be entitled to exchange their shares of Common Stock for
      securities or other property deliverable upon such reorganization,
      reclassification, transfer, consolidation, merger, dissolution, liquidation
      or
      winding up.

     

    6.  Exchange
      of Warrant.
      Subject
      to the provisions of Section
      7
      hereof
      (if and to the extent applicable), this Warrant shall be exchangeable, upon
      the
      surrender hereof by the Holder at the principal office of the Company, for
      new
      warrants of like tenor, each registered in the name of the Holder or in the
      name
      of such other persons as the Holder may direct (upon payment by the Holder
      of
      any applicable transfer taxes). Each of such new warrants shall be exercisable
      for such number of Warrant Shares as the Holder shall direct, provided that
      all
      of such new warrants shall represent, in the aggregate, the right to purchase
      the same number of Warrant Shares and cash, securities or other property, if
      any, which may be purchased by the Holder upon exercise of this Warrant at
      the
      time of its surrender.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    7.  Transfer
      Provisions, etc.
      

     

    7.1.  Legends.
      Each
      certificate representing any Warrant Shares issued upon exercise of this
      Warrant, and of any shares of Common Stock into which such Warrant Shares may
      be
      converted, shall bear the following legend:

     

     

    “THE
      SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE
      ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR PURSUANT TO
      AN
      AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, REGISTRATION
      UNDER
      SAID ACT.”

     

    7.2.  Mechanics
      of Transfer.
      

     

    (a)  Any
      transfer of all or any portion of this Warrant (and the Warrant Shares), or
      of
      any interest herein or therein, that is otherwise in compliance with applicable
      law shall be effected by surrendering this Warrant to the Company at its
      principal office, together with a duly executed form of assignment, in the
      form
      attached hereto. In the event of any such transfer of this Warrant, the Company
      shall issue a new warrant or warrants of like tenor to the transferee(s),
      representing, in the aggregate, the right to purchase the same number of Warrant
      Shares and cash, securities or other property, if any, which may be purchased
      by
      the Holder upon exercise of this Warrant at the time of its surrender.

     

    (b)  In
      the
      event of any transfer of all or any portion of this Warrant in accordance with
      Section
      7.2(a)
      above,
      the Company shall issue (i) a new warrant of like tenor to the transferee,
      representing the right to purchase the number of Warrant Shares, and cash,
      securities or other property, if any, which were purchasable by the Holder
      of
      the transferred portion of this Warrant, and (ii) a new warrant of like tenor
      to
      the Holder, representing the right to purchase the number of Warrant Shares,
      and
      cash, securities or other property, if any, purchasable by the Holder of the
      un-transferred portion of this Warrant. Until this Warrant or any portion
      thereof is transferred on the books of the Company, the Company may treat the
      Holder as the absolute holder of this Warrant and all right, title and interest
      therein for all purposes, notwithstanding any notice to the
      contrary.

     

    7.3.  No
      Restrictions on Transfer.
      Subject
      to the Company’s receipt of representations from the transferee comparable to
      those in Sections 5.5, 5.6, and 5.8 of the Purchase Agreement, to the extent
      applicable, and compliance with applicable securities laws, this Warrant and
      any
      portion hereof, the Warrant Shares and the rights hereunder may be transferred
      by the Holder in its sole discretion at any time and to any Person or Persons,
      including without limitation Affiliates and affiliated groups of such Holder,
      without the consent of the Company.

     

    7.4.  Warrant
      Register.
      The
      Company shall keep at its principal office a register for the registration,
      and
      registration of transfers, of the Warrants. The name and address of each Holder
      of one or more of the Warrants, each transfer thereof and the name and address
      of each transferee of one or more of the Warrants shall be registered in such
      register. The Company shall give to any Holder of a Warrant promptly upon
      request therefor, a complete and correct copy of the names and addresses of
      all
      registered Holders of the Warrants.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    8.  Lost,
      Stolen or Destroyed Warrant.
      Upon
      receipt by the Company of evidence satisfactory to it of loss, theft,
      destruction or mutilation of this Warrant and, in the case of loss, theft or
      destruction, on delivery of a customary affidavit of the Holder and indemnity
      agreement, or, in the case of mutilation, upon surrender of this Warrant, the
      Company at its expense will execute and deliver, or will instruct its transfer
      agent to execute and deliver, a new Warrant of like tenor and date, and any
      such
      lost, stolen or destroyed Warrant thereupon shall become void.

     

    9.  General.

     

    9.1.  Authorized
      Shares, Reservation of Shares for Issuance.
      At all
      times while this Warrant is outstanding, the Company shall maintain its
      corporate authority to issue, and shall have authorized and reserved for
      issuance upon exercise of this Warrant, such number of shares of Common Stock,
      any other capital stock or other securities as shall be sufficient to perform
      its obligations under this Warrant (after giving effect to any and all
      adjustments to the number and kind of Warrant Shares purchasable upon exercise
      of this Warrant).

     

    9.2.  No
      Impairment.
      The
      Company will not, by amendment of its Certificate of Incorporation or through
      any reorganization, transfer of assets, consolidation, merger, dissolution,
      issuance or sale of securities, sale or other transfer of any of its assets
      or
      properties, or any other voluntary action, avoid or seek to avoid the observance
      or performance of any of the terms of this Warrant, but will at all times in
      good faith assist in the carrying out of all such terms and in the taking of
      all
      such action as may be necessary or appropriate in order to protect the rights
      of
      the Holder hereunder against impairment. Without limiting the generality of
      the
      foregoing, the Company (a) will not increase the par value of any shares of
      Common Stock receivable upon the exercise of this Warrant above the amount
      payable therefor on such exercise, and (b) will take all action that may be
      necessary or appropriate in order that the Company may validly and legally
      issue
      fully paid and nonassessable shares of Common Stock upon the exercise of this
      Warrant.

     

    9.3.  No
      Rights as Stockholder.
      The
      Holder shall not be entitled to vote or to receive dividends or to be deemed
      the
      holder of Common Stock that may at any time be issuable upon exercise of this
      Warrant for any purpose whatsoever, nor shall anything contained herein be
      construed to confer upon the Holder any of the rights of a stockholder of the
      Company or any right to vote for the election of directors or upon any matter
      submitted to stockholders at any meeting thereof, or to give or withhold consent
      to any corporate action (whether upon any recapitalization, issuance or
      reclassification of stock, change of par value or change of stock to no par
      value, consolidation, merger or conveyance or otherwise), or to receive notice
      of meetings (except to the extent otherwise provided in this Warrant), or to
      receive dividends or subscription rights, until the Holder shall have exercised
      this Warrant and been issued Warrant Shares in accordance with the provisions
      hereof.

     

    9.4.  Notices.
      All
      notices, requests, consents and other communications hereunder shall be in
      writing and shall be deemed to have been given if personally delivered or
      delivered by overnight courier or mailed by first class registered or certified
      mail, postage prepaid, return receipt requested, or sent by fax machine,
      addressed as follows:

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    (a)  if
      to the
      Company at:

     

    NexMed,
      Inc.

    89
      Twin
      Rivers Drive

    East
      Windsor, New Jersey

    Fax:
      

    Attn:
      

    

    with
      copies to:

     

    Katten
      Muchin Rosenman LLP

    575
      Madison Avenue

    New
      York,
      NY 10022

    Fax:
      (212) 940-8776

    Attn:
      Robert L. Kohl

     

    (b)  if
      to the
      Holder, at the Holder's address appearing in the books maintained by the
      Company.

     

    10.  Amendment
      and Waiver.
      No
      failure or delay of the Holder in exercising any power or right hereunder shall
      operate as a waiver thereof, nor shall any single or partial exercise of any
      such right or power, or any abandonment or discontinuance of steps to enforce
      such a right or power, preclude any other or further exercise thereof or the
      exercise of any other right or power. The rights and remedies of the Holder
      are
      cumulative and not exclusive of any rights or remedies which it would otherwise
      have. The terms of this Warrant may be amended, modified or waived only with
      the
      written consent of the Company and the Holder.

     

    11.  Governing
      Law.
      This
      Warrant shall be governed by and construed in accordance with the laws of the
      State of Delaware, as such laws are applied to contracts entered into and wholly
      to be performed within the State of Delaware and without giving effect to any
      principles of conflicts or choice of law that would result in the application
      of
      the laws of any other jurisdiction.

     

    12.  Covenants
      To Bind Successor and Assigns.
      All
      covenants, stipulations, promises and agreements in this Warrant contained
      by or
      on behalf of the Company shall bind its successors and assigns, whether so
      expressed or not.

     

    13.  Severability.
      In case
      any one or more of the provisions contained in this Warrant shall be invalid,
      illegal or unenforceable in any respect, the validity, legality and
      enforceability of the remaining provisions contained herein shall not in any
      way
      be affected or impaired thereby. The parties shall endeavor in good faith
      negotiations to replace the invalid, illegal or unenforceable provisions with
      valid provisions the economic effect of which comes as close as possible to
      that
      of the invalid, illegal or unenforceable provisions.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    14.  Construction.
      The
      definitions of this Warrant shall apply equally to both the singular and the
      plural forms of the terms defined. Wherever the context may require, any pronoun
      shall include the corresponding masculine, feminine and neuter forms. The
      section and paragraph headings used herein are for convenience of reference
      only, are not part of this Warrant and are not to affect the construction of
      or
      be taken into consideration in interpreting this Warrant.

     

    15.  Remedies.
      The
      Holder, in addition to being entitled to exercise all rights granted by law,
      including recovery of damages, will be entitled to specific performance of
      its
      rights under this Warrant. The Company agrees that monetary damages would not
      be
      adequate compensation for any loss incurred by reason of a breach by it of
      the
      provisions of this Warrant and hereby agrees to waive the defense in any action
      for specific performance that a remedy at law would be adequate. In any action
      or proceeding brought to enforce any provision of this Warrant or where any
      provision hereof is validly asserted as a defense, the successful party to
      such
      action or proceeding shall be entitled to recover reasonable attorneys' fees
      in
      addition to any other available remedy.

     

    IN
      WITNESS WHEREOF,
      the
      Company has executed this Common Stock Purchase Warrant as of November 30,
      2006.

     

     

    
      	 	
              NEXMED,
                INC.

              

              

              By:/s/
                Mark
                Westgate                      
                  

              Name: Mark
                Westgate

              Title:
                Vice President and Chief Financial
                Officer

            

    

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    NOTICE
      AND

    SUBSCRIPTION

     

     

    
      	To:	NEXMED,
              INC.	 	Date:	   
              	 
	 	   	 	 	 	 
	 	   	 	 	 	 

    

    

     

    The
      undersigned hereby irrevocably elects to exercise the right of purchase
      represented by the attached Warrant for, and to exercise thereunder, __________
      shares of Common Stock, of NEXMED, INC., a Nevada corporation, and tenders
      herewith payment of $__________, representing the aggregate purchase price
      for
      such shares based on the price per share provided for in such Warrant. Such
      payment is being made in accordance with [Section 3(i)] [Section 3(ii)] [Section
      3(iii)] of the attached Warrant.

     

     

    Please
      issue a certificate or certificates for such shares of Common Stock in the
      following name or names and denominations and deliver such certificate or
      certificates to the person or persons listed below at their respective addresses
      set forth below:

     

     

    If
      said
      number of shares of Common Stock shall not be all the shares of Common Stock
      issuable upon exercise of the attached Warrant, a new Warrant is to be issued
      in
      the name of the undersigned for the balance remaining of such shares of Common
      Stock less any fraction of a share of Common Stock paid in cash.

     

    

    
      	Dated:
              ___________, ____	   
              
	 	Signature

    

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    FORM
      OF ASSIGNMENT

     

     

    (To
      be
      executed upon assignment of Warrant)

     

     

     

    For
      value
      received, __________________________________ hereby sells, assigns and transfers
      unto __________________ the attached Warrant [__% of the attached Warrant],
      together with all right, title and interest therein, and does hereby irrevocably
      constitute and appoint ____________________ attorney to transfer said Warrant
      [said percentage of said Warrant] on the books of NexMed, Inc., a Nevada
      corporation, with full power of substitution in the premises.

     

    If
      not
      all of the attached Warrant is to be so transferred, a new Warrant is to be
      issued in the name of the undersigned for the balance of said
      Warrant.

     

    The
      undersigned hereby agrees that it will not sell, assign, or transfer the right,
      title and interest in and to the Warrant unless applicable federal and state
      securities laws have been complied with.

     

     

    
      

      
        	Dated:
                ___________, ____	   
                
	 	Signature

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