Document:

EX-10.4

                 SECURITIES PURCHASE AND SUBSCRIPTION AGREEMENT

         This SECURITIES  PURCHASE AND SUBSCRIPTION  AGREEMENT (the "AGREEMENT")
is made as of July 17,  2006,  by and among  Vaughan  Foods,  Inc.,  an Oklahoma
corporation (the "COMPANY"), and the undersigned (the "PURCHASER").

                                   WITNESSETH:

         WHEREAS:

         A. The Company and the  Purchaser are  executing  and  delivering  this
Agreement in reliance upon the exemption from securities  registration  afforded
by Rule 506 under  Regulation D  ("REGULATION  D") as  promulgated by the United
States  Securities and Exchange  Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 ACT").

         B. The Company desires to issue and sell, upon the terms and conditions
set forth in this  Agreement:  10%  unsecured  promissory  notes of the Company,
substantially  in the  form  attached  hereto  as  EXHIBIT  A, in the  aggregate
principal amount of up to One Million Five Hundred Thousand Dollars ($1,500,000)
(the "NOTES");  and such number and type of equity  securities of the Company as
shall be determined in accordance  with the  provisions of this  Agreement  (the
"ADDITIONAL  SECURITIES"  and  together  with the Notes  hereinafter  called the
"SECURITIES").

         C. Purchaser wishes to purchase,  upon the terms and conditions  stated
in this Agreement,  such principal  amount of Notes as is set forth  immediately
below  its name on the  signature  page  hereto,  together  with the  Additional
Securities obtainable upon such purchase of Notes as provided in this Agreement.

         D. Contemporaneous with the Closing (as defined below), (a) the parties
hereto will execute and deliver a Registration  Rights Agreement,  substantially
in  the  form  attached  hereto  as  EXHIBIT  B-1  (the   "REGISTRATION   RIGHTS
AGREEMENT"),  pursuant to which the  Company has agreed to provide to  Purchaser
(and all other  purchasers that execute  agreements  substantially  identical to
this Agreement)  (collectively,  the "PURCHASERS")  certain  registration rights
under the 1933 Act and the rules and  regulations  promulgated  thereunder,  and
applicable state securities laws for the Additional  Securities (the "PURCHASERS
REGISTRATION  STATEMENT")  and (b) Mark E.  Vaughan  and Vernon J.  Brandt,  Jr.
(collectively, the "PLEDGORS")will execute and deliver Security and Stock Pledge
Agreement,  substantially in the form attached hereto as EXHIBIT B-2 (the "STOCK
PLEDGE AGREEMENT"), pursuant to which they will pledge, on a non-recourse basis,
all of its right,  title and  interest  in and to  Allison's  Gourmet  Kitchens,
Limited  Partnership  ("ALLISON'S") as collateral  security for the repayment of
the Notes.

         NOW THEREFORE, the Company and the Purchaser hereby agree as follows:

                                   ARTICLE ONE

              PURCHASE AND SALE OF NOTES AND ADDITIONAL SECURUITIES
              -----------------------------------------------------

                  1.1      PURCHASE  OF  SECURITIES.  On the  Closing  Date  (as
defined below), the Company shall sell to the Purchaser and the Purchaser agrees
to purchase from the Company;

                  (i) such principal amount of Notes as is set forth immediately
below such  Purchaser's  name on the  signature  pages  hereto  (the  "PURCHASED
NOTE"); and
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                  (ii) such  Additional  Securities,  as shall be  determined in
accordance with Section 1.2 hereof.

                  1.2      ADDITIONAL  SECURITIES.  The  Company  hereby  agrees
that, in addition to the Purchased  Note, the Purchaser shall be entitled to the
Additional Securities as follows:

                  (i) If at any time after the date hereof and prior to June 30,
2007 the Company shall have sold any equity  securities  (whether  common stock,
preferred stock,  warrants options or any combination  thereof,  such securities
hereinafter  referred to as the "QUALIFIED SALE SECURITIES") in a transaction or
series of  related  transactions  wherein  the gross  proceeds  received  by the
Company equal or exceed $5,000,000 (a "QUALIFIED  SALE"),  then upon the closing
of the first such  Qualified  Sale,  the Company  shall deliver to the Purchaser
such number or numbers of securities  identical to the Qualified Sale Securities
as shall have a value equal to one-half of the principal amount of the Purchased
Note (such value to be based upon the gross  purchase  price (before  deductions
for fees, commissions,  discounts or expenses) for the Qualified Sale Securities
in such Qualified Sale). Any such securities  issued to Purchaser shall have the
same cusip numbers as the corresponding securities in the Qualified Sale.

                  (ii) If a Qualified  Sale shall not have  occurred on or prior
to June 30, 2007,  but the  Purchased  Note shall have been repaid in full on or
prior  to such  date,  then on July 1,  2007  the  Company  shall  issue  to the
Purchaser  that number of shares of its common stock as shall equal  one-half of
the original principal amount of the Note divided by $4.00.

                  (iii) If a Qualified  Sale shall not have occurred on or prior
to June 30, 2007,  and the Purchased  Note shall not have been repaid in full on
or prior to such  date,  then on July 1,  2007 the  Company  shall  issue to the
Purchaser  that number of shares of its common stock as shall equal the original
principal amount of the Note divided by $4.00.

The number of shares to be delivered pursuant to clause (ii) of this Section 1.2
assumes that the Company has  5,000,000  shares issued and  outstanding.  If the
number of shares actually issued and outstanding on July 1, 2007 is more or less
than  5,000,000,  the $4.00  divisor  shall be  adjusted  up or down so that the
product  of the  number of shares  issued  and  outstanding  and the  divisor is
$20,000,000.

                  1.3      FORM OF PAYMENT. Currently with the execution of this
Agreement the Purchaser  shall remit to Hagen O'Connell LLP (the "ESCROW AGENT")
an amount equal to the  principal  amount of the Purchased  Note (the  "PURCHASE
PRICE") by either (i) wire transfer of immediately available funds to the Escrow
Agent at Wells Fargo Bank, 1300 SW Fifth Avenue,  11th Floor,  Portland  Oregon,
Account Name: Hagen O'Connell LLP (Vaughan  Escrow),  Account No.:  7912-028938,
ABA Routing No.  121000248 or (ii) a check made payable to Hagen  O'Connell LLP,
Bank of America Financial Center, Suite 1500, 121 SW Morrison,  Portland, Oregon
97204 (Vaughan Escrow). The Purchase Price shall be held in escrow by the Escrow
Agent pending the Closing or the termination of this Agreement.  At the Closing,
the Purchase Price shall be released from escrow and paid to the Company and the
interest  earned thereon (if any) shall be distributed to the Purchaser.  If the
Closing shall not have occurred and this Agreement  shall have been  terminated,
the Escrow  Agent shall  return the Purchase  Price  together  with the interest
earned thereon (if any) to the Purchaser and the Company shall  thereafter  have
no further obligation to the Purchaser.

                  1.4      CLOSING.  The  closing  of  the  transactions  to  be
effected  hereunder (the "CLOSING")  shall be held at 10:00 A.M. on the business
day on which the  satisfaction or waiver of the last of the conditions set forth
in Article  Five has  occurred,  or at such other place or at such other time as
the Company and the Purchaser may mutually agree (the "CLOSING DATE");  provided
that if the Closing has

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<PAGE>

not occurred  prior to 5:00 PM Pacific time July 15, 2006 this  Agreement  shall
automatically terminate.

                  1.5      DELIVERY OF PURCHASED SECURITIES. At the Closing, the
Company shall deliver to the  Purchaser  the  Purchased  Note,  duly executed on
behalf of the Company. The Company shall deliver to the Purchaser the Additional
Securities  within  five days  after the  determination  of the type and  number
thereof.

                  1.6      ALLOCATION   OF  PURCHASE   PRICE.   For  income  tax
purposes,  the Purchase  Price will be allocated to the  Purchased  Note and the
Additional Securities based on their relative fair market values.

                  1.7      COMMISSION PAYMENT AND LOAN REPAYMENT.  The Purchaser
is aware that the  Company  has  retained  the  services  of Paulson  Investment
Company,  Inc.  ("PAULSON") to act as a Placement  Agent in connection  with the
sale of the Notes and that  Paulson  shall be entitled  to a selling  commission
equal to 8% of the gross proceeds received by the Company in connection with the
sale of the Notes and  reimbursement  of up to $10,000 of  expenses  incurred in
connection therewith.

                                   ARTICLE TWO

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         The Company hereby represents and warrants to the Purchaser as follows:

                  2.1.     NO  VIOLATIONS.  The  making and  performance  by the
Company  of this  Agreement  does not  violate  any  provision  of law or of the
Articles  of  Incorporation  or Bylaws of the  Company,  nor does it result in a
breach of or  constitute  a  default  under any  agreement,  indenture  or other
instrument to which the Company is a party or by which the Company may be bound,
where  such  breach or  default  would  have a  material  adverse  effect on the
Company.

                  2.2.     DUE AUTHORIZATION;  VALIDITY. This Agreement has been
duly authorized,  executed and delivered and is a valid and binding Agreement of
the Company and the Promissory  Notes to be issued hereunder by the Company will
be valid and binding obligations of the Company in accordance with their terms.

                  2.3.     CORPORATE   REQUIREMENTS.   The   Company  (i)  is  a
corporation  duly  organized and existing in good standing under the laws of the
State of Oklahoma;  (ii) has the power and authority to own the  properties  and
assets which it purports to own and to carry on its  business as now  conducted;
(iii) has the power and authority to execute and deliver all documents  required
hereunder;  and (iv) to the best of its knowledge,  has complied with all filing
and other  requirements of Federal,  State and local laws,  insofar as such laws
relate to its doing business.

                                  ARTICLE THREE

                                    COVENANTS

                  3.1.     ALLISON'S.  On or  prior  to the  date on  which  the
Additional  Securities  shall be issued (the "ISSUE  DATE"),  the Company  shall
acquire all of the equity interests or all of the operating assets of Allison's.

                  3.2.     CHARTER AMENDMENT. The Purchaser acknowledges that as
of the date hereof,  the Company's  authorized capital consists of 600 shares of
common  stock,  par value $1.00 per share.  On

                                       3
<PAGE>

or prior to the  Issue  Date,  the  Company  shall  take  all  corporate  action
necessary to amend its  Articles of  Incorporation  to increase  its  authorized
capital so as to permit the  issuance  of the  Additional  Securities  and shall
reserve a  sufficient  number of shares of its capital  stock to provide for the
issuance  of the  Additional  Securities  (as well as  shares of  capital  stock
underlying  any  options,  warrants or  convertible  securities  included in the
Additional Securities).

                                  ARTICLE FOUR

                                  THE PURCHASER

                  4.1      PURCHASER   REPRESENTATIONS   AND   WARRANTIES.   The
Purchaser represents and warrants to the Company that:

                  (a)      The Purchaser  understands and acknowledges  that the
Securities  are  being  sold  by the  Company  without  registration  under  the
Securities Act of 1933, as amended (the "1933 ACT"),  and state  securities laws
in reliance on the exemptions from  registration  set forth in sections 3(b) and
4(2) of the securities law exemptions.

                  (b)      The  Securities  are being  acquired by the Purchaser
for the Purchaser's own account for long-term  investment and not with a view to
the distribution  thereof, and with no present intention of selling or otherwise
disposing of the Securities or any part thereof. The Purchaser has no present or
contemplated agreement, undertaking,  arrangement,  obligation,  indebtedness or
commitment  providing  for or which is  likely to  compel a  disposition  of the
Securities   in  any  manner.   The  Purchaser  is  not  aware  of  any  present
circumstances  that are likely to promote the Purchaser's  future disposition of
the Securities.

                  (c)      The  Purchaser  is an  "accredited  investor" as such
term is defined in Rule 501 of Regulation D  promulgated  under the 1933 Act, as
indicated  by  the   Purchaser's   responses  to  the   Confidential   Purchaser
Questionnaire attached hereto as EXHIBIT C (the "QUESTIONNAIRE"),  the Purchaser
is able to bear the economic  risk of an investment  in the  Securities  and the
Purchaser   understands  that  because  the  Securities  will  be  sold  without
registration  under  the 1933  Act,  the  Purchaser  must  hold  the  Securities
indefinitely  and  cannot  sell,  exchange,   assign,  transfer,  gift,  pledge,
encumber,  hypothecate or otherwise dispose of the Securities except pursuant to
an  exemption  from  the  registration  provisions  of  the  federal  and  state
securities  laws, the  availability of which must be satisfied to the Company in
its discretion.

                  (d)      The  Purchaser has such  knowledge and  experience in
financial and business  matters that the Purchaser is capable of evaluating  the
merits and risks of the prospective investment in the Company; the Purchaser has
received  and reviewed all  information  requested of the Company and,  based on
such  review,  understands  and  has  evaluated  the  merits  and  risks  of the
prospective  investment  in  the  Company,  and  has  decided  to  purchase  the
Securities.

                  (e)      The  Purchaser  has  had  the   opportunity   to  ask
questions and receive answers  concerning the Company,  as well as the terms and
conditions  of  the  offering  of  the  Securities,  and  to  obtain  additional
information  reasonably  available to the Company and any persons  acting on the
Company's behalf,  necessary to verify the accuracy of any information  provided
to the  Purchaser,  and the  Purchaser has received all of the  information  the
Purchaser  has  requested  to the extent  that such  information  is  reasonably
available to the Company.  The Purchaser  requires no additional  information to
evaluate fully the merits and risks of a prospective investment in the Company.

                  (f)      The Purchaser has received and has read carefully the
Executive Summary,  the

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<PAGE>

Risk Factors,  the audited financial statements for the years ended December 31,
2005 and 2004 and the unaudited  balance sheets and statements of operations for
the three months ended March 31, 2006 and 2005 of the Company and of  Allison's,
copies  of  which  are  annexed  hereto  as  EXHIBIT  D. The  Purchaser  further
understands  that any investment in the Securities may involve material risks in
addition to those  disclosed in the "Risk Factors," which does not purport to be
an  exhaustive  list of all material  risks  involved  with an investment in the
Securities.

                  (g)      The Purchaser understands that the Company is relying
on the accuracy of statements  contained in this Agreement and the Questionnaire
in connection with the sale of the Securities,  and the Securities  would not be
sold to the  Purchaser  if any  statement  contained  in this  Agreement  or the
Questionnaire  were  untrue;  and  all  other  offerees  or  purchasers  of  the
Securities may rely on the accuracy of statement contained in this Agreement and
the  Questionnaire  in connection with any matters relating to the offer or sale
of the Securities.

                  (h)      The  Purchaser  acknowledges  that  the  Company  has
advised the  Purchaser  that in  accordance  with the  provisions of Section 1.6
hereof,  a portion of the Purchase Price will be allocated to the Purchased Note
and the Additional  Securities  based on their relative fair market values,  and
that therefore the Purchaser  will be required to report as interest  income the
difference  between the amount  allocated to the Purchased  Note and 100% of the
principal amount of the Purchased Note. The Purchaser further  acknowledges that
the Company has advised the Purchaser that such allocation is not binding on the
Internal  Revenue  Service  which may take the position  that the portion of the
Purchase  Price to be allocated to the  Purchased  Note should be less,  thereby
increasing the amount of interest income to be recognized by the Purchaser.  The
Purchaser represents to the Company that Purchaser has relied on the Purchaser's
own tax  counsel  as to all tax  matters  with  respect to the  purchase  of its
Securities,  including  without  limitation the application of Internal  Revenue
Code  Sections  1271  et.  seq.,  regarding  "original  issue  discount"  to the
Purchased Note.

                  (i)      The Purchaser  shall  immediately  notify the Company
if,  for  any  reason,  any  of  the  statements  contained  herein  or  in  the
Confidential Purchaser Questionnaire become inaccurate at any time from the date
hereof until the  Closing,  and the  Purchaser  understands  that the  continued
accuracy of the statements  contained herein and in the  Confidential  Purchaser
Questionnaire is of the essence to the sale of the Securities.

                  (j)      The  Purchaser  shall  indemnify  the Company and all
persons  acting  on  their  behalf  and  hold  them  harmless  from  any and all
liability,  damage,  cost or expense,  including  but not limited to  attorneys'
fees,  incurred  on account  of or arising  directly  or  indirectly  out of any
inaccuracy  in  the  subscriber's  representations  in  this  Agreement  or  the
Questionnaire  or  any  disposition  of all or  any  portion  of the  Securities
subscribed for hereunder in violation of his  representations  in this Agreement
and the Questionnaire.

                  (k)      The Purchaser has relied on the Purchaser's own legal
counsel to the extent the Purchaser has deemed necessary as to all legal matters
and  questions  presented  with  reference  to  the  offering  and  sale  of the
Securities.

                  (l)      The  Purchaser  has  relied  on the  Purchaser's  own
accountant or other financial advisor and/or his or her own financial experience
as to all  financial  matters and  questions  presented  with  reference  to the
purchase of the Securities.

                  (m)      The  Purchaser  has  relied  on the  Purchaser's  own
analysis and  evaluation  (or the analysis and  evaluation  of its  professional
advisors) of the  Company,  its products and  services,  the  technology  issues
involved and the market in which the Company intends to operate.

                                       5
<PAGE>

                  (n)      The Purchaser fully understands the terms, conditions
and consequences  relating to the offering of the Securities and understands the
Purchaser may have to hold such Securities indefinitely.

                  4.2      PURCHASER   COVENANTS.   In  the  event  the  Company
proposes to complete an underwritten  public offering  subsequent to the Closing
Date, the Purchaser will execute a "lock-up"  agreement  containing  such terms,
conditions and provisions as may be required by the managing underwriter of such
offering,  not to exceed  one year;  PROVIDED,  HOWEVER,  in no event  shall the
Purchaser be subject to a lock-up  agreement that is more  restrictive than that
executed by the Company's officers,  directors, and the holders of 5% or more of
the Company's common stock.

                                  ARTICLE FIVE

                       CONDITIONS PRECEDENT TO THE CLOSING

         The  obligations of the parties  pursuant to this Agreement are subject
to the  satisfaction  at the  Closing  of  each  of  the  following  conditions;
provided, however, that the parties may, in their sole discretion,  waive any of
such conditions and proceed with the transactions contemplated hereby:

                  5.1.     SALE OF  SECURITIES.  The Company shall have received
and accepted  executed  agreements  relating to the sale of Notes (including the
Purchased  Note)  and  Additional  Securities  for a  gross  purchase  price  of
$1,500,000 and shall be prepared to close with respect thereto.

                  5.2      ANCILLARY AGREEMENTS. The Company shall have executed
and  delivered the  Registration  Rights  Agreement and the Pledgors  shall have
executed and delivered the Stock Pledge Agreement to the Purchasers.

                                   ARTICLE SIX

                                  MISCELLANEOUS

                  6.1.     GENDER. The neuter pronoun,  when used herein,  shall
include the masculine and feminine and also the plural.

                  6.2      CHOICE OF LAW. This  Agreement has been  delivered in
the State of Oklahoma  and shall be  construed  in  accordance  with the laws of
Oklahoma.   Wherever   possible  each  provision  of  this  Agreement  shall  be
interpreted  in such manner as to be effective and valid under  applicable  law,
such provision  shall be ineffective to the extent of such  prohibition  without
invalidating the remainder of such provision or the remaining provisions of this
Agreement. With respect to any claim or action arising under this Agreement, the
Company hereby (i) irrevocably  submits to the jurisdiction of the courts of the
state of Georgia and the United  States  District  Court  located in the city of
Moore, State of Oklahoma, and (ii) irrevocably waives any objection which it may
have at any time to the  laying  of  venue of any  suit,  action  or  proceeding
arising  out of or  relating  to  this  Agreement  brought  in any  such  court,
irrevocably waives any claim that any such suit, action or proceeding brought in
any such court has been brought in an inconvenient forum and further irrevocably
waives  the  right to  object,  with  respect  to such  claim,  suit,  action or
proceeding brought in any such court, that such court does not have jurisdiction
over such  party.  Nothing  in this  Agreement  will be deemed to  preclude  the
Purchaser  from bringing an action or proceeding in respect  hereof in any other
jurisdiction.

                                       6
<PAGE>

                  6.3      SUCCESSOR  AND  ASSIGNS.   This  Agreement  shall  be
binding  upon and inure to the  benefit  of the  successors  and  assigns of the
parties hereto. The rights and privileges of Purchaser  hereunder shall inure to
the benefit of Purchaser's heirs, legal representatives, successors and assigns.
Notwithstanding  the foregoing,  (i) the Company may not assign its  obligations
under this Agreement without the consent of the Purchaser and (ii) Purchaser may
assign or transfer any of its rights hereunder  subject to providing the Company
with  evidence  reasonably  acceptable  to the Company that such  assignment  or
transfer will not violate or require  registration  under any applicable federal
or state securities law or regulation.

                  6.4.     SEVERABILITY.  If any provision of this  Agreement or
of any of the  documents  executed in  connection  herewith  or the  application
thereof to any party thereto or circumstances  shall be invalid or unenforceable
to any extent,  the remainder of this  Agreement  and of such  documents and the
application of such provisions to any other parry therein or circumstance  shall
not be affected  thereby and shall be enforced to the greatest extent  permitted
by law.

                  6.5.     SURVIVAL.   All   representations,   warranties   and
covenants  made in this  Agreement  shall  survive the execution and delivery of
this Agreement.

                  6.6.     COUNTERPARTS.  This  Agreement may be executed in any
number of  counterparts  each of which shall be deemed to be an original but all
of which, when taken together, shall constitute one and the same instrument.

                  6.7.     ACCREDITED INVESTOR  REPRESENTATION.  Purchaser shall
deliver to the Company,  together  with an executed  copy of this  Agreement,  a
completed Questionnaire,  and by executing this Agreement,  Purchaser represents
and warrants that it is an  "accredited  investor" as that term is defined under
Regulation D of the Securities Act of 1933, as amended. Purchaser further agrees
that notwithstanding  anything else contained in this Agreement,  at the time of
any investment decision by Purchaser, the Company may require, as a condition to
such  investment  decision or  conversion,  that  Purchaser  provide  reasonable
evidence and make reasonable representations and warranties regarding its status
as an "accredited investor" as of the time of the investment decision.

                  6.8.     AMENDMENT AND WAIVER.  This  Agreement may be amended
or modified upon the written  consent of the Company and the Purchaser,  and any
provision may be waived only in writing, by the party waiving such provision.

                  6.9      NOTICES.  All  notices,  requests,  demands and other
communications  which are required to be or may be given under this Agreement to
any party to any of the other parties shall be in writing and shall be deemed to
have been duly given when (a)  delivered  in  person,  or (b) the day  following
dispatch by an overnight  courier service (such as Federal Express or UPS, etc.)
to the party to whom the same is so given or made:

         If to the Company
              addressed to:                 Vaughan Foods, Inc.
                                            216 Northeast 12th Street
                                            Moore, Oklahoma 73160
                                            Attention:  Chief Executive Officer

         If to Purchaser addressed to:      The address set forth on the
                                            signature page hereto.

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<PAGE>

                                    * * * * *

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered under seal, the day and year first above written.

VAUGHAN FOODS, INC.

        /s/ Mark E. Vaughan
---------------------------
Name:    Mark E. Vaughan
Title:   Chairman and CEO

PURCHASER:

-----------------------------------

Print Name of Purchaser:__________________________
Print Title of Purchaser (if Purchaser is not an individual):_________________
Tax I.D. # of Purchaser: _________________________
Aggregate amount invested: _______________________

Address: ______________________________
         ______________________________
         ______________________________

                                       8EX-101.5

                                    EXHIBIT B

                          REGISTRATION RIGHTS AGREEMENT

         REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"),  dated as of July 17,
2006,  by and among  Vaughan  Foods,  Inc.,  an Oklahoma  corporation,  with its
offices  located  at 216  Northeast  12th  Street,  Moore,  Oklahoma  73160 (the
"COMPANY"),  and  the  undersigned  persons  executing  this  Agreement  (each a
"HOLDER" and collectively, the "HOLDERS").

         WHEREAS:

         A.       Pursuant to one or more Securities  Purchase and  Subscription
Agreements,  dated as of the date hereof (the  "SUBSCRIPTION  AGREEMENTS"),  the
Holders are purchasing  from the Company the Company's 10% unsecured  promissory
notes due June 30, 2007 in the aggregate  principal  amount of $1.5 million (the
"NOTES") and the Additional Securities (as defined below);

         B.       To induce the Holders to execute and deliver the  Subscription
Agreement,  the Company has agreed to provide certain  registration rights under
the Securities Act of 1933, as amended,  or any similar  successor  statute (the
"1933  ACT") and the rules and  regulations  thereunder,  and  applicable  state
securities laws;

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants  contained  herein  and other  good and  valuable  consideration,  the
receipt and  sufficiency of which are hereby  acknowledged,  the Company and the
Holders hereby agree as follows:

         1.       DEFINITIONS

         a.       In addition to any other defined terms set forth herein,  when
used in this Agreement, the following terms shall have the following meanings:

                  (i)      "ADDITIONAL  SECURITIES" has the meaning  ascribed to
                           it in the Subscription Agreements.

                  (ii)     "COMMON STOCK" means the Company's  common stock, par
         value $1.00 per share.

                  (iii)    "EFFECTIVE  DATE"  means  the  effective  date  of  a
         Registration Statement relating to a Qualified Sale.

                  (iv)     "EXCHANGE  ACT" means the Securities and exchange Act
         of 1934, as amended.

                  (v)      "HOLDERS"  means the persons and/or  entities  (other
         than the Company) that execute a Subscription Agreement.

                  (vi)     "QUALIFIED  SALE" has the  meaning  ascribed to it in
         the Subscription Agreements.

                  (vii)    "REGISTER," "REGISTERED," and "REGISTRATION" refer to
         a  registration   effected  by  preparing  and  filing  a  Registration
         Statement or Statements in compliance with the 1933 Act and pursuant to
         Rule 415  under  the  1933  Act or any  successor  rule  providing  for
         offering  securities  on a  continuous  basis  ("RULE  415"),  and  the
         declaration or ordering of effectiveness of such Registration Statement
         by the United States Securities and Exchange Commission (the "SEC").

                  (viii)   "REGISTERABLE   SECURITIES"   means  the   Additional
         Securities,  including  any  securities of the Company  underlying  the
         Additional Securities, and any Payment Shares.
<PAGE>

                  (ix)     "REGISTRATION   STATEMENT"   means   a   registration
         statement of the Company under the 1933 Act.

                  (x)      "RESALE REGISTRATION  STATEMENT" means a Registration
         Statement   covering  the  resale  of  all,  or  any  portion  of,  the
         Registerable Securities.

         b.       Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Subscription Agreement.

         2.       REGISTRATION

         a.       MANDATORY REGISTRATION. On or prior to the sixtieth (60th) day
following the earlier of (i) the Effective Date and (ii) the first date on which
it is eligible to use a Form S-3 Registration Statement (the "FILING DATE"), the
Company  shall  prepare and file with the SEC a Resale  Registration  Statement,
which Resale Registration  Statement, to the extent allowable under the 1933 Act
and the rules and regulations promulgated thereunder (including Rule 416), shall
state that it also  covers such  indeterminate  number of  additional  shares of
Common Stock as may become  issuable  upon  conversion of and exercise of any of
the  Registerable  Securities to prevent  dilution  resulting from stock splits,
stock dividends or similar transactions;  PROVIDED, HOWEVER, that no such Resale
Registration  Statement  need  be  filed  at  any  time  at  which  all  of  the
Registerable  Securities  can be resold  under  the  provisions  of Rule  144(k)
promulgated under the 33 Act, or any equivalent rule.

         b.       PAYMENTS BY THE COMPANY.  The Company shall use its reasonable
best efforts to obtain  effectiveness  of the Resale  Registration  Statement as
soon as practicable  and after obtaining such  effectiveness  to keep the Resale
Registration  Statement  effective pursuant to Rule 415 until the earlier of (i)
the date on which all of the Registerable Securities have been sold and (ii) the
date on which all the Registerable  Securities are saleable under Rule 144(k) or
any equivalent  rule (the  "REGISTRATION  PERIOD").  If the Resale  Registration
Statement is (i) not filed by the Filing Date, or (ii) not declared effective by
the SEC on or prior to sixty  (60) days  after the  Filing  Date (90 days if the
financial   information  included  in  the  Resale  Registration   Statement  as
originally filed must be updated) or (iii) not continually  effective throughout
the Registration Period (except for an Allowed Delay (as defined in Section 3(e)
below),  then the Company shall pay to each Holder,  as his, her or its sole and
exclusive  remedy for the  damages  incurred by reason of any such delay in such
Holder's ability to sell the Registerable  Securities,  an amount equal to 2% of
the original  outstanding  principal amount of the Note purchased by such Holder
multiplied  by the number of months  (prorated  for  partial  months)  after the
Filing Date and prior to the date on which a Resale  Registration  Statement  is
filed with the SEC or the end of the aforementioned 60-day period (90-day period
if the financial  information  included in the Resale Registration  Statement as
originally filed must be updated) and prior to the date the Resale  Registration
Statement  is  declared  effective  by the SEC or the  period  after the  Resale
Registration  Statement  was  declared  effective  but during  which its use was
suspended (the "LATE FEE"), provided, however, that there shall be excluded from
such period any delays which are solely  attributable to changes required by the
Holders  in the  Resale  Registration  Statement  with  respect  to  information
relating to the Holders, including,  without limitation,  changes to the plan of
distribution,  or to the failure of the Holders to conduct  their  review of the
Registration  Statement  pursuant  to Section  3(g) below  within  seven days of
receipt thereof.  Notwithstanding  anything to the contrary contained herein, in
no event shall the Late Fee (i) continue to accrue after the earliest  date more
than one year from the date of this Agreement that the Company is current in its
reporting  requirements  under the  Exchange  Act and has been  subject  to such
reporting  requirements  for at least 90 days and (ii) exceed an amount equal to
10% percent of the original outstanding  principal amount of the Notes purchased
by such Holder. Any Late Fee may, at the option of the Company,  be paid in cash
or  shares of Common  Stock  ("PAYMENT  SHARES"),  or any  combination  thereof;
provided  that if the  Company  should  elect to make all or any portion of such
payment in Payment  Shares,  such Payment  Shares shall (i) for purposes of such
payment be valued based upon the 4:00 PM (New York time)  closing bid price of a
share of Common

                                       2
<PAGE>

Stock.  on the trading day  immediately  prior to the date that such  payment is
due, as reported by Bloomberg  Financial  L.P and (ii) be included in the Resale
Registration Statement.

         3.       OBLIGATIONS OF THE COMPANY

         In connection with the registration of the Registerable Securities, the
Company shall have the following obligations:

         a.       The Company shall prepare promptly,  and file with the SEC not
later than the Filing Date, a Resale Registration  Statement with respect to the
number of Registerable  Securities  provided in Section 2(a), and thereafter use
its best  efforts  to cause  such  Resale  Registration  Statement  relating  to
Registerable  Securities  to become  effective  as soon as  possible  after such
filing but in no event  later than 60 days after the Filing Date (90 days if the
financial information included in the Resale Registraton Statement as originally
filed must be updated),  and keep the Resale  Registration  Statement  effective
pursuant  to Rule 415  until  the  earlier  of (i) the date on which  all of the
Registerable  Securities  have  been  sold and  (ii)  the date on which  all the
Registerable  Securities  are saleable under Rule 144(k)  promulgated  under the
1933  Act (the  "REGISTRATION  Period"),  which  Resale  Registration  Statement
(including  any  amendments or supplements  thereto and  prospectuses  contained
therein)  shall not contain any untrue  statement of a material  fact or omit to
state a material  fact required to be stated  therein,  or necessary to make the
statements therein not misleading.

         b.       The  Company   shall  prepare  and  file  with  the  SEC  such
amendments (including  post-effective  amendments) and supplements to the Resale
Registration  Statement and the  prospectus  used in connection  with the Resale
Registration  Statement  as may be  necessary  to keep the  Resale  Registration
Statement  effective at all times during the  Registration  Period,  and, during
such  period,  comply with the  provisions  of the 1933 Act with  respect to the
disposition of all Registerable Securities.

         c.       The Company  shall furnish the Holders (i) promptly (but in no
event more than five (5) business  days) after the same is prepared and publicly
distributed,  filed with the SEC, or received  by the  Company,  one copy of the
Resale  Registration  Statement and any amendment  thereto and each  preliminary
prospectus and prospectus and each amendment or supplement  thereto,  and (ii) a
reproducible copy of a prospectus,  including a preliminary prospectus,  and all
amendments and  supplements  thereto and such other documents as the Holders may
reasonably  request in order to facilitate the  disposition of the  Registerable
Securities.  The Company will immediately notify each Holder by facsimile of the
effectiveness  of  the  Resale  Registration  Statement  or  any  post-effective
amendment.  The Company will promptly  respond to any and all comments  received
from the SEC, with a view towards causing the Resale  Registration  Statement or
any  amendment  thereto  to  be  declared  effective  by  the  SEC  as  soon  as
practicable,  shall promptly file an acceleration request as soon as practicable
(but in no event more than three (3) business days)  following the resolution or
clearance of all SEC comments or, if applicable,  following  notification by the
SEC that the Resale Registration  Statement or any amendment thereto will not be
subject to review and shall  promptly  file with the SEC a final  prospectus  as
soon as practicable  (but in no event more than two (2) business days) following
receipt  by  the  Company  from  the  SEC  of  an  order  declaring  the  Resale
Registration Statement effective. In the event of a breach by the Company of the
provisions of this Section  3(c),  the Company will be required to make payments
pursuant to Section 2(b) hereof.

         d.       The Company shall use  reasonable  efforts to (i) register and
qualify the  Registerable  Securities  under such other securities or "blue sky"
laws of such  jurisdictions  in the  United  States  as the  Holders  who hold a
majority in interest of the  Registerable  Securities  being offered  reasonably
request, (ii) prepare and file in those jurisdictions such amendments (including
post-effective   amendments)   and   supplements  to  such   registrations   and
qualifications as may be necessary to maintain the effectiveness  thereof during
the  Registration  Period,  (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration  Period,  and (iv) take all other actions  reasonably  necessary or
advisable to qualify the Registerable Securities for sale in such jurisdictions;
PROVIDED,  HOWEVER,  that  the  Company  shall  not be  required  in  connection
therewith  or as a

                                       3
<PAGE>

condition  thereto to (a) qualify to do business  in any  jurisdiction  where it
would not  otherwise  be  required  to qualify but for this  Section  3(d),  (b)
subject itself to general taxation in any such jurisdiction,  (c) file a general
consent  to  service  of  process  in any such  jurisdiction,  (d)  provide  any
undertakings  that cause the Company  undue  expense or burden,  or (e) make any
change in its charter or bylaws,  which in each case the Board of  Directors  of
the Company  determines to be contrary to the best  interests of the Company and
its stockholders.

         e.       As promptly as practicable after becoming aware of such event,
the Company shall notify each Holder of the happening of any event, of which the
Company  has  knowledge,  as a result of which the  prospectus  included  in the
Resale Registration  Statement,  as then in effect, includes an untrue statement
of a material  fact or omission to state a material  fact  required to be stated
therein or necessary to make the statements therein not misleading,  and use its
best  efforts  promptly  to  prepare a  supplement  or  amendment  to the Resale
Registration Statement to correct such untrue statement or omission, and deliver
a  reproducible  copy of such  supplement or amendment to each Holder;  provided
that, for not more than thirty (30) consecutive  trading days (or a total of not
more than sixty (60) trading days in any twelve (12) month period),  the Company
may delay the  disclosure  of material  non-public  information  concerning  the
Company the disclosure of which at the time is not, in the good faith opinion of
the  Company,  in the  best  interests  of the  Company  (an  "ALLOWED  DELAY");
provided,  further,  that the Company  shall  promptly (i) notify the Holders in
writing of the existence of (but in no event,  without the prior written consent
of the Holders,  shall the Company  disclose to such Holders any of the facts or
circumstances  regarding)  material  non-public  information  giving  rise to an
Allowed  Delay and (ii)  advise the  Holders in writing to cease all sales under
the Resale  Registration  Statement  until the end of the  Allowed  Delay.  Upon
expiration of the Allowed  Delay,  the Company shall again be bound by the first
sentence  of this  Section  3(e) with  respect to the  information  giving  rise
thereto.

         f.       The Company shall use its best efforts to prevent the issuance
of  any  stop  order  or  other   suspension  of  effectiveness  of  the  Resale
Registration  Statement,  and,  if  such an  order  is  issued,  to  obtain  the
withdrawal  of such order at the  earliest  possible  moment and to notify  each
Holder who holds  Registerable  Securities  being  sold (or,  in the event of an
underwritten  offering, the managing underwriters) of the issuance of such order
and the resolution thereof.

         g.       The Company  shall permit a single firm or counsel  designated
by the Holders to review the Resale  Registration  Statement and all  amendments
and supplements  thereto a reasonable  period of time prior to their filing with
the SEC, and not file any  document in a form to which such  counsel  reasonably
objects. The sections of the Resale Registration  Statement covering information
with respect to the Holders,  the Holder's beneficial ownership of securities of
the  Company or the  Holders  intended  method of  disposition  of  Registerable
Securities  shall conform to the information  provided to the Company by each of
the Holders.

         h.       The  Company  shall  hold  in  confidence  and  not  make  any
disclosure of information  concerning any Holders provided to the Company unless
(i) disclosure of such  information is necessary to comply with federal or state
securities  laws, (ii) the disclosure of such  information is necessary to avoid
or correct a misstatement or omission in any Registration  Statement,  (iii) the
release of such  information  is ordered  pursuant  to a subpoena or other order
from a court  or  governmental  body of  competent  jurisdiction,  or (iv)  such
information  has been made  generally  available  to the  public  other  than by
disclosure in violation of this or any other agreement.  The Company agrees that
it shall, upon learning that disclosure of such information  concerning a Holder
is sought in or by a court or  governmental  body of competent  jurisdiction  or
through  other  means,  give  prompt  notice to such Buyer  prior to making such
disclosure and allow the Holder, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, such information.

         i.       The  Company  shall  cause  all  the  Registerable  Securities
covered  by the  Resale  Registration  Statement  to be listed on each  national
securities  exchange or Nasdaq  trading  market on which  securities of the same
class or series issued by the Company are then listed, if any, if the listing of
such Registerable  Securities is then permitted under the rules of such exchange
or market, as the case may be.

                                       4
<PAGE>

         j.       The  Company  shall  provide a transfer  agent and  registrar,
which may be a single entity, for the Registerable Securities not later than the
effective date of the Resale Registration Statement.

         k.       The Company shall cooperate with the Holders to facilitate the
timely  preparation  and  delivery  of  certificates  representing  Registerable
Securities  to be offered  pursuant  to the Resale  Registration  Statement  and
enable such certificates to be in such denominations or amounts, as the case may
be, or the Holders may  reasonably  request and  registered in such names as the
Holders  may  request,  and,  within  three (3)  business  days after the Resale
Registration Statement is effective,  the Company shall deliver, and shall cause
legal counsel selected by the Company to deliver,  to the transfer agent for the
Registerable   Securities  (with  copies  to  the  Holders  whose   Registerable
Securities are included in such  Registration  Statement) an instruction  and an
opinion of such counsel.

         l.       At the request of the holders of a majority-in-interest of the
Registerable  Securities,  the Company  shall prepare and file with the SEC such
amendments (including  post-effective  amendments) and supplements to the Resale
Registration  Statement and any  prospectus  used in connection  with the Resale
Registration  Statement  as may be  necessary  in  order to  change  the plan of
distribution set forth in such Resale Registration Statement.

         4.       OBLIGATIONS OF THE HOLDERS

         In connection with the registration of the Registerable Securities, the
Holders shall have the following obligations:

         a.       It shall be a condition  precedent to the  obligations  of the
Company to complete the registration  pursuant to this Agreement with respect to
the  Registerable  Securities  of a  particular  Holder that such  Holder  shall
furnish to the Company,  in writing,  such  information  regarding  itself,  the
Registerable Securities held by it and the intended method of disposition of the
Registerable Securities held by it as shall be reasonably required to effect the
registration of such Registerable Securities and shall execute such documents in
connection  with such  registration  as the Company may reasonably  request.  At
least  seven (7) days prior to the first  anticipated  filing date of the Resale
Registration Statement,  the Company shall notify each Holder of the information
the Company requires from each such Holder.

         b.       Each Holder,  by such Holder's  acceptance of the Registerable
Securities,  agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Resale Registration
Statement  hereunder,  unless such Holder has notified the Company in writing of
such Holder's election to exclude all of such Holder's  Registerable  Securities
from the Resale Registration Statements.

         c.       In the event  Holders  holding a  majority-in-interest  of the
Registerable Securities determine to engage the services of an underwriter, each
Holder  agrees to enter into and  perform  such  Holder's  obligations  under an
underwriting  agreement,  in  usual  and  customary  form,  including,   without
limitation,  customary  indemnification and contribution  obligations,  with the
managing  underwriter  of such  offering  and take  such  other  actions  as are
reasonably  required in order to expedite or facilitate  the  disposition of the
Registerable Securities,  unless such Holder has notified the Company in writing
of  such  Holder's  election  to  exclude  all  of  such  Holder's  Registerable
Securities from the Resale Registration Statement.

         d.       Each Holder  agrees that,  upon receipt of any notice from the
Company of the  happening of any event of the kind  described in Section 3(e) or
3(f),  such Holder will  immediately  discontinue  disposition  of  Registerable
Securities  pursuant to the Resale  Registration  Statement  until such Holder's
receipt of the copies of the supplemented or amended prospectus  contemplated by
Section  3(e) or 3(f) and,  if so  directed by the  Company,  such Holder  shall
deliver to the Company (at the expense of the  Company) or destroy  (and deliver
to the  Company a  certificate  of  destruction)  all  copies  in such  Holder's
possession,  of the prospectus covering such Registerable  Securities current at
the time of receipt of such notice.

                                       5
<PAGE>

         5.       EXPENSES OF REGISTRATION

         All  reasonable  expenses,   other  than  underwriting   discounts  and
commissions,   incurred   in   connection   with   registrations,   filings   or
qualifications pursuant to Sections 2 and 3, including,  without limitation, all
registration,  listing and qualification fees, printers and accounting fees, the
fees and  disbursements of counsel for the Company,  and the reasonable fees and
disbursements  of one counsel  selected by the Holders  pursuant to Section 3(g)
hereof shall be borne by the Company; PROVIDED,  HOWEVER, the fees of counsel to
the Holders shall not exceed $2,500.

         6.       INDEMNIFICATION

         In the event any  Registerable  Securities  are  included in the Resale
Registration Statement under this Agreement:

         a.       To the extent  permitted by law,  the Company will  indemnify,
hold harmless and defend (i) each Holder who holds such Registerable Securities,
(ii) the directors,  officers,  partners,  employees, agents and each person who
controls any Holder  within the meaning of the 1933 Act or the Exchange  Act, if
any, (iii) any underwriter (as defined in the 1933 Act) for the Holder, and (iv)
the directors,  officers,  partners,  employees and each person who controls any
such underwriter  within the meaning of the 1933 Act or the Exchange Act, if any
(each, an "INDEMNIFIED  PERSON"),  against any joint or several losses,  claims,
damages,   liabilities  or  expenses   (collectively,   together  with  actions,
proceedings  or inquiries by any  regulatory  or  self-regulatory  organization,
whether commenced or threatened,  in respect thereof,  "CLAIMS") to which any of
them may become  subject  insofar as such Claims arise out of or are based upon:
(i) any untrue  statement or alleged untrue  statement of a material fact in the
Resale  Registration  Statement  or the  omission  or alleged  omission to state
therein  a  material  fact  required  to be  stated  or  necessary  to make  the
statements  therein not misleading;  (ii) any untrue statement or alleged untrue
statement of a material  fact  contained in any  preliminary  prospectus if used
prior to the effective date of the Resale Registration  Statement,  or contained
in the final  prospectus (as amended or  supplemented,  if the Company files any
amendment thereof or supplement thereto with the SEC) or the omission or alleged
omission to state  therein any material  fact  necessary to make the  statements
made therein,  in light of the circumstances  under which the statements therein
were made, not  misleading;  or (iii) any violation or alleged  violation by the
Company of the 1933 Act, the Exchange  Act,  any other law,  including,  without
limitation,  any state  securities  law,  or any rule or  regulation  thereunder
relating to the offer or sale of the Registerable Securities (the matters in the
foregoing clauses (i) through (iii) being, collectively,  "VIOLATIONS"). Subject
to the  restrictions  set forth in  Section  6(c) with  respect to the number of
legal counsel,  the Company shall reimburse the Indemnified Person,  promptly as
such  expenses are incurred and are due and payable,  for any  reasonable  legal
fees  or  other  reasonable   expenses  incurred  by  them  in  connection  with
investigating  or  defending  any such  Claim.  Notwithstanding  anything to the
contrary  contained  herein,  the  indemnification  agreement  contained in this
Section  6(a):  (i) shall not apply to a Claim  arising  out of or based  upon a
Violation  which  occurs in reliance  upon and in  conformity  with  information
furnished in writing to the Company by any Indemnified Person or underwriter for
such Indemnified  Person expressly for use in connection with the preparation of
such Registration Statement or any such amendment thereof or supplement thereto,
if such prospectus was timely made available by the Company  pursuant to Section
3(c) hereof;  (ii) shall not apply to amounts paid in settlement of any Claim if
such  settlement is effected  without the prior written  consent of the Company,
which consent shall not be unreasonably  withheld; and (iii) with respect to any
preliminary prospectus, shall not inure to the benefit of any Indemnified Person
if  the  untrue  statement  or  omission  of  material  fact  contained  in  the
preliminary  prospectus  was corrected on a timely basis in the  prospectus,  as
then  amended  or  supplemented,  such  corrected  prospectus  was  timely  made
available by the Company  pursuant to Section 3(c) hereof,  and the  Indemnified
Person was promptly advised in writing not to use the incorrect prospectus prior
to  the  use  giving  rise  to  a  Violation   and  such   Indemnified   Person,
notwithstanding  such advice, used it. Such indemnity shall remain in full force
and  effect  regardless  of  any  investigation  made  by or on  behalf  of  the
Indemnified Person and shall survive the transfer of the Registerable Securities
by the Holders pursuant to Section 9.

                                       6
<PAGE>

         b.       In  connection  with  any  Registration  Statement  in which a
Holder is  participating,  each such Holder agrees  severally and not jointly to
indemnify,  hold harmless and defend,  to the same extent and in the same manner
set forth in Section  6(a),  the  Company,  each of its  directors,  each of its
officers who signs the Resale Registration  Statement,  each person, if any, who
controls the Company within the meaning of the 1933 Act or the Exchange Act, any
underwriter  and  any  other  stockholder  selling  securities  pursuant  to the
Registration  Statement  or any of its  directors  or officers or any person who
controls such  stockholder or underwriter  within the meaning of the 1933 Act or
the Exchange Act  (collectively  and together  with an  Indemnified  Person,  an
"INDEMNIFIED PARTY"), against any Claim to which any of them may become subject,
under the 1933 Act, the Exchange Act or otherwise,  insofar as such Claim arises
out of or is based upon any Violation by such Holder, in each case to the extent
(and only to the extent)  that such  Violation  occurs in  reliance  upon and in
conformity  with  written  information  furnished  to the Company by such Holder
expressly for use in connection with such Registration Statement; and subject to
Section 6(c) such Holder will reimburse any legal or other expenses (promptly as
such expenses are incurred and are due and payable)  reasonably incurred by them
in connection with investigating or defending any such Claim; PROVIDED, HOWEVER,
that the indemnity  agreement  contained in this Section 6(b) shall not apply to
amounts paid in settlement of any Claim if such  settlement is effected  without
the  prior  written  consent  of  such  Holder,   which  consent  shall  not  be
unreasonably  withheld;  PROVIDED  FURTHER,  HOWEVER,  that the Holder  shall be
liable under this Agreement (including this Section 6(b) and Section 7) for only
that  amount as does not exceed the net  proceeds  to such Holder as a result of
the  sale  of  Registerable  Securities  pursuant  to  the  Resale  Registration
Statement.  Such indemnity  shall remain in full force and effect  regardless of
any  investigation  made by or on  behalf  of such  Indemnified  Party and shall
survive the transfer of the  Registerable  Securities by the Holder  pursuant to
Section 9.  Notwithstanding  anything  to the  contrary  contained  herein,  the
indemnification  agreement  contained  in this  Section 6(b) with respect to any
preliminary  prospectus shall not inure to the benefit of any Indemnified  Party
if  the  untrue  statement  or  omission  of  material  fact  contained  in  the
preliminary  prospectus  was corrected on a timely basis in the  prospectus,  as
then amended or supplemented.

         c.       Promptly after receipt by an Indemnified Person or Indemnified
Party  under  this  Section  6 of  notice  of the  commencement  of  any  action
(including any  governmental  action),  such  Indemnified  Person or Indemnified
Party  shall,  if a  Claim  in  respect  thereof  is  to  be  made  against  any
indemnifying  party under this  Section 6, deliver to the  indemnifying  party a
written notice of the commencement  thereof,  and the  indemnifying  party shall
have the right to participate in, and, to the extent the  indemnifying  party so
desires,  jointly with any other indemnifying party similarly noticed, to assume
control  of the  defense  thereof  with  counsel  mutually  satisfactory  to the
indemnifying  party and the Indemnified  Person or the Indemnified Party, as the
case may be; PROVIDED,  HOWEVER, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel  with the fees and expenses to be
paid by the  indemnifying  party,  if,  in the  reasonable  opinion  of  counsel
retained by the indemnifying  party, the  representation  by such counsel of the
Indemnified  Person or  Indemnified  Party and the  indemnifying  party would be
inappropriate  due to actual  or  potential  differing  interests  between  such
Indemnified  Person or Indemnified Party and any other party represented by such
counsel  in such  proceeding.  The  indemnifying  party  shall  pay for only one
separate legal counsel for the Indemnified  Persons or the Indemnified  Parties,
as  applicable,  and such legal counsel  shall be selected by Holders  holding a
majority-in-interest  of the  Registerable  Securities  included  in the  Resale
Registration  Statement  to which the Claim  relates  (with  the  approval  of a
majority-in-interest   of  the   Holders),   if  the  Holders  are  entitled  to
indemnification  hereunder,  or the  Company,  if the  Company  is  entitled  to
indemnification  hereunder, as applicable. The failure to deliver written notice
to the  indemnifying  party within a reasonable time of the  commencement of any
such action shall not relieve such  indemnifying  party of any  liability to the
Indemnified  Person or  Indemnified  Party  under this  Section 6, except to the
extent  that the  indemnifying  party is actually  prejudiced  in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by  periodic   payments  of  the  amount   thereof  during  the  course  of  the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.

                                       7
<PAGE>

         7.       CONTRIBUTION

         To  the  extent  any   indemnification  by  an  indemnifying  party  is
prohibited or limited by law, the indemnifying  party agrees to make the maximum
contribution  with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; PROVIDED,  HOWEVER, that
(i) no contribution shall be made under  circumstances where the maker would not
have been  liable for  indemnification  under the fault  standards  set forth in
Section  6, (ii) no  seller  of  Registerable  Securities  guilty of  fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registerable  Securities who was not
guilty of such fraudulent  misrepresentation,  and (iii) contribution  (together
with any  indemnification  or other  obligations  under this  Agreement)  by any
seller of Registerable  Securities  shall be limited in amount to the net amount
of  proceeds  received  by such  seller  from  the  sale  of  such  Registerable
Securities.

         8.       REPORTS UNDER THE 1934 ACT

         With a view to making available to the Holders the benefits of Rule 144
promulgated  under the 1933 Act or any other  similar rule or  regulation of the
SEC that may at any time permit the Holders to sell securities of the Company to
the public without registration ("RULE 144") once it is subject to the reporting
requirements of the Exchange Act, the Company agrees to:

         a.       make and keep public information available, as those terms are
understood and defined in Rule 144;

         b.       file with the SEC in a timely  manner  all  reports  and other
documents  required of the Company  under the 1933 Act and the  Exchange  Act so
long as the Company remains subject to such  requirements and the filing of such
reports and other  documents is required for the  applicable  provisions of Rule
144; and

         c.       furnish  to  each   Holder  so  long  as  such   Holder   owns
Registerable  Securities,  promptly upon request, (i) a written statement by the
Company that it has complied  with the reporting  requirements  of Rule 144, the
1933  Act  and the  Exchange  Act,  (ii) a copy of the  most  recent  annual  or
quarterly  report of the  Company,  and (iii) such other  information  as may be
reasonably  requested to permit such Holder to sell such securities  pursuant to
Rule 144 without registration.

         9.       ASSIGNMENT OF REGISTRATION RIGHTS

         The rights under this Agreement shall be automatically  assignable by a
Holder to any  transferee of all or any portion of  Registerable  Securities if:
(i) the Holder agrees in writing with the  transferee or assignee to assign such
rights,  and a copy of such  agreement  is  furnished  to the  Company  within a
reasonable time after such assignment,  (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such  transferee or assignee,  and (b) the  securities  with
respect to which such  registration  rights are being  transferred  or assigned,
(iii)  following  such transfer or assignment,  the further  disposition of such
securities by the  transferee  or assignee is restricted  under the 1933 Act and
applicable  state  securities  laws,  (iv) at or  before  the time  the  Company
receives the written notice  contemplated  by clause (ii) of this sentence,  the
transferee or assignee  agrees in writing with the Company to be bound by all of
the  provisions  contained  herein,  (v) such  transfer  shall have been made in
accordance with the applicable  requirements of the  Subscription  Agreement and
(vi) such transferee  shall be an "accredited  investor" as that term defined in
Rule 501 of Regulation D promulgated under the 1933 Act.

         10.      AMENDMENT OF REGISTRATION RIGHTS

         Provisions of this Agreement may be amended and the observance  thereof
may  be  waived  (either  generally  or  in a  particular  instance  and  either
retroactively  or  prospectively),  only with written consent of

                                       8
<PAGE>

the  Company  and  Holders  who hold a  majority  interest  of the  Registerable
Securities.  Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Holder and the Company.

         11.      MISCELLANEOUS

         a.       A person or  entity  is deemed to be a holder of  Registerable
Securities  whenever  such  person or entity  owns of record  such  Registerable
Securities.  If  the  Company  receives  conflicting  instructions,  notices  or
elections  from  two or more  persons  or  entities  with  respect  to the  same
Registerable  Securities,  the Company shall act upon the basis of instructions,
notice or  election  received  from the  registered  owner of such  Registerable
Securities.

         b.       Any notices  required or permitted to be given under the terms
hereof 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:

                  (i)      If to the Company:

                                    Vaughan Foods, Inc.
                                    216 Northeast 12th Street
                                    Moore, Oklahoma 73160
                                    Attention: Chief Financial Officer
                                    Facsimile:  405-895-6596

                           With copy to:

                                    Morse, Zelnick, Rose & Lander LLP
                                    405 Park Avenue
                                    New York, New York 10022
                                    Attention: Stephen A. Zelnick, Esq.
                                    Facsimile:  (212) 838-9190

                  (ii)     If  to  any   Holder:   to  the   address  set  forth
         immediately  below such  Holder's  name on the  signature  pages to the
         Subscription Agreement.

         c.       Failure  of any party to  exercise  any right or remedy  under
this  Agreement or otherwise,  or delay by a party in  exercising  such right or
remedy, shall not operate as a waiver thereof.

         d.       THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA  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 MOORE, OKLAHOMA 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

                                       9
<PAGE>

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.

         e.       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.

         f.       This  Agreement,  the  Subscription  Agreement  (including all
schedules and exhibits  thereto),  the Notes and all other documents relating to
this  transaction  (collectively,  the "TRANSACTION  DOCUMENTS")  constitute the
entire  agreement  among the parties  hereto with respect to the subject  matter
hereof  and  thereof.  There  are  no  restrictions,   promises,  warranties  or
undertakings,  other than those set forth or referred to herein and therein. The
Transaction  Documents  supersede all prior agreements and understandings  among
the parties hereto with respect to the subject matter hereof and thereof.

         g.       Subject  to  the  requirements  of  Section  9  hereof,   this
Agreement  shall be binding  upon and inure to the  benefit of the  parties  and
their successors and assigns.

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

         i.       This  Agreement  may be executed in two 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.

         j.       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.

         k.       Except as otherwise  provided  herein,  all consents and other
determinations  to be made by the Holders  pursuant to this  Agreement  shall be
made by Holders holding a majority of the Registerable Securities, determined as
if all Derivitive Securities then outstanding have been converted into shares of
Common Stock.

         l.       The  Company   acknowledges   that  a  breach  by  it  of  its
obligations  hereunder will cause  irreparable  harm to each Holder by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly, the
Company  acknowledges that the remedy at law for 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 any of the provisions under this Agreement,
that each Holder shall be entitled,  in addition to all other available remedies
in 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.

         m.       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.

                                       10
<PAGE>

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

                  VAUGHAN FOODS, INC.

                  /s/ Mark E. Vaughan
                  -------------------

                  Chief Executive Officer

                  HOLDER

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

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

                                       11

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