Document:

EXHIBIT 10.1

                          SECURITIES PURCHASE AGREEMENT

      This Securities  Purchase Agreement (this "Agreement") is dated as of July
27, 2006 among Diomed  Holdings,  Inc., a Delaware  corporation (the "Company"),
and each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a "Purchaser").

      WHEREAS,  subject to the terms and  conditions set forth in this Agreement
and  pursuant to Section  4(2) of the  Securities  Act of 1933,  as amended (the
"Securities  Act") and Rule 506 promulgated  thereunder,  the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, Securities of the Company.

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

                                   ARTICLE I.
                                   DEFINITIONS

      In  addition  to the  terms  defined  elsewhere  in  this  Agreement,  the
following terms shall have the following meanings:

            "2005  Annual  Report"  shall have the  meaning set forth in Section
      3.1(h).

            "2005  Preferred  Stock" means the Company's  Preferred  Stock,  par
      value $0.001,  established under a certificate of designations  filed with
      the Secretary of State of Delaware on September 30, 2005 and issued by the
      Company to the purchasers thereof on September 30, 2005.

            "2005 Purchase  Agreement"  means that certain  Securities  Purchase
      Agreement  entered  into on  September  30, 2005 among the Company and the
      purchasers identified on the signature pages thereto.

            "2006 Preferred  Stock" means the Series 2006 Preferred Stock of the
      Company,  par value $0.001 per share, to be purchased and sold pursuant to
      this  Agreement,  and any securities into which such preferred stock shall
      hereinafter have been reclassified  into, which preferred stock shall have
      those  rights  and  preferences  as are set  forth in the  Certificate  of
      Amendment.

            "2005 Stockholder Waiver" means, as to any Purchaser that holds 2005
      Preferred  Stock and elects not to exercise  its MFN Rights  with  respect
      thereto,  the waiver, in the form attached hereto as Exhibit C, of certain
      of such Purchaser's rights in connection with the 2005 Preferred Stock.

            "Action"  shall have the  meaning  ascribed  to such term in Section
      3.1(j).

<PAGE>

            "Affiliate"  means any Person that,  directly or indirectly  through
      one or more  intermediaries,  controls  or is  controlled  by or is  under
      common  control  with a Person,  as such  terms are used in and  construed
      under Rule 144 under the Securities Act. With respect to a Purchaser,  any
      investment  fund or managed  account  that is  managed on a  discretionary
      basis by the same  investment  manager as such Purchaser will be deemed to
      be an Affiliate of such Purchaser.

            "Certificate of Amendment" means the Certificate of Amendment to the
      Company's  Certificate of  Incorporation,  authorizing  the 2006 Preferred
      Stock and setting forth the powers,  designations,  preferences and rights
      of the 2006 Preferred Stock, substantially in the form of Exhibit A.

            "Closing"  means  the  closing  of  the  purchase  and  sale  of the
      Securities pursuant to Section 2.1.

            "Closing  Date" means the  Trading  Day when all of the  Transaction
      Documents  have been  executed  and  delivered by the  applicable  parties
      thereto, and all conditions  precedent to (i) the Purchasers'  obligations
      to pay the Issue Amount and (ii) the Company's  obligations to deliver the
      Securities have been satisfied or waived.

            "Closing  Price" means,  for any date,  the price  determined by the
      first of the following  clauses that  applies:  (a) if the Common Stock is
      then  listed or quoted on a Trading  Market,  the closing bid price of the
      Common Stock for such date (or the nearest  preceding date) on the Trading
      Market on which the Common  Stock is then  listed or quoted as reported by
      Bloomberg  Financial L.P.  (based on a Trading Day from 9:30 a.m.  Eastern
      Time to 4:00  p.m.  Eastern  Time);  (b) if the  Common  Stock is not then
      listed or quoted on a Trading  Market and if prices  for the Common  Stock
      are then quoted on the OTC  Bulletin  Board,  the closing bid price of the
      Common  Stock for such  date (or the  nearest  preceding  date) on the OTC
      Bulletin  Board;  (c) if the Common  Stock is not then listed or quoted on
      the OTC  Bulletin  Board  and if  prices  for the  Common  Stock  are then
      reported in the "Pink Sheets"  published by the National  Quotation Bureau
      Incorporated  (or a  similar  organization  or  agency  succeeding  to its
      functions of reporting prices), the most recent bid price per share of the
      Common Stock so reported; or (d) in all other cases, the fair market value
      of a share of  Common  Stock as  determined  by an  independent  appraiser
      selected in good faith by the Purchasers and reasonably  acceptable to the
      Company.

            "Commission" means the Securities and Exchange Commission.

            "Common  Stock"  means the common  stock of the  Company,  par value
      $0.001 per share,  and any  securities  into which such common stock shall
      hereinafter have been reclassified into.

            "Company  Counsel"  means  McGuireWoods  LLP,  with  offices at 1345
      Avenue of the Americas, 7th Floor, New York, New York 10105.

            "DB&R" shall have the meaning set forth in Section 5.18.

                                       2
<PAGE>

            "Debentures"   means  the  Company's   Variable   Rate   Convertible
      Debentures due October 25, 2008.

            "Disclosure  Schedules" shall have the meaning ascribed to such term
      in Section 3.1 hereof.

            "Distributions"  shall have the meaning ascribed to such term in the
      Certificate of Amendment.

            "Effective  Date"  means  the  date  that the  initial  Registration
      Statement  filed  by  the  Company  pursuant  to the  Registration  Rights
      Agreement is first declared effective by the Commission.

            "8-K Filing" shall have the meaning set forth in Section 4.8.

            "Evaluation  Date"  shall  have the  meaning  set  forth in  Section
      3.1(t).

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

            "Exchange  Price" shall mean One Dollar  Fifteen  Cents  ($1.15) per
      share of Common Stock when  Exchanged for 2006  Preferred  Stock under the
      Certificate of Amendment (subject to adjustment as provided thereunder).

            "Exempt  Issuance" means the issuance of: (a) shares of Common Stock
      or options to employees, officers, directors or consultants of the Company
      pursuant to any stock or option plan duly adopted by the  stockholders  of
      the  Company in any amount or outside of any such plan in an amount not to
      exceed 100,000  shares of Common Stock (or the equivalent  thereof) in any
      fiscal year of the Company;  (b) securities issued by the Company upon the
      exercise,  exchange or  conversion  of or adjustment in respect of (i) any
      securities issued hereunder or as contemplated by this Agreement, (ii) any
      Existing   Securities  Rights  or  (iii)   antidilution   adjustments  and
      adjustments   in   the   event   of   stock   splits,   stock   dividends,
      recapitalizations  and  similar  events in respect  of the 2006  Preferred
      Stock  or any  other  securities  hereafter  issued  by the  Company;  (c)
      securities  issued  pursuant to  acquisitions  or strategic  transactions;
      provided,  that any such  issuance  shall  only be to a Person  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
      receives  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 primary  business
      is investing in securities; and (d) securities issued as consideration for
      investment  banking,  financial  advisory  and/or  brokerage  services  in
      connection  with  the  purchase  and  sale  of the  2006  Preferred  Stock
      hereunder.

            "Existing Securities Rights" means (i) the rights, as of the date of
      this  Agreement,  of  the  holders  of  any  exchangeable  or  convertible
      securities, options or warrants issued and outstanding on the date of this
      Agreement in respect of  antidilution  adjustments  and adjustments in the
      event of stock  splits,  stock  dividends,  recapitalizations  and similar
      events; (ii) the rights, as of the date of this Agreement,  of the holders
      of 2005 Preferred  Stock to exchange their shares of 2005 Preferred  Stock
      for shares of 2006 Preferred Stock  hereunder,  in accordance with Section
      4.16 of the 2005  Purchase  Agreement  (the "MFN  Rights");  and (iii) any
      right of first refusal,  preemptive right, right of participation,  or any
      similar right, in each case as of the date of this Agreement, but only, in
      each such case,  to the extent that such rights are  described in Schedule
      3.1(g).

                                       3
<PAGE>

            "GAAP"  shall  have the  meaning  ascribed  to such term in  Section
      3.1(h) hereof.

            "Hazardous  Substances"  shall have the meaning set forth in Section
      3.1(ii).

            "Inspectors" shall have the meaning set forth in Section 4.26.

            "Intellectual  Property  Rights" shall have the meaning set forth in
      Section 3.1(o).

            "Issue Amount" means, as to each Purchaser,  the aggregate amount to
      be paid by such  Purchaser  (including  through the  exchange of shares of
      2005  Preferred  Stock  as  contemplated  in  Section  2.1)  for the  2006
      Preferred Stock purchased  hereunder as specified on Schedule 1 hereto (as
      the same may be adjusted as of the Closing  Date to reflect  exercises  of
      Existing  Securities  Rights after the date  hereof,  as  contemplated  by
      Section  2.1(b)) under the column with the heading  "Total Issue  Amount,"
      which amount is stated in United States Dollars.

            "Issue Price" means $11,500 per share of 2006 Preferred Stock.

            "Key Employee" shall have the meaning set forth in Section 3.1(k).

            "Knowledge"  (including  any  derivation  thereof)  means,  (i) with
      respect to an individual,  that (A) such individual is actually aware of a
      particular fact or other matter and (B) a prudent Person could be expected
      to discover or otherwise become aware of a particular fact or other matter
      in the  course of  conducting  a  reasonably  comprehensive  investigation
      concerning  the  existence  of such  fact or other  matter,  and (ii) with
      respect to a Person other than an  individual,  that any individual who is
      serving,  or who at any relevant time  pertaining to a particular  fact or
      other  matter  served,  as a director or officer of such Person has, or at
      such relevant time had, Knowledge of a particular fact or other matter.

            "Legend  Removal  Date"  shall have the meaning set forth in Section
      4.1(d).

            "Liens" means a lien, charge, security interest,  encumbrance, right
      of first  refusal,  preemptive  right or other  restriction of any kind or
      nature.

            "Limitation(s)  on  Ownership"  shall have the  meaning set forth in
      Section 4.17.

            "Liquidated  Damages  Cap" means 25% of the  aggregate  Issue Amount
      paid by the  Purchasers  for the  2006  Preferred  Stock  issued  and sold
      hereunder.

            "Liquidating  Event" shall have the meaning assigned to such term in
      the Certificate of Amendment.

                                       4
<PAGE>

            "MFN  Rights"  shall have the  meaning  assigned to such term in the
      definition of the term "Existing Securities Rights."

            "Material Adverse Change" shall mean any of the matters set forth in
      clauses (i) through (xi) of Section 3.1(i) hereof.

            "Material  Adverse  Effect" shall have the meaning  assigned to such
      term in Section 3.1(b) hereof.

            "Material  Contract"  shall  have the  meaning  set forth in Section
      3.1(h).

            "Material  Permits" shall have the meaning  ascribed to such term in
      Section 3.1(m).

            "Observer" shall have the meaning set forth in Section 4.7.

            "Par Warrant" shall have the meaning set forth in Section 4.17.

            "Participation  Maximum" shall have the meaning set forth in Section
      4.15.

            "Person"  means an individual or  corporation,  partnership,  trust,
      incorporated  or  unincorporated   association,   joint  venture,  limited
      liability  company,  joint  stock  company,  government  (or an  agency or
      subdivision  thereof)  or  other  entity  of any  kind.  "Preferred  Stock
      Participating  Purchasers" shall have the meaning ascribed to such term in
      Section 4.15.

            "Pre-Notice" shall have the meaning set forth in Section 4.15.

            "Press Release" shall have the meaning set forth in Section 4.8.

            "Pro Rata Portion" shall have the meaning set forth in Section 4.15.

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

            "Proceeds"  shall  have the  meaning  ascribed  to such  term in the
      Certificate of Amendment.

            "Purchaser Party" shall have the meaning set forth in Section 4.13.

            "Qualified Equity Financing" means any transaction undertaken by the
      Company to raise funds for general  working  capital  purposes in exchange
      for the sale of its equity  securities or any other securities that may be
      converted  into or exchanged for its equity  securities or on the exercise
      of  which  its  equity  securities  may  be  purchased,  with  or  without
      additional  consideration.  For the avoidance of doubt, a Qualified Equity
      Financing  shall not include any  issuance of shares by the Company  where
      such issuance either (i) constitutes an Exempt Issuance, (ii) is made upon
      the exercise of warrants,  conversion  of Debentures or exchange of shares
      of 2005 Preferred Stock  outstanding on the date hereof,  (iii) is made in
      exchange for services provided to the Company or its Subsidiaries, so long
      as the value of the  shares  issued  do not  exceed  $500,000  for any one
      service  provider or $2,000,000 in the aggregate,  (iv) to any underwriter
      or  financial  advisor to the  Company or its  Subsidiaries  or (v) in any
      transaction  the  purpose  of  which  shall  be  for  the  Company  or any
      Subsidiary  to acquire  the  business  of  another  entity and not for the
      primary purpose of raising additional capital.

                                       5
<PAGE>

            "Registration   Rights  Agreement"  means  the  Registration  Rights
      Agreement,  dated as of the Closing Date, by and among the Company and the
      Purchasers, in the form of Exhibit B attached hereto.

            "Registration  Statement" means a registration statement meeting the
      requirements set forth in the  Registration  Rights Agreement and covering
      the resale of the  Underlying  Shares by each Purchaser as provided for in
      the Registration Rights Agreement.

            "Required Approvals" shall have the meaning ascribed to such term in
      Section 3.1(e).

            "Required  Minimum"  means,  as of any date,  the maximum  aggregate
      number of shares of Common  Stock then issued or  potentially  issuable in
      the future pursuant to the Transaction Documents, including any Underlying
      Shares  issuable upon the exchange of all 2006 Preferred  Stock,  ignoring
      any exchange,  conversion or exercise limits set forth therein, determined
      on the  basis of the  Exchange  Rate (as  defined  in the  Certificate  of
      Amendment), in each case as in effect on the Trading Day immediately prior
      to the date of determination.

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

            "SEC  Reports"  shall  have the  meaning  ascribed  to such  term in
      Section 3.1(h) hereof.

            "Securities"  means  the 2006  Preferred  Stock  and the  Underlying
      Shares.

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

            "Select  SEC  Reports"  shall have the  meaning set forth in Section
      3.1(h).

            "Stockholder  Approval"  means,  to  the  extent  such  approval  is
      determined to be required in the Company's reasonable  discretion upon the
      advice of its counsel, (i) the approval of the stockholders of the Company
      pursuant to the applicable rules and regulations of the applicable Trading
      Market  (or  any  successor  entity)  with  respect  to  the  transactions
      contemplated by the Transaction  Documents,  including without  limitation
      (i) the  issuance of all of the  Underlying  Shares in excess of 19.9% for
      less than the greater of book or market value of the Common Stock and (ii)
      the  amendment  of  the  Company's  Certificate  of  Incorporation  to (a)
      authorize the Preferred Stock having the powers, designations, preferences
      and rights set forth in the  Certificate of Amendment and (b) increase the
      number of shares of Common Stock that the Company is  authorized  to issue
      from the  current  50,000,000  shares to  60,000,000  shares and (iii) any
      other  matters that may  reasonably  be  determined  necessary in order to
      comply with the rules of the applicable Trading Market.

                                       6
<PAGE>

            "Subsequent  Financing" shall have the meaning ascribed to such term
      in Section 4.15.

            "Subsequent  Financing  Notice"  shall have the meaning set forth in
      Section 4.15.

            "Subsidiary"  means any  subsidiary  of the  Company as set forth on
      Schedule 3.1(a).

            "Trading  Day" means a day on which the Common  Stock is traded on a
      Trading Market.

            "Trading  Market" means the following  markets or exchanges on which
      the Common  Stock is listed or quoted for trading on the date in question:
      the Nasdaq  SmallCap  Market,  the American Stock  Exchange,  the New York
      Stock Exchange or the Nasdaq National Market.

            "Transaction  Documents"  means this  Agreement,  the Certificate of
      Amendment,  the Registration  Rights  Agreement,  the Par Warrants and any
      other documents or agreements executed in connection with the transactions
      contemplated hereunder.

            "Underlying  Shares" means the shares of Common Stock  issuable upon
      exchange  of the 2006  Preferred  Stock  pursuant  to the  Certificate  of
      Amendment  and upon  exercise  of the Par  Warrants  pursuant to the terms
      thereof.

                                  ARTICLE II.
                                PURCHASE AND SALE

2.1   Closing.

      (a) On the Closing Date,  upon the terms and subject to the conditions set
forth herein,  concurrent  with the execution and delivery of this  Agreement by
the parties  hereto,  the Company agrees to sell,  and each Purchaser  agrees to
purchase in the  aggregate,  severally  and not jointly,  its  respective  Issue
Amount of 2006 Preferred  Stock,  at the purchase price of Eleven  Thousand Five
Hundred Dollars  ($11,500.00) per share. 2006 Preferred Stock shall be purchased
and sold hereunder. Each Purchaser shall deliver to the Company: (i) immediately
available  funds equal to the  "Purchased  Issue Amount" set forth on Schedule 1
for such  Purchaser,  via wire transfer or certified  check,  (ii) the number of
shares of 2005  Preferred  Stock set forth on Schedule 1 for such  Purchaser for
exchange  pursuant  to the MFN  Rights of such  Purchaser,  or (iii) both of the
foregoing,  as  applicable;  and the Company shall deliver to each Purchaser its
respective  shares of 2006  Preferred  Stock at the  Closing.  There  shall be a
single  Closing at which all  purchases and sales of shares  hereunder  shall be
made  concurrently on the same Trading Date. Upon satisfaction of the conditions
set forth in Section  2.2,  the  Closing  shall  occur at the offices of Company
Counsel,  McGuireWoods  LLP,  located  in New York,  New York,  or at such other
location as the parties shall mutually agree.

                                       7
<PAGE>

      (b) In the event that a holder of shares of 2005 Preferred  Stock (whether
or not a  Purchaser  hereunder)  delivers  notice to the  Company,  pursuant  to
Section 4.16 of the 2005 Purchase Agreement, of its election to exercise its MFN
Rights at any time after the date of this  Agreement  and prior to the  Closing,
(i) Schedule 1 shall be modified  accordingly  to reflect the  additional  Issue
Amount to be purchased by such holder and (ii) if such holder was not previously
a Purchaser under this  Agreement,  such holder shall execute and deliver to the
Company a  counterpart  to this  Agreement  and  thereby  be deemed a  Purchaser
hereunder.  Within one Business Day following its receipt of the election notice
from such holder of its MFN  Rights,  the Company  shall  provide  notice to SDS
Capital Group SPC,  Ltd. of the terms of such exercise of MFN Rights  (including
the Issue Amount to be purchased by such holder in connection therewith). In the
event that the Issue Amount to be purchased  by SDS Capital  Group SPC,  Ltd. at
the Closing would  constitute  less than 51% of the aggregate Issue Amount to be
purchased  at the Closing for cash  (excluding  shares of 2006  Preferred  Stock
issued upon  exchange  of 2005  Preferred  Stock  pursuant to MFN Rights) by all
Purchasers,  then SDS Capital Group SPC, Ltd.  shall have the option to purchase
for cash such  number of  additional  shares  of 2006  Preferred  Stock as would
permit SDS Capital  Group SPC,  Ltd.  to  purchase  for cash at least 51% of the
aggregate Issue Amount to be purchased at the Closing for cash (excluding shares
of 2006 Preferred Stock issued upon exchange of 2005 Preferred Stock pursuant to
MFN Rights) by all Purchasers.

2.2   Deliveries.

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

            (i)   this Agreement duly executed by the Company;

            (ii)  certificates  evidencing  the shares of 2006  Preferred  Stock
                  purchased by each Purchaser (including through the exchange of
                  shares of 2005  Preferred  Stock pursuant to the MFN Rights of
                  such Purchaser);

            (iii) the  Registration   Rights  Agreement  duly  executed  by  the
                  Company;

            (iv)  a copy of the  Certificate  of  Amendment  as  filed  with the
                  Secretary of State of the State of Delaware on or prior to the
                  Closing Date, certified by the Secretary of State of Delaware;

            (v)   a legal opinion of Company Counsel,  substantially in the form
                  of Exhibit D attached hereto; and

                                       8
<PAGE>

            (vi)  a copy of resolutions,  duly adopted by the Board of Directors
                  of the Company, which shall be in full force and effect at the
                  time of the Closing,  authorizing the execution,  delivery and
                  performance  by the  Company of this  Agreement  and the other
                  Transaction  Documents and the  consummation by the Company of
                  the transactions contemplated hereby and thereby, certified as
                  such by the  Secretary or Assistant  Secretary of the Company,
                  and such other documents they reasonably request in connection
                  with the Closing.

      (b) On the  Closing  Date,  each  Purchaser  shall  deliver or cause to be
delivered to the Company the following:

            (i)   this Agreement duly executed by such Purchaser;

            (ii)  such Purchaser's  "Purchased Issue Amount" by wire transfer to
                  the account as  specified  in writing by the  Company  and, if
                  such  Purchaser  is a holder of 2005  Preferred  Stock and has
                  elected to  exercise  its MFN  Rights,  the share  certificate
                  representing   the  shares  of  2005  Preferred   Stock  being
                  exchanged for shares of 2006 Preferred  Stock pursuant to such
                  MFN Rights;

            (iii) if such Purchaser is a holder of 2005 Preferred  Stock and has
                  not elected to exercise its MFN Rights,  the 2005  Stockholder
                  Waiver, duly executed by such Purchaser; and

            (iv)  the  Registration  Rights  Agreement  duly  executed  by  such
                  Purchaser.

2.3   Closing Conditions.

      (a) The  obligations  of the  Company  hereunder  in  connection  with the
Closing are subject to the following conditions being met:

            (i)   the Company  shall have  obtained  written  confirmations  and
                  waivers  from  holders  of  Existing   Securities   Rights  as
                  described in Schedule 2.3(a)(i);

            (ii)  the representations and warranties of the Purchasers contained
                  herein shall be true and correct;

            (iii) all  obligations,  covenants and  agreements of the Purchasers
                  required to be  performed,  satisfied  or complied  with at or
                  prior to the Closing Date shall have been performed, satisfied
                  or complied with;

            (iv)  Stockholder Approval shall have been obtained; and

                                       9
<PAGE>

            (v)   the  delivery  by the  Purchasers  of the  items  set forth in
                  Section 2.2(b) of this Agreement.

      (b) The respective  obligations of the Purchasers  hereunder in connection
with the Closing are subject to the following conditions being met:

            (i)   the  representations  and warranties of the Company  contained
                  herein shall be true and correct;

            (ii)  all  obligations,  covenants  and  agreements  of the  Company
                  required to be  performed,  satisfied  or complied  with at or
                  prior to the Closing Date shall have been performed, satisfied
                  or complied with;

            (iii) the  Company  shall  have  duly  adopted  the  Certificate  of
                  Amendment  and filed the  Certificate  of  Amendment  with the
                  Secretary of State of the State of Delaware;

            (iv)  the  delivery by the Company of the items set forth in Section
                  2.2(a) of this Agreement;

            (v)   there shall have been no Material  Adverse Change with respect
                  to the Company since the date hereof; and

            (vi)  from the date  hereof  to the  Closing  Date,  trading  in the
                  Common Stock shall not have been  suspended by the  Commission
                  (except  for any  suspension  of trading  of limited  duration
                  agreed to by the Company, which suspension shall be terminated
                  prior to the  Closing),  and, at any time prior to the Closing
                  Date, trading in securities generally as reported by Bloomberg
                  Financial Markets shall not have been suspended or limited, or
                  minimum  prices shall not have been  established on securities
                  whose trades are reported by such  service,  or on any Trading
                  Market,  nor shall a  banking  moratorium  have been  declared
                  either by the United States or New York State authorities;

            (vii) the Company  shall have  obtained  written  confirmations  and
                  waivers  from  holders  of  Existing   Securities   Rights  as
                  described in Schedule 2.3(a)(i); and

            (viii) Stockholder Approval shall have been obtained.

                                       10
<PAGE>

                                  ARTICLE III.
                         REPRESENTATIONS AND WARRANTIES

      3.1  Representations  and  Warranties of the Company.  Except as set forth
under the  corresponding  section of the disclosure  schedules  delivered to the
Purchasers concurrently herewith (the "Disclosure Schedules"),  which Disclosure
Schedules  shall be deemed a part  hereof,  the Company  hereby  represents  and
warrants as of the date hereof and as of the Closing  Date to each  Purchaser as
follows:

            (a) Subsidiaries. All of the direct and indirect Subsidiaries of the
      Company are set forth on Schedule  3.1(a).  The Company owns,  directly or
      indirectly,  all of the capital  stock or other  equity  interests of each
      Subsidiary free and clear of any Liens, and all the issued and outstanding
      shares of capital  stock of each  Subsidiary  are  validly  issued and are
      fully paid,  non-assessable  and free of preemptive  and similar rights to
      subscribe for or purchase securities.  If the Company has no Subsidiaries,
      then references in the Transaction  Documents to the Subsidiaries  will be
      disregarded.

            (b)  Organization  and  Qualification.  Each of the  Company and the
      Subsidiaries  is an  entity  duly  incorporated  or  otherwise  organized,
      validly  existing and in good standing under the laws of the  jurisdiction
      of its  incorporation or organization (as applicable),  with the requisite
      power and authority to own and use its  properties and assets and to carry
      on its  business  as  currently  conducted.  Neither  the  Company nor any
      Subsidiary  is in  violation  or default of any of the  provisions  of its
      respective  certificate  or  articles  of  incorporation,  bylaws or other
      organizational  or  charter  documents.   Each  of  the  Company  and  the
      Subsidiaries is duly qualified to conduct business and is in good standing
      as a foreign corporation or other entity in each jurisdiction in which the
      nature  of the  business  conducted  or  property  owned by it makes  such
      qualification necessary, except where the failure to be so qualified or in
      good  standing,  as the  case may be,  could  not  have or  reasonably  be
      expected  to result in a Material  Adverse  Effect.  For  purposes of this
      Agreement,  "Material Adverse Effect" means any effect which, individually
      or in the aggregate with all other effects reasonably would be expected to
      be materially  adverse to (i) the legality,  validity or enforceability of
      any  Transaction  Document,  (ii)  the  results  of  operations,   assets,
      business,  prospects  or  financial  condition  of  the  Company  and  the
      Subsidiaries,  taken as a whole, or (iii) the Company's ability to perform
      on a timely basis its obligations under any Transaction  Document.  To the
      Company's  Knowledge,  no  Proceeding  has  been  instituted  in any  such
      jurisdiction revoking,  limiting or curtailing or seeking to revoke, limit
      or curtail such power and authority or qualification.

            (c)  Authorization;  Enforcement.  The  Company  has  the  requisite
      corporate  power  and  authority  to  enter  into  and to  consummate  the
      transactions  contemplated by each of the  Transaction  Documents to issue
      and sell the 2006 Preferred  Stock in accordance with the terms hereof and
      to issue the Underlying  Shares upon exchange of the 2006 Preferred  Stock
      in  accordance  with the terms  thereof;  and  otherwise  to carry out its
      obligations thereunder. The execution, delivery and performance of each of
      the Transaction Documents by the Company and the consummation by it of the
      transactions  contemplated  thereby (including,  without  limitation,  the
      issuance of the 2006 Preferred  Stock and the issuance and reservation for
      issuance  of the  Underlying  Shares)  have  been duly  authorized  by all
      necessary  action  on the part of the  Company  and no  further  action is
      required by the Company,  its board of  directors or any  committee of the
      board of directors,  in connection therewith other than in connection with
      the  Required  Approvals.  Each  Transaction  Document  has  been (or upon
      delivery will have been) duly executed by the Company and, when  delivered
      in accordance with the terms hereof, will constitute the valid and binding
      obligation  of the Company  enforceable  against the Company in accordance
      with its terms.  Neither the  execution,  delivery or  performance  by the
      Company  of its  obligations  under  the  Transaction  Documents,  nor the
      consummation by it of the transactions  contemplated  thereby  (including,
      without  limitation,  the  issuance  of the  2006  Preferred  Stock or the
      issuance or reservation  for issuance of the Underlying  Shares)  requires
      any consent or authorization of the Company's stockholders.

                                       11
<PAGE>

            (d) No  Conflicts.  Except as  described  in  Schedule  3.1(d),  the
      execution,  delivery and performance of the  Transaction  Documents by the
      Company  and the  consummation  by the  Company of the other  transactions
      contemplated thereby (including,  without limitation,  the issuance of the
      2006 Preferred  Stock and the issuance and reservation for issuance of the
      Underlying  Shares) do not and will not: (i) conflict  with or violate any
      provision of the Company's or any Subsidiary's  certificate or articles of
      incorporation,  bylaws or other  organizational or charter  documents,  or
      (ii) conflict  with, or constitute a default (or an event that with notice
      or lapse of time or both  would  become a  default)  under,  result in the
      creation of any Lien upon any of the  properties  or assets of the Company
      or any Subsidiary, or give to others any rights of termination,  amendment
      (including,  without  limitation,  the  triggering  of  any  anti-dilution
      provisions),  acceleration or cancellation (with or without notice,  lapse
      of time or  both)  of,  any  agreement,  credit  facility,  debt or  other
      instrument (evidencing a Company or Subsidiary debt or otherwise) to which
      the Company or any Subsidiary is a party or by which any property or asset
      of the Company or any Subsidiary is bound or affected, or (iii) subject to
      the Required Approvals, conflict with or result in a violation of any law,
      rule, regulation, order, judgment, injunction, decree or other restriction
      of  any  court  or  governmental  authority  to  which  the  Company  or a
      Subsidiary is subject  (including federal and state securities laws, rules
      and  regulations   and  rules  and  regulations  of  any   self-regulatory
      organizations  to which either the Company or its securities are subject),
      or by which any property or asset of the Company or a Subsidiary  is bound
      or affected,  or (iv)  conflict with or violate the terms of any agreement
      by which the Company or any  Subsidiary  is bound or to which any property
      or asset of the Company or any Subsidiary is bound or affected;  except in
      the case of each of clauses (ii) through  (iv),  such as could not have or
      reasonably be expected to result in a Material Adverse Effect.

            (e) Filings, Consents and Approvals. Except as set forth on Schedule
      3.1(e),  the  Company  is not  required  to obtain  any  consent,  waiver,
      authorization  or order of,  give any  notice  to,  or make any  filing or
      registration  with,  any  court or other  federal,  state,  local or other
      governmental  authority or other Person in connection  with the execution,
      delivery  and  performance  by the Company of the  Transaction  Documents,
      other than (i) Stockholder Approval; (ii) the filing of the Certificate of
      Amendment, (iii) filings required pursuant to Section 4.8, (iv) the filing
      with the Commission of the Registration  Statement,  (v) the notice and/or
      application(s) to each applicable Trading Market for the issuance and sale
      of the 2006 Preferred  Stock and the listing of the Underlying  Shares and
      (vi) the  filing of Form D with the  Commission  and such  filings  as are
      required to be made under  applicable  state securities or "blue sky" laws
      (collectively, the "Required Approvals").

                                       12
<PAGE>

            (f)  Issuance of the  Securities.  Except as  described  in Schedule
      3.1(f),  the Securities are duly  authorized and, when issued and paid for
      in accordance with the applicable Transaction Documents,  (i) will be duly
      and validly issued,  fully paid and  nonassessable,  free and clear of all
      Liens other than  restrictions on transfer provided for in the Transaction
      Documents,  (ii)  except as  described  on  Schedule  3.1(f),  will not be
      subject to  preemptive  rights,  rights of first  refusal or other similar
      rights of  stockholders  of the Company or any other person and (iii) will
      not impose  personal  liability on the holder  thereof.  As of the Closing
      Date,  the Company will have  reserved  from its duly  authorized  capital
      stock a number of shares of Common  Stock for  issuance of the  Underlying
      Shares at least equal to 125% of the Required  Minimum on the date hereof.
      The Company has not, and to the Knowledge of the Company,  no Affiliate of
      the  Company  has sold,  offered  for sale or  solicited  offers to buy or
      otherwise  negotiated  in respect of any security (as defined in Section 2
      of the Securities  Act) that would be integrated with the offer or sale of
      the Securities in a manner that would require the  registration  under the
      Securities  Act of the sale of the Securities to the  Purchasers,  or that
      would be integrated  with the offer or sale of the Securities for purposes
      of the rules and regulations of any Trading Market.

            (g) Capitalization. The capitalization of the Company as of the date
      hereof,  including  the  authorized  capital  stock,  the number of shares
      issued and  outstanding,  the number of shares  issuable  and reserved for
      issuance  pursuant to the  Company's  stock  option  plans,  the number of
      shares  issuable and reserved for issuance  pursuant to securities  (other
      than the  2006  Preferred  Stock)  exercisable  or  exchangeable  for,  or
      convertible  into, any shares of capital stock and the number of shares to
      be reserved for issuance upon exchange of the 2006 Preferred  Stock is set
      forth  in  Schedule   3.1(g).   Schedule  3.1(g)  describes  all  Existing
      Securities  Rights as of the date of this  Agreement  and  identifies  the
      holders (or class or similar description of holders similarly situated) of
      such Existing  Securities Rights.  Except as described in Schedule 3.1(g),
      no  Person  has any right of first  refusal,  preemptive  right,  right of
      participation,  or any similar right to  participate  in the  transactions
      contemplated by the Transaction Documents. Except as described in Schedule
      3.1(g), and except as a result of the purchase and sale of the Securities,
      there are no outstanding options,  warrants,  script,  rights to subscribe
      to,  calls or  commitments  of any  character  whatsoever  relating to, or
      securities,  rights or  obligations  convertible  into or  exercisable  or
      exchangeable  for,  or giving  any Person  any right to  subscribe  for or
      acquire, any shares of capital stock of the Company or any Subsidiary,  or
      contracts,  commitments,  understandings  or  arrangements  by  which  the
      Company  or any  Subsidiary  is or may  become  bound to issue  additional
      shares of capital stock of the Company or any Subsidiary, or securities or
      rights  convertible  or  exchangeable  into shares of capital stock of the
      Company  or  any  Subsidiary  nor  are  any  such  issuances,   contracts,
      commitments,  understandings or arrangements contemplated.  Except for the
      Securities  and  as  set  forth  in  Schedule  3.1(g),  (i)  there  are no
      contracts,  commitments,  understandings  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  Securities  Act  (except  the
      Registration  Rights  Agreement);   and  (ii)  there  are  no  outstanding
      securities or instruments of the Company or any of its Subsidiaries  which
      contain any redemption or similar provisions,  and there are no contracts,
      commitments, understandings or arrangements by which the Company or any of
      its Subsidiaries is or may become bound to redeem or otherwise acquire any
      security of the Company or any of its Subsidiaries.  The issuance and sale
      of the Securities  will not obligate the Company to issue shares of Common
      Stock or other  securities to any Person (other than the  Purchasers)  and
      will not result in a right of any holder of Company  securities  to adjust
      the exercise,  conversion,  exchange or reset price under such securities,
      and all such securities or instruments  are set forth on Schedule  3.1(g).
      All of the outstanding  shares of capital stock of the Company are validly
      issued, fully paid and nonassessable,  have been issued in compliance with
      all federal and state securities laws, and none of such outstanding shares
      was issued in  violation  of any  preemptive  rights or similar  rights to
      subscribe  for or  purchase  securities.  Except  as  contemplated  by the
      Transaction Documents with respect to the applicable rules and regulations
      of the American  Stock  Exchange  (or any  successor  entity),  no further
      approval or authorization  of any  stockholder,  the Board of Directors of
      the  Company  or  others  is  required  for the  issuance  and sale of the
      Securities.  Except  as  disclosed  in  the  SEC  Reports,  there  are  no
      stockholders  agreements,  voting  agreements or other similar  agreements
      with  respect to the  Company's  capital  stock to which the  Company is a
      party or, to the  Knowledge  of the  Company,  between or among any of the
      Company's stockholders.

                                       13
<PAGE>

            (h) SEC  Reports;  Financial  Statements.  The Company has filed all
      reports,  schedules,  forms, statements and other documents required to be
      filed by it under  the  Securities  Act and the  Exchange  Act,  including
      pursuant to Section 13(a) or 15(d)  thereof,  since February 14, 2002 (the
      foregoing  materials,  including the exhibits thereto,  being collectively
      referred to herein as the "SEC Reports") on a timely basis or has received
      a valid  extension  of such  time of  filing  and has  filed  any such SEC
      Reports prior to the  expiration of any such  extension.  The SEC Reports,
      after  giving  effect to all  amendments  filed  thereon,  complied in all
      material  respects with the  requirements  of the  Securities  Act and the
      Exchange Act and the rules and  regulations of the Commission  promulgated
      thereunder,  and none of the SEC Reports, when filed, contained any untrue
      statement of a material  fact or omitted to state a material fact required
      to be stated therein or necessary in order to make the statements therein,
      in light of the circumstances  under which they were made, not misleading.
      None of the  statements  made in any  such SEC  Report  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  made
      prior  to the  date  hereof).  The  financial  statements  of the  Company
      included  in  the  SEC  Reports  comply  in  all  material  respects  with
      applicable  accounting  requirements  and the rules and regulations of the
      Commission with respect  thereto as in effect at the time of filing.  Such
      financial  statements  have been prepared in accordance with United States
      generally  accepted  accounting  principles  applied on a consistent basis
      during the periods involved ("GAAP"), except as may be otherwise specified
      in  such  financial  statements  or the  notes  thereto  and  except  that
      unaudited  financial  statements may not contain all footnotes required by
      GAAP,  and  fairly  present  in all  material  respects  the  consolidated
      financial position of the Company and its consolidated  Subsidiaries as of
      and for the dates thereof and the  consolidated  results of operations and
      cash flows for the periods then ended,  subject,  in the case of unaudited
      statements,  to normal,  immaterial,  year-end audit  adjustments.  To the
      extent required by the rules and regulations of the Commission  applicable
      thereto,  the Select SEC Reports  contain a complete and accurate  list of
      all material undischarged written or oral contracts, agreements, leases or
      other  instruments to which the Company or any Subsidiary is a party or by
      which  the  Company  or any  Subsidiary  is bound  or to which  any of the
      properties or assets of the Company or any  Subsidiary is subject (each, a
      "Material Contract").  Except as set forth in the Select SEC Reports, none
      of the Company, its Subsidiaries or, to the best Knowledge of the Company,
      any of the other parties thereto is in breach or violation of any Material
      Contract,  which breach or violation would have a Material Adverse Effect.
      For purposes of this  Agreement,  "Select SEC Reports" means the Company's
      (A) Proxy Statement for its 2006 Annual Meeting, (B) Annual Report on Form
      10-KSB/A  for the fiscal year ended  December  31, 2005 (the "2005  Annual
      Report"), (C) Quarterly Report on Form 10-QSB for the fiscal quarter ended
      March 31, 2006, (D) Quarterly Report on Form 10-QSB for the fiscal quarter
      ended June 30,  2006 (if the same has been filed by the  Company  with the
      Commission on or prior to the  execution and delivery of this  Agreement);
      and (E) Current Reports on Form 8-K filed with the Commission  since March
      31, 2006.

                                       14
<PAGE>

            (i)  Material  Changes.  Except as  described  in the SEC Reports or
      Schedule 3.1(i), since the date of the latest audited financial statements
      included within the SEC Reports,  except as specifically  disclosed in the
      SEC Reports:

                  (i)   there has been no event,  occurrence or development that
                        has had or that could  reasonably  be expected to result
                        in a Material Adverse Effect;

                  (ii)  the Company has not incurred any liabilities (contingent
                        or otherwise)  other than (A) trade payables and accrued
                        expenses  incurred  in the  ordinary  course of business
                        consistent  with past practice and (B)  liabilities  not
                        required  to be  reflected  in the  Company's  financial
                        statements  pursuant to GAAP or required to be disclosed
                        in filings made with the Commission;

                  (iii) the Company has not altered its method of accounting;

                  (iv)  the  Company has not  declared  or made any  dividend or
                        distribution   of  cash  or   other   property   to  its
                        stockholders   or   purchased,   redeemed  or  made  any
                        agreements  to  purchase  or  redeem  any  shares of its
                        capital stock;

                  (v)   the Company has not issued any equity  securities to any
                        officer,  director  or  Affiliate,  except  pursuant  to
                        existing Company stock option plans;

                  (vi)  there has been no material damage,  destruction or loss,
                        whether  or not  covered by  insurance  to any assets or
                        properties of the Company or its Subsidiaries;

                  (vii) there  has  been  no  waiver  by  the   Company  or  any
                        Subsidiary  of a material  right or of a  material  debt
                        owed to it;

                                       15
<PAGE>

                  (viii) there has been no change or amendment to the  Company's
                        Certificate  of  Incorporation  or by-laws,  or material
                        change to any material  contract or arrangement by which
                        the Company or any  subsidiary  is bound or to which any
                        of their respective assets or properties is subject;

                  (ix)  there has been no loss of services of any key  employee,
                        or material  change in the  composition or duties of the
                        senior management of the Company or any Subsidiary;

                  (x)   there  has  been  no  loss  or  threatened  loss  of any
                        customer  which has had or could  reasonably be expected
                        to have a Material Adverse Effect; and

                  (xi)  there has been no material  transaction  entered into by
                        the Company or a  Subsidiary  other than in the ordinary
                        course of business.

            The Company has not taken any steps,  and does not currently  expect
      to take any  steps,  to seek  protection  pursuant  to any  bankruptcy  or
      receivership law, nor does the Company or any of its Subsidiaries have any
      Knowledge  or reason to  believe  that its  creditors  intend to  initiate
      involuntary  bankruptcy  proceedings with respect to the Company or any or
      its Subsidiaries.

            (j)  Litigation.  Except as described in the SEC Reports or Schedule
      3.1(j), there is no action, suit, inquiry, notice of violation, proceeding
      or investigation  pending or, to the Knowledge of the Company,  threatened
      against  or  affecting  the  Company,  any  Subsidiary  or  any  of  their
      respective properties, or any of their respective directors or officers in
      the  capacity as such before or by any court,  public  board,  arbitrator,
      governmental or administrative  agency or regulatory  authority  (federal,
      state, county, local or foreign)  (collectively,  an "Action").  Except as
      described in Schedule 3.1(j), neither the Company nor any Subsidiary,  nor
      any director or officer thereof,  is or has been the subject of any Action
      involving a claim of  violation  of or  liability  under  federal or state
      securities  laws or a  claim  of  breach  of  fiduciary  duty.  Except  as
      described in Schedule 3.1(j),  there has not been, and to the Knowledge of
      the Company,  there is not pending or contemplated,  any  investigation by
      the Commission  involving the Company or any current or former director or
      officer of the  Company.  Except as  described  in  Schedule  3.1(j),  the
      Commission  has not issued any stop order or other  order  suspending  the
      effectiveness  of any  registration  statement filed by the Company or any
      Subsidiary  under the  Exchange  Act or the  Securities  Act.  Except with
      respect to  Intellectual  Property  Rights of the Company,  the  Company's
      representations  and  warranties as to which are set forth  exclusively in
      Section 3.1(o), to the Company's  Knowledge,  there are no facts which, if
      known by a potential claimant or governmental  authority,  could give rise
      to a claim or  proceeding  which,  if asserted or  conducted  with results
      unfavorable to the Company or any of its Subsidiaries, could reasonably be
      expected to have a Material Adverse Effect.

                                       16
<PAGE>

            (k) Labor  Relations.  No material  labor dispute  exists or, to the
      Knowledge of the Company, is imminent with respect to any of the employees
      of the Company which could  reasonably be expected to result in a Material
      Adverse Effect.

            Each of the  Company's  directors  and officers and any Key Employee
      (as  defined  below) is  currently  serving  the  Company in the  capacity
      disclosed in the Select SEC Documents or Schedule 3.1(k).  No Key Employee
      is, or is now expected to be, in  violation  of any  material  term of any
      employment   contract,   confidentiality,    disclosure   or   proprietary
      information agreement, non-competition agreement, or any other contract or
      agreement with the Company or any of its  Subsidiaries  or any restrictive
      covenant,  and the  continued  employment  of each Key  Employee  does not
      subject the Company or any of its  Subsidiaries to any material  liability
      with respect to any of the foregoing matters. Other than Kevin Stearn, who
      resigned from the Company's Subsidiary, Diomed, Ltd., on July 10, 2006, as
      disclosed in the SEC Reports, no Key Employee has, to the Knowledge of the
      Company and its  Subsidiaries,  any  intention  to  terminate or limit his
      employment  with, or services to, the Company or any of its  Subsidiaries,
      nor is any such Key Employee subject to any constraints  which would cause
      such  employee to be unable to devote his full time and  attention to such
      employment or services.  For purposes of this  Agreement,  "Key  Employee"
      means the persons listed in Schedule 3.1(k).

            (l) Compliance.  Except as described in Schedule 3.1(l), neither the
      Company nor any Subsidiary (i) is in default under or in violation of (and
      no event has occurred that has not been waived that,  with notice or lapse
      of  time  or  both,  would  result  in a  default  by the  Company  or any
      Subsidiary under),  nor has the Company or any Subsidiary  received notice
      of a claim that it is in default  under or that it is in violation of, any
      indenture,  loan or credit  agreement or any other agreement or instrument
      to which it is a party  or by which it or any of its  properties  is bound
      (whether or not such default or  violation  has been  waived),  (ii) is in
      violation of any order of any court,  arbitrator or governmental  body, or
      (iii) is or has been in violation of any statute,  rule or  regulation  of
      any  governmental  authority,  including  without  limitation all foreign,
      federal,  state and local laws  applicable to its business  except in each
      case as could not have a Material Adverse Effect.

            (m) Regulatory Permits. The Company and the Subsidiaries possess all
      certificates,   authorizations  and  permits  issued  by  the  appropriate
      federal,  state,  local or foreign  regulatory  authorities  necessary  to
      conduct  their  respective  businesses  as  described  in the SEC Reports,
      except  where  the  failure  to  possess  such  permits  could not have or
      reasonably be expected to result in a Material  Adverse Effect  ("Material
      Permits"),  and neither the Company nor any  Subsidiary  has  received any
      notice of proceedings  relating to the revocation or  modification  of any
      Material Permit.

            (n) Title to Assets.  Except as  described in Schedule  3.1(n),  the
      Company and the Subsidiaries  have good and marketable title in fee simple
      to all real property owned by them that is material to the business of the
      Company and the Subsidiaries and good and marketable title in all personal
      property owned by them that is material to the business of the Company and
      the  Subsidiaries,  in each case free and clear of all  Liens,  except for
      Liens as do not  materially  affect the value of such  property and do not
      materially  interfere  with the use made and  proposed  to be made of such
      property by the Company and the  Subsidiaries and Liens for the payment of
      federal,  state or other taxes, the payment of which is neither delinquent
      nor subject to  penalties.  Any real  property and  facilities  held under
      lease by the Company and the  Subsidiaries  are held by them under  valid,
      subsisting   and   enforceable   leases  of  which  the  Company  and  the
      Subsidiaries are in compliance.

                                       17
<PAGE>

            (o) Patents and Trademarks. The Company and the Subsidiaries own, or
      have  rights  to  use,  all  patents,  patent  applications,   trademarks,
      trademark applications,  service marks, trade names, copyrights, licenses,
      permits,  inventions,   discoveries,   processes,  scientific,  technical,
      engineering  and  marketing  data,  object  and  source  codes,   know-how
      (including  trade  secrets  and  other  unpatented   and/or   unpatentable
      proprietary or confidential information,  systems or procedures) and other
      similar rights and proprietary  knowledge necessary or material for use in
      connection  with  their  respective  businesses  as  described  in the SEC
      Reports  (collectively,  the "Intellectual  Property  Rights").  Except as
      described in Schedule  3.1(o),  neither the Company nor any Subsidiary has
      received a written notice that the  Intellectual  Property  Rights used by
      the Company or any Subsidiary violates or infringes upon the rights of any
      Person.  To the Knowledge of the Company,  except as described in Schedule
      3.1(o), there is no existing  infringement by another Person of any of the
      Company's Intellectual Property Rights. Neither the Company nor any of its
      Subsidiaries  has  entered  into any  consent  agreement,  indemnification
      agreement,  forbearance to sue or settlement agreement with respect to the
      validity of the  Company's or its  Subsidiaries'  ownership of or right to
      use its Intellectual  Property Rights and there is no reasonable basis for
      any such claim to be successful.  Except as described on Schedule  3.1(o),
      to the  Knowledge of the Company,  the  Intellectual  Property  Rights are
      valid and  enforceable and no  registration  relating  thereto has lapsed,
      expired or been abandoned or canceled or is the subject of cancellation or
      other adversarial  proceedings,  and all applications therefor are pending
      and in good  standing,  the failure of which could have or  reasonably  be
      expected  to result in a Material  Adverse  Effect.  The  Company  and its
      Subsidiaries  have  complied,   in  all  material  respects,   with  their
      respective  contractual  obligations  relating  to the  protection  of the
      Intellectual Property Rights used pursuant to licenses.

            (p)  Insurance.  The  Company  and the  Subsidiaries  are insured by
      insurers of recognized  financial  responsibility  against such losses and
      risks and in such amounts as are prudent and  customary in the  businesses
      in which the Company and the Subsidiaries are engaged. No default or event
      has occurred  that could give rise to a default under any of its insurance
      policies. To the best of Company's Knowledge, such insurance contracts and
      policies are accurate and complete. Neither the Company nor any Subsidiary
      has any reason to believe  that it will not be able to renew its  existing
      insurance  coverage as and when such coverage expires or to obtain similar
      coverage  from  similar  insurers  as may be  necessary  to  continue  its
      business without a significant increase in cost.

            (q) Transactions With Affiliates and Employees.  Except as set forth
      in the SEC Reports,  none of the  officers,  directors or employees of the
      Company is  presently a party to any  transaction  with the Company or any
      Subsidiary (other than for services as employees, officers and directors),
      including any contract,  agreement or other arrangement  providing for the
      furnishing of services to or by,  providing for rental of real or personal
      property  to or  from,  or  otherwise  requiring  payments  to or from any
      officer,  director or such employee,  or, to the Knowledge of the Company,
      any entity in which any officer,  director,  or employee has a substantial
      interest or is an officer,  director,  trustee or partner,  other than (i)
      for  reimbursement for expenses incurred on behalf of the Company and (ii)
      for other employee  benefits,  including stock option agreements under any
      stock option plan of the Company.

                                       18
<PAGE>

            (r) Sarbanes-Oxley;  Internal Accounting Controls. The Company is in
      material  compliance with all provisions of the Sarbanes-Oxley Act of 2002
      which are  applicable  to it as of the Closing  Date.  The Company and the
      Subsidiaries  maintain a system of internal accounting controls sufficient
      to provide  reasonable  assurance  that (i)  transactions  are executed in
      accordance  with  management's  general or specific  authorizations,  (ii)
      transactions are recorded as necessary to permit  preparation of financial
      statements in conformity  with GAAP 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.  The
      Company has established  disclosure controls and procedures (as defined in
      Exchange Act Rules  13a-15(e) and  15d-15(e)) for the Company and designed
      such   disclosure   controls  and   procedures  to  ensure  that  material
      information relating to the Company,  including its Subsidiaries,  is made
      known  to  the  certifying  officers  by  others  within  those  entities,
      particularly  during the period in which the Company's most recently filed
      periodic  report  under  the  Exchange  Act,  as the case may be, is being
      prepared.   The  Company's   certifying   officers   have   evaluated  the
      effectiveness  of the  Company's  controls and  procedures  as of the date
      prior to the filing date of the most recently filed periodic  report under
      the Exchange Act (such date, the "Evaluation Date"). The Company presented
      in its most  recently  filed  periodic  report  under the Exchange Act the
      conclusions of the  certifying  officers  about the  effectiveness  of the
      disclosure  controls and procedures  based on their  evaluations as of the
      Evaluation Date. Since the Evaluation Date, there have been no significant
      changes in the  Company's  internal  controls  (as such term is defined in
      Item 307(b) of Regulation S-K under the Exchange Act) or, to the Company's
      Knowledge,  in other factors that could significantly affect the Company's
      internal controls.

            (s)  Certain  Fees.  Except as  described  in  Schedule  3.1(s),  no
      brokerage or finder's  fees or  commissions  are or will be payable by the
      Company to any broker, financial advisor or consultant,  finder, placement
      agent,  investment  banker,  bank or  other  Person  with  respect  to the
      transactions  contemplated  by this  Agreement.  Except  as  described  in
      Schedule  3.1(s),  the Purchasers shall have no obligation with respect to
      any fees or with  respect  to any  claims  made by or on  behalf  of other
      Persons for fees of a type contemplated in this Section that may be due in
      connection with the transactions contemplated by this Agreement.

                                       19
<PAGE>

            (t) Private  Placement.  Assuming  the  accuracy of the  Purchasers'
      representations  and warranties set forth in Section 3.2, no  registration
      under the Securities Act or any state  securities laws is required for the
      offer and sale of the  Securities  by the  Company  to the  Purchasers  as
      contemplated  hereby.  The issuance and sale of the  Securities  hereunder
      does not contravene the rules and regulations of the Trading Market or any
      state securities laws.

            (u) Investment Company.  The Company is not, and is not an Affiliate
      of, an "investment  company" within the meaning of the Investment  Company
      Act of 1940,  as amended.  The  Company  shall  conduct its  business in a
      manner so that it will not become subject to the Investment Company Act.

            (v) Registration Rights.  Except as described in Schedule 3.1(v), no
      Person has any right to cause the Company to effect the registration under
      the Securities Act of any securities of the Company.

            (w) Listing and Maintenance Requirements. The Company's Common Stock
      is  registered  pursuant to Section  12(b) of the  Exchange  Act,  and the
      Company  has taken no action  designed  to, or which to its  Knowledge  is
      likely to have the effect of,  terminating the  registration of the Common
      Stock under the Exchange Act nor has the Company received any notification
      that the Commission is contemplating  terminating such  registration.  The
      Company's  Common  Stock is  currently  listed for trading on the American
      Stock Exchange. Except as described in Schedule 3.1(w), the Company is not
      in violation of the listing  requirements  of the American Stock Exchange.
      Except as  described  in Schedule  3.1(w),  the Company has not, in the 12
      months preceding the date hereof,  received notice from any Trading Market
      on which the  Common  Stock is or has been  listed or quoted to the effect
      that the  Company is not in  compliance  with the  listing or  maintenance
      requirements  of such  Trading  Market.  Except as  described  in Schedule
      3.1(w),  the  Company  is, and has no reason to  believe  that it will not
      continue  to be,  in  compliance  with all such  listing  and  maintenance
      requirements.

            (x) Application of Takeover  Protections.  The Company and its Board
      of Directors have taken all necessary  action,  if any, in order to render
      inapplicable any control share acquisition,  business combination,  poison
      pill  (including  any  distribution  under a  rights  agreement)  or other
      similar  anti-takeover   provision  under  the  Company's  Certificate  of
      Incorporation  (or similar charter  documents) or the laws of its state of
      incorporation  that is or could become  applicable  to any  Purchaser as a
      result of the Purchasers and the Company  fulfilling their  obligations or
      exercising their rights under the Transaction Documents, including without
      limitation,  as a result of the Company's  issuance of the  Securities and
      any and all Purchasers' ownership of the Securities.

            (y)  Disclosure.  The Company  confirms  that neither it nor, to its
      Knowledge,  any other Person  acting on its behalf has provided any of the
      Purchasers  or  their  agents  or  counsel  with  any   information   that
      constitutes or might constitute  material,  nonpublic  information,  other
      than with respect to the specific terms of the  transactions  contemplated
      hereby. The Company understands and confirms that the Purchasers will rely
      on the foregoing  representations and covenants in effecting  transactions
      in securities of the Company.  All disclosures  provided to the Purchasers
      regarding  the Company,  its business  and the  transactions  contemplated
      hereby, including the Disclosure Schedules to this Agreement, furnished by
      or on behalf of the  Company  are true and  correct and do not contain any
      untrue  statement of a material  fact or omit to state any  material  fact
      necessary in order to make the  statements  made therein,  in 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 its
      Subsidiaries  or  their  respective  businesses,   properties,  prospects,
      operations or financial conditions,  which has not been publicly disclosed
      but, under  applicable  law, rule or  regulation,  would be required to be
      disclosed  by the Company in a  registration  statement  filed on the date
      hereof by the Company under the  Securities  Act with respect to a primary
      issuance of the Company's securities.

                                       20
<PAGE>

            (z) No Integrated Offering. Assuming the accuracy of the Purchasers'
      representations  and  warranties  set forth in Section  3.2,  neither  the
      Company, nor any of its Affiliates,  nor any Person acting on its or their
      behalf  has,  directly  or  indirectly,  made any  offers  or sales of any
      security or solicited any offers to buy any security,  under circumstances
      that would require registration of the Securities or that would cause this
      offering of the  Securities to be integrated  with prior  offerings by the
      Company for purposes of the Securities  Act or any applicable  stockholder
      approval provisions,  including,  without limitation,  under the rules and
      regulations of any exchange or automated  quotation system on which any of
      the securities of the Company are listed or designated.

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

            (bb) Tax Status.  Except for matters that would not, individually or
      in the  aggregate,  have or  reasonably  be  expected  to have a  Material
      Adverse Effect, the Company and each of its Subsidiaries has made or filed
      all foreign,  U.S.  federal,  state,  provincial  and local 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 any  statute of  limitations
      relating to the assessment or collection of any foreign,  federal,  state,
      provincial  or local tax.  None of the  Company's  income tax returns and,
      except to the extent  described  on  Schedule  3.1(bb),  to the  Company's
      Knowledge,  none of the  Company's  other tax returns is  presently  being
      audited by any taxing authority.

                                       21
<PAGE>

            (cc) No General  Solicitation.  Neither  the  Company nor any person
      acting on behalf of the Company  (including any distributor  participating
      on the Company's behalf in the transactions  contemplated hereby (if any))
      has  offered  or  sold  any of the  Securities  by any  form  of  "general
      solicitation"  (as  such  term is  defined  in  Regulation  D) or  general
      advertising.  The Company has offered the  Securities for sale only to the
      Purchasers and certain other "accredited  investors" within the meaning of
      Rule 501 under the Securities Act.

            (dd) Foreign Corrupt Practices.  Neither the Company, nor any of the
      Subsidiaries,  nor  any  director,  officer,  agent,  employee  or to  the
      Knowledge of the Company,  other Person acting on behalf of the Company or
      any Subsidiary has (i) directly or  indirectly,  used any corporate  funds
      for  unlawful  contributions,   gifts,  entertainment  or  other  unlawful
      expenses related to foreign or domestic political activity,  (ii) directly
      or indirectly made any unlawful payment to foreign or domestic  government
      officials or employees or to any foreign or domestic  political parties or
      campaigns  from  corporate  funds,  (iii)  failed  to  disclose  fully any
      contribution  made by the  Company  (or made by any  person  acting on its
      behalf of which the Company is aware) which is in  violation of law,  (iv)
      made any bribe,  rebate,  payoff,  influence  payment,  kickback  or other
      unlawful  payment  to any  foreign  or  domestic  government  official  or
      employee,  or (v) violated any provision of the Foreign Corrupt  Practices
      Act of 1977, as amended,  where such violations would,  individually or in
      the aggregate,  have or reasonably be expected to have a Material  Adverse
      Effect.

            (ee)  Accountants.  The  Company's  accountants  are  set  forth  on
      Schedule 3.1(ee) of the Disclosure  Schedule.  Such  accountants,  who the
      Company  expects will express  their opinion with respect to the financial
      statements  to be included in the  Company's  Annual Report on Form 10-KSB
      for the year ended  December  31, 2006,  are  independent  accountants  as
      required by the Securities Act.

            (ff) No  Disagreements  with  Accountants and Lawyers.  There are no
      disagreements of any kind presently existing, or reasonably anticipated by
      the Company to arise,  between  the  accountants  and lawyers  formerly or
      presently  employed by the Company which  individually or in the aggregate
      could  reasonably be expected to result in a Material  Adverse  Effect and
      the Company is current  with  respect to any fees owed to its  accountants
      and lawyers.

                                       22
<PAGE>

            (gg) Environmental Matters. There is no environmental  litigation or
      other environmental proceeding pending or, to the Knowledge of the Company
      or any of its  Subsidiaries,  threatened  by any  governmental  regulatory
      authority or others with respect to the current or any former  business of
      the Company or any of its Subsidiaries or any partnership or joint venture
      currently  or at  any  time  affiliated  with  the  Company  or any of its
      Subsidiaries.  No state of facts  exists as to  environmental  matters  or
      Hazardous  Substances  (as defined  below) that  involves  the  reasonable
      likelihood of a material capital  expenditure by the Company or any of its
      Subsidiaries  that may  otherwise  have a  Material  Adverse  Effect.  The
      Company  has not,  and to the  Company's  Knowledge  no prior  Person  has
      treated,  stored or disposed  of, or  otherwise  deposited  any  Hazardous
      Substances in or on the  properties  owned or leased by the Company or any
      of its Subsidiaries or by any partnership or joint venture currently or at
      any  time  affiliated  with  the  Company  or any of its  Subsidiaries  in
      violation  of  any  applicable   environmental   laws.  The  environmental
      compliance  programs of the Company and each of its Subsidiaries comply in
      all material  respects with all  applicable  environmental  laws,  whether
      foreign,  federal,  state,  provincial or local,  currently in effect. For
      purposes of this Agreement,  "Hazardous  Substances"  means any substance,
      waste, contaminant,  pollutant or material that has been determined by any
      governmental authority to be capable of posing a risk of injury to health,
      safety, property or the environment.

            (hh) Form SB-2 Eligibility.  The Company is eligible to register the
      resale of its Common Stock on a registration  statement on Form SB-2 under
      the  Securities  Act.  There  exist no facts or  circumstances  that would
      prohibit or delay the preparation  and filing of a registration  statement
      on Form SB-2 with respect to the Registrable Securities (as defined in the
      Registration  Rights Agreement).  The Company has no basis to believe that
      its past or  present  independent  public  auditors  will  withhold  their
      consent to the inclusion,  or incorporation  by reference,  of their audit
      opinion concerning the Company's  financial  statements which are included
      in  the  Registration  Statement  required  to be  filed  pursuant  to the
      Registration Rights Agreement.

            (ii)  Acknowledgment  Regarding  Each  Purchaser's  Purchase  of the
      Securities.  The Company  acknowledges  and agrees that,  except for those
      Purchasers specified in Schedule 3.1(ii),  each Purchaser is acting solely
      in the capacity of arm's length  purchaser  with respect to this Agreement
      and the other  Transaction  Documents  and the  transactions  contemplated
      hereby and thereby, and that no Purchaser is (i) an officer or director of
      the Company,  (ii) an  "affiliate" of the Company (as defined in Rule 144)
      or (iii) a  "beneficial  owner"  of more than 5% of the  Common  Stock (as
      defined  for  purposes  of Rule 13d-3 of the  Exchange  Act).  The Company
      further  acknowledges  that,  except  for those  Purchasers  specified  in
      Schedule  3.1(ii),  no  Purchaser  is acting  as a  financial  advisor  or
      fiduciary of the Company (or in any similar capacity) with respect to this
      Agreement  or  the  other  Transaction   Documents  and  the  transactions
      contemplated  hereby and  thereby,  and any advice given by a Purchaser or
      any of its  representatives or agents in connection with this Agreement or
      the other Transaction  Documents and the transactions  contemplated hereby
      and  thereby is merely  incidental  to such  Purchaser's  purchase  of the
      Securities.  The Company  further  represents to each  Purchaser  that the
      Company's  decision to enter into this Agreement and the other Transaction
      Documents  has been  based  solely on the  independent  evaluation  by the
      Company and its representatives  (including its financial advisors engaged
      in connection with the transactions contemplated hereby).

                                       23
<PAGE>

      3.2  Representations  and  Warranties of the  Purchasers.  Each  Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:

            (a)  Organization;  Authority.  Such  Purchaser  is an  entity  duly
      organized,  validly  existing and in good  standing  under the laws of the
      jurisdiction of its organization with full right, corporate or partnership
      power and  authority  to enter  into and to  consummate  the  transactions
      contemplated by the  Transaction  Documents and otherwise to carry out its
      obligations  thereunder.  The execution,  delivery and performance by such
      Purchaser of the  transactions  contemplated  by this  Agreement have been
      duly  authorized by all necessary  corporate or similar action on the part
      of such Purchaser.  Each  Transaction  Document to which it is a party has
      been duly executed by such Purchaser, and when delivered by such Purchaser
      in accordance with the terms hereof, will constitute the valid and legally
      binding obligation of such Purchaser, enforceable against it in accordance
      with its terms, except (i) as limited by general equitable  principles and
      applicable bankruptcy,  insolvency,  reorganization,  moratorium and other
      laws of general  application  affecting  enforcement of creditors'  rights
      generally,  (ii)  as  limited  by laws  relating  to the  availability  of
      specific  performance,  injunctive relief or other equitable  remedies and
      (iii)  insofar  as  indemnification  and  contribution  provisions  may be
      limited by applicable law.

            (b) Purchaser  Representations.  Such Purchaser understands that the
      Securities are "restricted  securities" and have not been registered under
      the Securities Act or any applicable state securities law and is acquiring
      the  Securities as principal for its own account and not with a view to or
      for  distributing,  reselling  or  offering  such  Securities  or any part
      thereof,  has no present intention of distributing or offering any of such
      Securities and has no arrangement or understanding  with any other persons
      regarding the  distribution of such Securities  (this  representation  and
      warranty  not  limiting  such  Purchaser's  right to sell  the  Securities
      pursuant to the  Registration  Statement or otherwise in  compliance  with
      applicable federal and state securities laws). Such Purchaser is acquiring
      the  Securities  hereunder in the ordinary  course of its  business.  Such
      Purchaser  does not have  any  agreement  or  understanding,  directly  or
      indirectly,  with any Person to distribute or sell any of the  Securities.
      Each Purchaser  further  represents and warrants that such Purchaser had a
      business  relationship  with either Roth  Capital  Partners  LLC or Musket
      Research  Associates,  Inc.  prior  to its  being  solicited  to  purchase
      Securities hereunder.

            Notwithstanding  anything in this Section 3.2(b) to the contrary, by
      making the  representations  herein, such Purchaser does not agree to hold
      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 from the registration
      requirements under the Securities Act.

            (c)  Purchaser  Status.  At the time such  Purchaser was offered the
      Securities,  it was,  and at the date  hereof  it is,  and on each date on
      which it  exchanges  any 2006  Preferred  Stock it will be either:  (i) an
      "accredited investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7)
      or (a)(8)  under the  Securities  Act or (ii) a  "qualified  institutional
      buyer" as defined in Rule 144A(a) under the Securities Act. Such Purchaser
      is not required to be  registered as a  broker-dealer  under Section 15 of
      the Exchange Act.

                                       24
<PAGE>

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

            (e) Short Sales. Each Purchaser, other than a Purchaser who holds or
      has previously held shares of 2005 Preferred Stock, represents that during
      the 30 days prior to the execution of this  Agreement,  neither it nor any
      of its  Affiliates  has made any short sales of, or granted any option for
      the  purchase of or entered into any hedging or similar  transaction  with
      the same  economic  effect as a short sale,  in the Common  Stock.  (f) No
      General Solicitation. Such Purchaser is not purchasing the Securities as a
      result  of any  advertisement,  article,  notice  or  other  communication
      regarding the Securities  published in any newspaper,  magazine or similar
      media or broadcast over television or radio or presented at any seminar or
      any other general solicitation or general advertisement.

            (g)  Limit to  Representations  and  Warranties  of  Purchaser.  The
      Company  acknowledges  and agrees that each Purchaser does not make or has
      not  made  any   representations   or  warranties   with  respect  to  the
      transactions  contemplated  hereby other than those specifically set forth
      in this Section 3.2.

            (h) Certain Laws. To the  Knowledge of such  Purchaser,  neither the
      Purchaser  nor (if the  Purchaser  is an  individual)  any Person who is a
      member of the Purchaser's  household or immediate  family,  nor any Person
      who  otherwise  may  have an  indirect  interest  in  securities  or other
      property  owned by the Purchaser has been  designated as, and that neither
      you  or any of the  foregoing  is  under  the  control  of,  a  "suspected
      terrorist" as defined in Executive Order 13224. The Purchaser acknowledges
      that the Company seeks to comply with all  applicable  laws covering money
      laundering and related  activities.  In furtherance of those efforts,  the
      Purchaser hereby represents, warrants and agrees that: to the Knowledge of
      such Purchaser (i) none of the cash or property that Purchaser will pay or
      will  contribute  to the  Company  has been or shall be derived  from,  or
      related to, any activity that is deemed  criminal under United States law;
      and (ii) no  contribution  or payment by the Purchaser to the Company,  to
      the  extent  that they are within  Purchaser's  control,  shall  cause the
      Company to be in  violation  of the Untied  States Bank  Secrecy  Act, the
      United  States Money  Laundering  Control Act of 1986 or the Untied States
      International Money Laundering Abatement and Anti-Terrorist  Financing Act
      of 2001.

                                       25
<PAGE>

            Each  Purchaser's  representations  and warranties  made in Sections
      3.2(b), (c), (d) and (f) are made solely for the purpose of permitting the
      Company to make a determination  that the offer and sale of the Securities
      pursuant to this Agreement  comply with applicable U.S.  federal and state
      securities  laws and not for any other purpose.  Accordingly,  the Company
      may not rely on such representations and warranties for any other purpose.
      No  Purchaser  has made or  hereby  makes  any  other  representations  or
      warranties,  express or  implied,  to the Company in  connection  with the
      transactions contemplated hereby.

                                  ARTICLE IV.
                         OTHER AGREEMENTS OF THE PARTIES

4.1   Transfer Restrictions.

            (a) The Securities may only be disposed of in compliance  with state
      and federal securities laws. In connection with any transfer of Securities
      other than pursuant to an effective registration statement or Rule 144, to
      the Company or to an  Affiliate  of a Purchaser  or in  connection  with a
      pledge as  contemplated  in Section  4.1(b),  the  Company may require the
      transferor  thereof  to  provide  to the  Company  an  opinion  of counsel
      selected by the transferor  which opinion shall be in form,  substance and
      scope customary for opinions of counsel in comparable transactions, to the
      effect  that  such  transfer  does  not  require   registration   of  such
      transferred  Securities  under  the  Securities  Act.  As a  condition  of
      transfer,  any such  transferee  shall agree in writing to be bound by the
      terms of this  Agreement  and shall have the rights of a  Purchaser  under
      this Agreement and the Registration Rights Agreement.

            (b) The Purchasers  agree to the imprinting,  so long as is required
      by this Section  4.1(b),  of a legend on the 2006 Preferred  Stock and the
      Underlying Shares in the following form:

      THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
      COMMISSION OR WITH THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
      AN  EXEMPTION  FROM  REGISTRATION  UNDER THE  SECURITIES  ACT OF 1933,  AS
      AMENDED (THE "SECURITIES  ACT"), AND,  ACCORDINGLY,  MAY NOT BE OFFERED OR
      SOLD EXCEPT  PURSUANT TO AN  EFFECTIVE  REGISTRATION  STATEMENT  UNDER THE
      SECURITIES  ACT  OR  PURSUANT  TO AN  AVAILABLE  EXEMPTION  FROM,  OR IN A
      TRANSACTION  NOT  SUBJECT  TO,  THE   REGISTRATION   REQUIREMENTS  OF  THE
      SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE  STATE SECURITIES LAWS AS
      EVIDENCED BY A LEGAL  OPINION OF COUNSEL TO THE  TRANSFEROR TO SUCH EFFECT
      IF SO  REQUIRED  BY  THE  COMPANY.  THESE  SECURITIES  MAY BE  PLEDGED  IN
      CONNECTION  WITH A BONA FIDE MARGIN  ACCOUNT OR OTHER LOAN SECURED BY SUCH
      SECURITIES.

            The Company shall,  contemporaneously  with a registration statement
      covering the Securities (including,  without limitation,  the Registration
      Statement   contemplated  by  the  Registration  Rights  Agreement)  being
      declared  effective,  deliver to its transfer  agent an opinion  letter of
      counsel,   opining  that  at  any  time  such  registration  statement  is
      effective, the transfer agent shall issue, in connection with the issuance
      of the Underlying Shares, certificates representing such Underlying Shares
      without the restrictive legend above,  provided such Underlying Shares are
      to be sold  pursuant  to the  prospectus  contained  in such  registration
      statement.   Upon  receipt  of  such   opinion,   the  Company  shall  use
      commercially  reasonable  efforts to cause the transfer  agent to confirm,
      for the  benefit of the  holders,  that no  further  opinion of counsel is
      required at the time of  transfer  in order to issue such  shares  without
      such  restrictive  legend and, if such transfer  agent  requires a further
      opinion,  the  Company  shall  provide an  opinion of its  counsel to that
      effect,  in connection with which each Purchaser hereby agrees that should
      the  registration  statement,   the  basis  for  which  such  non-legended
      reissuances  were  reissued,  no longer be effective,  such Purchaser will
      promptly  upon  the  Company's  written  request  return  its  shares  for
      re-legending and reissuance.

                                       26
<PAGE>

            The Company  acknowledges  and agrees that a Purchaser may from time
      to time pledge, pursuant to a bona fide margin agreement with a registered
      broker-dealer,  or grant a security interest in, some or all of the Common
      Stock to a  financial  institution  that is an  "accredited  investor"  as
      defined in Rule 501(a) under the Securities Act and who agrees to be bound
      by the provisions of the Transaction  Documents and, if required under the
      terms of such arrangement,  such Purchaser may transfer pledged or secured
      Securities to the pledgees or secured  parties.  Such a pledge or transfer
      would not be subject to approval  of the  Company and no legal  opinion of
      legal  counsel of the pledgee,  secured party or pledgor shall be required
      in  connection  therewith.  Further,  no notice  shall be required of such
      pledge. At the appropriate  Purchaser's  expense, the Company will execute
      and deliver such reasonable documentation as a pledgee or secured party of
      Securities may reasonably  request in connection with a pledge or transfer
      of  the   Securities,   including,   if  the  Securities  are  subject  to
      registration   pursuant  to  the  Registration   Rights   Agreement,   the
      preparation and filing of any required  prospectus  supplement  under Rule
      424(b)(3)  under the Securities Act or other  applicable  provision of the
      Securities  Act to  appropriately  amend the list of selling  stockholders
      thereunder.

            (c) Certificates  evidencing the Underlying Shares shall not contain
      any legend (including the legend set forth in Section 4.1(b) hereof):  (i)
      while a  registration  statement  (including the  Registration  Statement)
      covering  the resale of such  security is effective  under the  Securities
      Act, or (ii) following any sale of such Underlying Shares pursuant to Rule
      144, or (iii) if such  Underlying  Shares are eligible for sale under Rule
      144(k),   or  (iv)  if  such  legend  is  not  required  under  applicable
      requirements of the Securities Act (including judicial interpretations and
      pronouncements issued by the staff of the Commission);  provided, however,
      in connection with the issuance of the Underlying Shares,  each Purchaser,
      severally  and not jointly  with the other  Purchasers,  hereby  agrees to
      adhere  to and abide by all  prospectus  delivery  requirements  under the
      Securities Act and rules and  regulations of the  Commission.  The Company
      shall cause its counsel to issue a legal opinion to the Company's transfer
      agent  promptly  after the  Effective  Date if required  by the  Company's
      transfer  agent to effect the removal of the legend  hereunder.  If all or
      any portion of the 2006  Preferred  Stock is exchanged  or  exercised  (as
      applicable) at a time when there is an effective registration statement to
      cover the resale of the Underlying  Shares,  or if such Underlying  Shares
      may be sold under Rule 144(k) or if such legend is not otherwise  required
      under  applicable  requirements of the Securities Act (including  judicial
      interpretations  thereof) then such Underlying Shares shall be issued free
      of all legends.  The Company agrees that at such time as such legend is no
      longer  required under this Section  4.1(c),  it will, no later than three
      (3) Trading Days  following  the delivery by a Purchaser to the  Company's
      transfer agent of a certificate  representing  Underlying  Shares,  issued
      with a restrictive legend, together with stock powers that comply with the
      requirements  of the  transfer  agent  in  accordance  with  its  standard
      requirements,  deliver  or  cause  to be  delivered  to such  Purchaser  a
      certificate representing such shares that is free from all restrictive and
      other  legends.  The Company  may not make any  notation on its records or
      give  instructions  to any transfer  agent of the Company that enlarge the
      restrictions  on transfer set forth in this Section.  Notwithstanding  the
      foregoing,  the  Purchasers  agree  that,  if at any time after the Legend
      Removal  Date (as  defined  in Section  4.1(d)) a legend  would be legally
      required under  applicable  requirements  of the Securities Act (including
      judicial  interpretations  and  pronouncements  issued by the staff of the
      Commission) to be placed upon the  certificates  evidencing the Underlying
      Shares,  then, upon  reasonable  advance written notice to such Purchaser,
      the  Company  may  require  that the  above  legend  be placed on any such
      Security  that cannot then be sold  pursuant to an effective  registration
      statement  or under Rule 144 and such  Purchaser  shall  cooperate  in the
      replacement of such legend.  Such legend shall  thereafter be removed when
      such  Security  may again be sold  pursuant to an  effective  registration
      statement or under Rule 144.

                                       27
<PAGE>

            (d) In  addition  to  such  Purchaser's  other  available  remedies,
      subject  to  the  Liquidated  Damages  Cap,  the  Company  shall  pay to a
      Purchaser,  in cash, as partial  liquidated  damages and not as a penalty,
      one percent (1%) of the Issue Amount of the Underlying Shares that are the
      subject of such  Purchaser's  Legend Removal  Request for each Trading Day
      after the fifth Trading Day  following  the delivery by such  Purchaser to
      the Company's transfer agent of a certificate  representing the Underlying
      Shares, issued with a restrictive legend,  together with stock powers that
      comply with the requirements of the transfer agent (such fifth Trading Day
      being referred to as the "Legend Removal Date"),  until the transfer agent
      has issued such certificate  without a legend.  Nothing herein shall limit
      such Purchaser's  right to pursue actual damages for the Company's failure
      to deliver  certificates  representing  any  Securities as required by the
      Transaction  Documents,  and such Purchaser shall have the right to pursue
      all  remedies  available  to it at law  or in  equity  including,  without
      limitation, a decree of specific performance and/or injunctive relief.

            (e)  Each  Purchaser,  severally  and not  jointly  with  the  other
      Purchasers,  agrees  that  the  removal  of the  restrictive  legend  from
      certificates  representing  Securities as set forth in this Section 4.1 is
      predicated  upon the Company's  reliance that the Purchaser  will sell any
      Securities  pursuant  to  either  the  registration  requirements  of  the
      Securities Act, including any applicable prospectus delivery requirements,
      or an exemption therefrom.

      4.2 Acknowledgment of Dilution. The transactions contemplated hereby shall
cause the Company to become obligated to issue additional shares of Common Stock
pursuant  to  the  Existing  Securities  Rights.  Additionally,  the  number  of
Underlying  Shares  issuable  upon  exchange  of the 2006  Preferred  Stock  may
increase  in  certain  circumstances.  The  Company's  directors  and  executive
officers have studied and fully  understand the nature of the  Securities  being
sold hereunder. The Company acknowledges that the issuance of the Securities may
result in dilution of the outstanding shares of Common Stock, which dilution may
be substantial if the Company  undertakes  another  financing which triggers the
anti-dilution  protections  of the 2006  Preferred  Stock.  The Company  further
acknowledges  that its obligations  under the Transaction  Documents,  including
without limitation its obligation to issue the Underlying Shares pursuant to the
Transaction  Documents,  are  unconditional  and absolute and not subject to any
right of set off, counterclaim,  delay or reduction, regardless of the effect of
any such  dilution or any claim the Company may have against any  Purchaser  and
regardless  of the dilutive  effect that such issuance may have on the ownership
of the other stockholders of the Company. Taking the foregoing into account, the
Company's Board of Directors has determined in its good faith business  judgment
that the issuance of the 2006 Preferred Stock hereunder and the  consummation of
the other  transactions  contemplated  hereby are in the best  interests  of the
Company and its stockholders.

                                       28
<PAGE>

      4.3 Furnishing of Rule 144  Information.  As long as any Purchaser (or any
Purchaser's Affiliates)  beneficially owns Securities,  the Company covenants to
timely  file (or  obtain  extensions  in  respect  thereof  and file  within the
applicable  grace period) all reports  required to be filed by the Company after
the date  hereof  pursuant  to the  Exchange  Act,  and the  Company  shall  not
terminate  its status as an issuer  required to file reports  under the Exchange
Act even if the  Exchange  Act or the rules  and  regulations  thereunder  would
permit  such  termination.  As long as any  Purchaser  owns  Securities,  if the
Company is not  required to file reports  pursuant to the Exchange  Act, it will
prepare and furnish to the Purchasers and make publicly  available in accordance
with Rule 144(c) such  information as is required for the Purchasers to sell the
Securities under Rule 144. The Company further  covenants that it will take such
further action as any holder of Securities may  reasonably  request,  all to the
extent  required from time to time to enable such Person to sell such Securities
without  registration  under the  Securities  Act within the  limitation  of the
exemptions provided by Rule 144.

      4.4  Financial  Information.  So long as any  Purchasers  (or any of their
respective Affiliates) beneficially own any of the Securities, the Company shall
make available (via electronic  transmission or otherwise) the following reports
to each  such  Purchaser:  (i)  within  ten  days  after  the  filing  with  the
Commission, a copy of Current Reports on Form 8-K; and (ii) within one day after
release,  copies  of all press  releases  issued  by the  Company  or any of its
Subsidiaries.

      4.5  Information.  So long as any Purchasers  (or any of their  respective
Affiliates) beneficially own any of the Securities, the Company shall furnish to
each such Purchaser the information the Company must deliver to any holder or to
any  prospective  transferee  of Securities in order to permit the sale or other
transfer  of such  Securities  pursuant  to Rule 144A of the  Commission  or any
similar rule then in effect.

      4.6  Integration.  The Company  shall not sell,  offer for sale or solicit
offers to buy or  otherwise  negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the  Securities  in a manner that would  require the  registration  under the
Securities  Act of the sale of the Securities to the Purchasers or that would be
integrated  with the offer or sale of the  Securities  for purposes of the rules
and regulations of any Trading Market.

                                       29
<PAGE>

      4.7 Board of  Directors  Observer.  From the Closing  Date and  continuing
thereafter for so long as the Purchasers (or any of their respective affiliates)
beneficially  own, in the aggregate,  at least 25% of the 2006  Preferred  Stock
issued  hereunder,  the Purchasers shall have the right, but not the obligation,
to  appoint  one  Person to serve as an  observer  of  meetings  of the Board of
Directors  (the  "Observer"),  who shall be afforded  notice of and the right to
participate,  as an  observer  only,  in  meetings  of the  Board of  Directors,
provided,  that the  Company  may exclude the  Observer  from  participation  in
meetings  of the  Board of  Directors  if and to the  extent  that the  Board of
Directors,  as determined in the discretion of its Chairman,  determines in good
faith  that  such   exclusion  is   appropriate   to  preserve   the   Company's
attorney-client privilege with respect to matters before the Board of Directors,
and provided,  further,  that the Observer  shall have executed and delivered to
the Company a written  confidentiality  agreement,  in a form  determined by the
Company,  with respect to matters  discussed  by the Board of Directors  and the
Observer's  compliance  with Company  policies  and  procedures  and  applicable
securities  laws.  The Observer  shall be determined  from  time-to-time  by the
Purchasers  holding  at least 65% of the  shares of 2006  Preferred  Stock  then
outstanding,  and the Purchasers shall notify the Company of the identity of and
contact  information for the Observer,  and shall promptly notify the Company in
the  event  that  the  Observer  ceases  for any  reason  to so act or  shall be
replaced. The Company reserves the right to object to any Person selected by the
Purchasers to serve as an Observer, or to exclude an Observer from participation
in relevant  meetings of the Board of Directors,  if and to the extent that such
Person is  engaged  in a  business  which is or may be in  competition  with the
Company  in any  market  in which  the  Company  currently  operates,  provided,
however,  that the Company  acknowledges  that certain of the  Purchasers may be
investment or similar funds that may from time to time invest in  competitors of
the Company and that any such  investment  shall not be a reason to object to or
exclude an Observer.

      4.8 Securities Laws Disclosure; Publicity. The Company shall file with the
Commission a Form D with respect to the Securities as required under  Regulation
D. 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 each Purchaser pursuant to this Agreement under applicable securities or
"blue  sky"  laws  of the  states  of the  United  States  or  obtain  exemption
therefrom,  and  shall  provide  evidence  of any such  action  so taken to each
Purchaser  on or prior to the Closing  Date (or such later date as such  actions
are required,  under applicable law, to be taken). The Company shall issue on or
before the next  business  day  following  the date hereof a press  release (the
"Press Release") announcing the entry into the transactions  contemplated hereby
and shall within two (2) Trading Days  following  the date hereof file a Current
Report  on  Form  8-K  disclosing   the  material  terms  of  the   transactions
contemplated hereby and attaching the Transaction  Documents thereto as exhibits
(the "8-K Filing").  The Company hereby acknowledges that, as of the date of the
8-K Filing,  no  Purchaser  shall be in  possession  of any  material  nonpublic
information  received from the Company,  any of its  Subsidiaries  or any of its
respective  officers,  directors,  employees or agents, that is not disclosed in
the 8-K Filing.  The Company and each Purchaser shall consult with each other in
issuing any other press releases with respect to the  transactions  contemplated
hereby,  and neither the  Company nor any  Purchaser  shall issue any such press
release or otherwise make any such public statement without the prior consent of
the Company, with respect to any press release of any Purchaser,  or without the
prior  consent  of each  Purchaser,  with  respect  to any press  release of the
Company,  which  consent  shall not  unreasonably  be  withheld,  except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide  the  other  party  with  prior  notice  of  such  public  statement  or
communication.

                                       30
<PAGE>

      4.9  Stockholders  Rights  Plan.  No claim will be made or enforced by the
Company or any  director,  officer,  employee,  representative  or other  Person
acting on behalf of the Company  that any  Purchaser  is an  "Acquiring  Person"
under any  stockholders  rights plan or similar plan or arrangement in effect or
hereafter  adopted  by the  Company,  or that any  Purchaser  could be deemed to
trigger the provisions of any such plan or  arrangement,  by virtue of receiving
Securities under the Transaction  Documents or under any other agreement between
the Company and the  Purchasers.  The Company  shall  conduct its  business in a
manner so that it will not become subject to the Investment Company Act.

      4.10 Non-Public Information. Except to the extent that information that is
(i) provided to the Observer in connection  with the Observer's role as such and
(ii)  included  in notices to the  Purchasers  which the  Company is required to
deliver pursuant to this Agreement may be deemed material nonpublic information,
the Company shall not, and shall cause each of its Subsidiaries and its and each
of their respective  officers,  directors,  employees and agents not to, provide
any Purchaser with any material nonpublic  information  regarding the Company or
any of its  Subsidiaries  from and after the date  hereof  without  the  express
written  consent of such  Purchaser;  provided,  however,  that a Purchaser that
exercises  its  rights  under  Section  4.26  shall be deemed to have given such
express written consent.  In the event of a breach of the foregoing  covenant by
the Company, any of its Subsidiaries or any of its or their respective officers,
directors, employees and agents, in addition to any other remedy provided herein
or in the other Transaction  Documents, a Purchaser shall have the right to make
a public  disclosure,  in the form of a press release,  public  advertisement or
otherwise,  of such material nonpublic information without the prior approval by
the  Company,  its  Subsidiaries  or any of its or  their  respective  officers,
directors,  employees or agents.  No Purchaser  shall have any  liability to the
Company, its Subsidiaries or any of its or their respective officers, directors,
employees, stockholders or agents for any such disclosure.

      4.11 Use of Proceeds. The Company shall use the net proceeds from the sale
of the Securities  hereunder for working capital  purposes.  Such proceeds shall
not be used (i) to pay  dividends  (other than in respect of the 2005  Preferred
Stock or the 2006  Preferred  Stock);  (ii) to pay for any increase in executive
compensation  or make  any  loan or  other  advance  to any  officer,  employee,
stockholder,  director or other  affiliate of the  Company,  without the express
approval of the Board of  Directors  acting in  accordance  with past  practice;
(iii) to purchase debt or equity securities of any entity  (including  redeeming
the Company's own securities  (other than the 2006  Preferred  Stock or the 2005
Preferred  Stock));  (iv) to make any  investment  not  directly  related to the
current  business  of the  Company  (other than  acquisitions,  joint  ventures,
strategic alliances and similar strategic  transactions approved by the Board of
Directors  in good  faith);  or (v) for the  satisfaction  of any portion of the
Company's debt (other than payment of trade  payables in the ordinary  course of
the Company's business and prior practices).

      4.12  Reimbursement  of  Purchaser  Expenses.  The  Company  shall  pay or
reimburse the Purchasers for all costs and expenses  incurred in connection with
the  negotiation,   preparation  and  execution  of  the  Transaction  Documents
(including due diligence performed by or on behalf of the Purchasers), including
attorney's  fees and  expenses,  in an  aggregate  amount of up to $50,000  upon
presentation,  at or after the Closing, of invoices or other evidence reasonably
satisfactory to the Company of the incurrence of such expenses.

                                       31
<PAGE>

      4.13  Indemnification  of  Purchasers.  Subject to the  provisions of this
Section  4.13,  the Company will  indemnify  and hold the  Purchasers  and their
directors,   officers,   stockholders,   partners,  members,  direct  investors,
employees  and agents  (each,  a "Purchaser  Party")  harmless  from any and all
losses, liabilities,  obligations,  claims, suits, causes of actions, penalties,
fees,  contingencies,  damages,  costs and expenses,  including  all  judgments,
amounts paid in  settlements,  court costs and  reasonable  attorneys'  fees and
costs of  investigation  that any such Purchaser  Party may suffer or incur as a
result  of or  relating  to (a) any  misrepresentation  or  breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement  or in the other  Transaction  Documents,  or any  other  certificate,
instrument  or  document  contemplated  thereby,  or (b) any  action  instituted
against  a  Purchaser,  or any of them or their  respective  Affiliates,  by any
stockholder of the Company who is not an Affiliate of such Purchaser  (including
for these purposes a derivative  action brought on behalf of the Company),  with
respect to any of the  transactions  contemplated by the  Transaction  Documents
(unless such action is based upon a breach of such  Purchaser's  representation,
warranties or covenants  under the  Transaction  Documents or any  agreements or
understandings  such  Purchaser  may  have  with  any  such  stockholder  or any
violations by the Purchaser of state or federal  securities  laws or any conduct
by such Purchaser which constitutes fraud, gross negligence,  willful misconduct
or malfeasance),  any disclosure made by such Purchaser  pursuant to Section 4.8
or  Section  4.26  hereof,  or the  status  of such  Purchaser  or holder of the
Securities  as an  investor  in the  Company  in  such  Person's  capacity  as a
Purchaser  of  Securities   purchased  and  sold  pursuant  to  the  Transaction
Documents. If any action shall be brought against any Purchaser Party in respect
of which  indemnity may be sought  pursuant to this  Agreement,  such  Purchaser
Party shall promptly  notify the Company in writing,  and the Company shall have
the right to assume the defense  thereof with counsel of its own  choosing.  Any
Purchaser  Party  shall  have the right to employ  separate  counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel  shall be at the expense of such  Purchaser  Party  except to the extent
that (i) the employment thereof has been specifically  authorized by the Company
in writing,  (ii) the Company has failed  after a  reasonable  period of time to
assume such defense and to employ counsel,  or (iii) in such action there is, in
the  reasonable  opinion of such separate  counsel,  a material  conflict on any
material  issue  between the  position  of the Company and the  position of such
Purchaser  Party.  The Company will not be liable to any  Purchaser  Party under
this Agreement (i) for any settlement by an Purchaser Party effected without the
Company's prior written  consent,  which shall not be  unreasonably  withheld or
delayed,  or (ii) to the  extent,  but only to the  extent  that a loss,  claim,
damage or liability is  attributable  to any Purchaser  Party's breach of any of
the representations,  warranties, covenants or agreements made by the Purchasers
in this Agreement or in the other Transaction Documents.

4.14  Reservation and Listing of Securities.

            (a) The Company  shall  maintain a reserve from its duly  authorized
      shares of Common Stock for issuance pursuant to the Transaction  Documents
      in such amount as may be required to fulfill its obligations in full under
      the Transaction Documents.

                                       32
<PAGE>

            (b) If, on any date,  the number of  authorized  but  unissued  (and
      otherwise  unreserved)  shares of Common  Stock is less than the  Required
      Minimum on such date,  then the Board of  Directors  of the Company  shall
      amend the Company's  certificate or articles of  incorporation to increase
      the number of authorized  but unissued  shares of Common Stock to at least
      the  Required  Minimum at such time,  as soon as possible and in any event
      not later than the 90th day after such date.

            (c) The Company  shall,  if  applicable:  (i) in the time and manner
      required by the Trading Market,  but in any event within 10 days after the
      Closing  Date,  prepare and file with such  Trading  Market an  additional
      shares listing application  covering a number of shares of Common Stock at
      least equal to the Required Minimum on the date of such application,  (ii)
      take all steps  necessary  to cause  such  shares  of  Common  Stock to be
      approved for listing on the Trading Market as soon as possible thereafter,
      (iii)  provide  to the  Purchasers  evidence  of such  listing,  and  (iv)
      maintain  the listing of such  Common  Stock on any date at least equal to
      the  Required  Minimum  on such date on such  Trading  Market  or  another
      Trading Market; provided, that notwithstanding any other provision of this
      Agreement to the  contrary,  the breach by the Company of its  obligations
      under this clause (iv) of Section  4.14(c) shall entitle the Purchasers to
      the remedies to which they are entitled upon a breach of Section 4.1(d) as
      if the Company's breach of this clause (iv) were a breach of the Company's
      obligations in connection  with a Legend Removal  Request,  subject to the
      Liquidated Damages Cap.

      4.15 Participation in Subsequent  Qualified Equity  Financings;  Merger of
Existing Securities Rights.

            (a) From the Closing  Date until the date that  Purchaser  ceases to
      own at least 25% of the 2006  Preferred  Stock  purchased by it hereunder,
      upon  any  Qualified  Equity  Financing  by  the  Company  or  any  of its
      Subsidiaries  (a "Subsequent  Financing"),  each Purchaser  shall have the
      right to participate in such financing up to the greater of (i) 50% of the
      Issue Amount and (ii) the amount that equals the Issue Price multiplied by
      the number of issued and  outstanding  shares of 2006 Preferred Stock held
      by such Purchaser,  plus all accrued and unpaid dividends thereon,  if any
      (the "Participation Maximum"), all on the same terms and conditions as the
      participant or participants in such Qualified Equity Financing whose terms
      and conditions are least favorable to the Company;  provided, that, if the
      amount to be purchased by the holders of the 2005 Preferred  Stock and the
      2006 Preferred Stock  (collectively,  the "Preferred  Stock  Participating
      Purchasers") exceeds, in the aggregate,  the amount sought to be raised in
      the  Subsequent  Financing,  the Company  shall  increase the amount to be
      raised  in  the  Subsequent   Financing  to  permit  the  Preferred  Stock
      Participating Purchasers to purchase the full amount they elect (and which
      they  would  otherwise  be  entitled,  up  to  the  Participation  Maximum
      applicable  to each  such  Preferred  Stock  Participating  Purchaser)  to
      purchase in the Subsequent  Financing.  Unless the Company is specifically
      instructed in writing by an individual  Purchaser to suspend such notices,
      at least  five (5)  Trading  Days prior to the  closing of the  Subsequent
      Financing, the Company shall deliver to each Purchaser a written notice of
      its  intention  to effect a  Subsequent  Financing  ("Pre-Notice"),  which
      Pre-Notice  shall ask such  Purchaser if it wants to review the details of
      such financing (such additional notice, a "Subsequent  Financing Notice").
      Upon  the  request  of a  Purchaser,  and  only  upon a  request  by  such
      Purchaser,  for a Subsequent Financing Notice, the Company shall promptly,
      but no later than one Trading Day after such request, deliver a Subsequent
      Financing Notice to such Purchaser.  The Subsequent Financing Notice shall
      describe  in  reasonable  detail  the  proposed  terms of such  Subsequent
      Financing,  the amount of proceeds intended to be raised  thereunder,  the
      Person with whom such Subsequent Financing is proposed to be effected, and
      attached  to which  shall be a term  sheet or  similar  document  relating
      thereto.  If by 5:30 p.m.  (New York City time) on the fifth (5th) Trading
      Day  after  all  of  the   Purchasers   have   received  the   Pre-Notice,
      notifications by the Purchasers of their willingness to participate in the
      Subsequent  Financing (or to cause their designees to participate)  is, in
      the aggregate,  less than the total amount of the  Participation  Maximum,
      then the  Company  may effect  the  remaining  portion of such  Subsequent
      Financing  on the terms  and to the  Persons  set forth in the  Subsequent
      Financing Notice. If the Company receives no notice from a Purchaser as of
      such fifth  (5th)  Trading  Day,  such  Purchaser  shall be deemed to have
      notified  the Company that it does not elect to  participate.  The Company
      must provide the Purchasers with a second Subsequent Financing Notice, and
      the Purchasers will again have the right of participation  set forth above
      in this Section 4.15, if the Subsequent  Financing  subject to the initial
      Subsequent Financing Notice is not consummated for any reason on the terms
      set forth in such Subsequent Financing Notice within 60 Trading Days after
      the  date of the  initial  Subsequent  Financing  Notice.  If the  Company
      receives responses to Subsequent Financing Notices from Purchasers seeking
      to purchase more than the aggregate amount of the  Participation  Maximum,
      each  such  Purchaser  shall  have the  right to  purchase  their Pro Rata
      Portion  (as  defined  below)  of the  Participation  Maximum.  "Pro  Rata
      Portion" is the ratio of (x) the Issue Amount of Securities purchased by a
      participating  Purchaser and (y) the sum of the aggregate  Issue Amount of
      all participating Purchasers.

                                       33
<PAGE>

            (b) For the avoidance of doubt, each Purchaser who is acquiring 2006
      Preferred  Stock in exchange  for 2005  Preferred  Stock  pursuant to such
      Purchaser's  MFN Rights  hereby  acknowledges  and  agrees  that as of the
      Closing,  automatically  and without any separate action by the Company or
      any other  Person (i) the shares of 2005  Preferred  Stock  exchanged  for
      shares  of 2006  Preferred  Stock by such  Purchaser  shall  be fully  and
      irrevocably terminated and shall cease to be issued and outstanding,  (ii)
      the 2005 Purchase Agreement shall terminate with respect to such Purchaser
      and all rights of such Purchaser with respect to the 2005 Preferred  Stock
      (including  without  limitation  the  Existing  Securities  Rights of such
      Purchaser)  shall be  merged  with and into the  rights  of the  Purchaser
      hereunder  and under  the 2006  Preferred  Stock  and  (iii) the  separate
      existence of any and all rights of such Purchaser with respect to the 2005
      Preferred Stock shall be extinguished.

      4.16  Permitted  Transfers  and  Assignments.  Subject to Section  4.1 and
Section 5.7, a Purchaser may transfer or assign without the prior consent of the
Company any or all of the shares of 2006 Preferred Stock held by such Purchaser;
provided,  that the  transferee or assignee of such  Purchaser  shall not, after
giving  effect to such  transfer or  assignment,  beneficially  own in excess of
9.99% of the then  outstanding  shares of Common  Stock.  For  purposes  of this
Section 4.16,  beneficial  ownership  shall be  determined  in  accordance  with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13D-G thereunder.

                                       34
<PAGE>

      4.17  Limitation  of  Purchasers'  Ownership  of  Common  Stock.  Unless a
Purchaser delivers to the Company written notice prior to the Closing Date or at
least  sixty-one  (61) days prior to the effective date of such notice that this
Section  4.17 shall not apply to such  Purchaser,  in no event shall a holder of
shares  of 2006  Preferred  Stock  have the  right to  exchange  shares  of 2006
Preferred  Stock into,  nor shall the Company  issue to such  holder,  shares of
Common Stock,  or to dispose of or vote any shares of 2006 Preferred  Stock,  to
the extent that such exchange,  voting or disposition would result in the holder
and its affiliates  together  beneficially  owning more than (a) with respect to
those  holders  identified  on  Schedule  4.17A,  4.99% of the then  issued  and
outstanding  shares of Common  Stock,  or (b) with respect with respect to those
holders  identified on Schedule 4.17B,  9.99% of the then issued and outstanding
shares of Common Stock (each,  a "Limitation on  Ownership,"  and together,  the
"Limitations  on  Ownership");  provided,  that,  if and to the extent  that the
Limitation on Ownership  applicable to any Purchaser would otherwise be violated
by the issuance of shares of Common Stock as aforesaid, the Company may issue to
such  Purchaser  a  Common  Stock  purchase   warrant  (a  "Par  Warrant"),   in
substantially  the form  attached  hereto  as  Exhibit  E,  exercisable  for the
purchase at $0.001 per share (or the then-current par value of the Common Stock,
if other  than  $0.001  per  share) of that  number  of  shares of Common  Stock
constituting  the excess of the amount which would otherwise be issuable but for
the  Limitations  on Ownership less that number of shares of Common Stock issued
to such  Purchaser in compliance  with the  applicable  Limitation on Ownership.
Notwithstanding  the  foregoing,  in no event shall SDS Capital  Group SPC, Ltd.
have the right to exchange  shares of 2006 Preferred Stock into, and in no event
shall the Company issue to SDS Capital Group SPC, Ltd.,  shares of Common Stock,
or to  dispose  of or vote  shares  of Common  Stock,  to the  extent  that such
exchange,  disposition or voting would result in SDS Capital Group SPC, Ltd. and
its  affiliates  together  beneficially  owning  more  than  9.99%  of the  then
outstanding  shares  of  Common  Stock.  For  purposes  of  this  Section  4.17,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder.

      4.18 Purchaser  Approval for Certain Securities  Issuances.  From the date
hereof  until the  Closing  Date and  continuing  thereafter  for so long as any
Purchasers  (or any of their  respective  affiliates)  beneficially  own, in the
aggregate, at least 25% of the 2006 Preferred Stock issued hereunder, other than
an Exempt  Issuance,  the Company shall not, without first obtaining the written
approval  of the holders of at least 65% of the shares of 2006  Preferred  Stock
then  outstanding  (which  approval  may be given or withheld by such holders in
their sole and absolute discretion),  (i) issue or sell any rights,  warrants or
options to  subscribe  for or purchase  Common  Stock,  or any other  securities
directly or indirectly  convertible  into or  exchangeable  or  exercisable  for
Common Stock, at an effective conversion, exchange or exercise price that varies
or may vary with the market price of the Common  Stock,  including by way of one
or more  reset(s) to any fixed price,  (ii) incur any  indebtedness  (other than
trade  payables and  installment  loans in the  ordinary  course of business and
other than as permitted  under  Section  4.20) that by its terms is to be repaid
under an amortization schedule or contains sinking fund redemption provisions or
(iii) issue any  securities or debt  obligations  (other than as a result of the
character  of such  obligations  as  debt  and not  equity)  having  liquidation
preference  senior to or at parity with the  liquidation  preference of the 2006
Preferred Stock. For purposes of this Section 4.18, antidilution adjustments and
proportional adjustments for stock splits,  recapitalizations and similar events
with  respect to  currently  outstanding  securities,  shall not  require  prior
approval.

                                       35
<PAGE>

      4.19 Equal Treatment of Purchasers.  No consideration  shall be offered or
paid to any  person  to amend or  consent  to a waiver  or  modification  of any
provision of any of the Transaction  Documents unless the same  consideration is
also  offered  to  all  of  the  parties  to  the  Transaction  Documents.   For
clarification  purposes,  this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated  separately by each Purchaser,  and
is intended for the Company to treat the 2006 Preferred Stock holders as a class
and shall not in any way be construed as the Purchasers  acting in concert or as
a group with respect to the  purchase,  disposition  or voting of  Securities or
otherwise.

      4.20 Issuance of Debt. Without the prior written approval of holders of at
least 65% of the 2006 Preferred Stock, from the date hereof through the Closing,
and  continuing  thereafter  for so long  as any  Purchasers  (or  any of  their
respective affiliates)  beneficially own, in the aggregate,  at least 25% of the
2006 Preferred Stock issued hereunder, the Company shall not authorize or issue,
or obligate itself to issue,  any debt  obligations of the Company,  or increase
any other existing indebtedness, other than trade payables and installment loans
incurred in the ordinary  course of business and  consistent  with past practice
and advances under the line of credit currently  maintained with Barclay's Bank.
Notwithstanding the foregoing,  the Company shall be permitted to establish,  on
terms and  conditions  determined in the  discretion  of the Company,  a line of
credit or other credit facility secured by United States accounts  receivable in
an amount not to exceed  $1,000,000  (inclusive of the line of credit  currently
maintained with Barclay's Bank).

      4.21 No Short  Sales.  For the  period  commencing  on the  date  that the
Purchaser  was  notified of the terms of the  transactions  contemplated  by the
Transaction  Documents  through the earlier of (i) one hundred twenty (120) days
after the Closing Date and (ii) the  Effective  Date,  neither the Purchaser nor
any of the  funds  over  which  the  manager  of the  Purchaser  has  investment
discretion,  if  applicable,  shall make any short sales of, or grant any option
for the  purchase of or enter into any hedging or similar  transaction  with the
same economic effect as a short sale, in the Common Stock.

      4.22 Acknowledgments  Regarding  Purchasers'  Purchase of Securities.  The
Company  and each  Purchaser  acknowledges  and  agrees  that,  except for those
Purchasers  identified  in Schedule  3.1(ii),  each of the  Purchasers is acting
solely  in the  capacity  of an  arm's  length  purchaser  with  respect  to the
Transaction Documents and the transactions  contemplated hereby. The Company and
each Purchaser further acknowledges and agrees that, except for those Purchasers
identified in Schedule 3.1(ii), no Purchaser is acting as a financial advisor or
fiduciary  of the  Company  (or in any similar  capacity)  with  respect to this
Agreement and the transactions  contemplated  hereby and any advice given by any
Purchaser or any of their  respective  representatives  or agents in  connection
with  this  Agreement  and  the  transactions   contemplated  hereby  is  merely
incidental to the Purchasers'  purchase of the Securities.  The Company and each
Purchaser  further  acknowledges  and agrees that their  respective  decision to
enter into this Agreement has been based solely on the independent evaluation of
the transactions  contemplated hereby by the Company and such Purchaser,  as the
case may be, and its respective  representatives  (including, as to the Company,
the financial advisors to the Company identified on Schedule 3.1(ii)).

                                       36
<PAGE>

      4.23  Corporate  Existence.  So long as any  Purchasers  (or any of  their
respective affiliates) beneficially own any of the Securities, the Company shall
maintain its corporate existence, and in the event of a merger, consolidation or
sale of all or  substantially  all of the  Company's  assets,  the Company shall
ensure that the surviving or successor  entity in such  transaction  (i) assumes
the  Company's  obligations  under  this  Agreement  and the  other  Transaction
Documents and the agreements and instruments entered into in connection herewith
and  therewith  regardless  of  whether  or not the  Company  would  have  had a
sufficient  number of  shares  of Common  Stock  authorized  and  available  for
issuance  in order to  effect  the  exchange  of all the  2006  Preferred  Stock
outstanding as of the date of such transaction and (ii) except in the event of a
merger,  consolidation of the Company into any other corporation, or the sale or
conveyance  of all or  substantially  all of the assets of the Company where the
consideration  consists  solely of cash, the surviving or successor  entity is a
publicly  traded  corporation  whose  common  stock is listed for trading on the
Nasdaq SmallCap Market, the Nasdaq National Market, the NYSE or the AMEX.

      4.24 Legal  Compliance.  The Company  shall  conduct its  business and the
business  of its  Subsidiaries  in  compliance  with  all  laws,  ordinances  or
regulations of governmental entities applicable to such businesses, except where
the failure to do so would not have a Material Adverse Effect.

      4.25  Redemptions,  Dividends and  Repayments of  Indebtedness.  Except as
permitted  by this  Agreement or the  Certificate  of  Amendment,  from the date
hereof until the Closing  Date,  and  continuing  thereafter  for so long as any
Purchasers (or any of their respective  affiliates)  beneficially own any of the
2006 Preferred Stock, except in respect of the 2005 Preferred Stock, the Company
shall not,  without first  obtaining  the written  approval of the holders of at
least 65% of the shares of 2006 Preferred Stock then outstanding (which approval
may be given or withheld by such holders in their sole and absolute discretion),
repurchase,  redeem or declare or pay any cash dividend or  distribution  on any
shares of capital  stock of the Company or repay or prepay any  indebtedness  of
the  Company  other than as  expressly  required  pursuant  to the terms of such
indebtedness as in effect on the date hereof.

      4.26 Inspection of Properties and Books. So long as any Purchasers (or any
of their respective  affiliates)  beneficially  own any of the Securities,  each
such  Purchaser  and  its   representatives   and  agents   (collectively,   the
"Inspectors")  shall have the right, at such Purchaser's  expense,  to visit and
inspect any of the properties of the Company and of its Subsidiaries, to examine
the books of account and records of the Company and of its Subsidiaries, to make
or be  provided  with copies and  extracts  therefrom,  to discuss the  affairs,
finances and  accounts of the Company and of its  Subsidiaries  with,  and to be
advised as to the same by, its and their  officers,  employees  and  independent
public   accountants  (and  by  this  provision  the  Company   authorizes  such
accountants  to discuss such affairs,  finances and  accounts,  whether or not a
representative  of the  Company is  present)  all at such  reasonable  times and
intervals and to such reasonable extent as the Purchasers may desire;  provided,
however,  that each  Inspector  shall hold in confidence  and shall not make any
disclosure  (except to such Purchaser) of any such information which the Company
determines  in good faith to be  confidential,  and of which  determination  the
Inspectors  are so notified,  unless (i) the  disclosure of such  information is
necessary  to avoid or correct a  misstatement  or omission in any  Registration
Statement filed pursuant to the Registration Rights Agreement,  (ii) the release
of such  information  is ordered  pursuant  to a subpoena  or other order from a
court or government body of competent  jurisdiction,  or (iii) such  information
has been made  generally  available  to the public other than by  disclosure  in
violation of this or any other  agreement.  Each Purchaser agrees that it shall,
upon learning that disclosure of such  information is sought in or by a court or
governmental body of competent  jurisdiction or through other means, give prompt
notice to the  Company  and allow the  Company,  at its  expense,  to  undertake
appropriate  action to prevent  disclosure  of, or to obtain a protective  order
for, the information deemed confidential.

                                       37
<PAGE>

      4.27  Protection  Provisions.  From the date hereof until the Closing Date
and continuing  thereafter for so long as any shares of 2006 Preferred Stock are
outstanding,  other than the exchange of 2005 Preferred Stock for 2006 Preferred
Stock  hereunder  pursuant to the MFN Rights,  the Company shall not take any of
the following corporate actions (whether by merger,  consolidation or otherwise)
without first obtaining the written  approval the holders of at least 65% of the
shares of 2006 Preferred Stock then outstanding:

            (a) alter or change the rights,  preferences  or  privileges  of the
      2006 Preferred Stock, or increase the authorized  number of shares of 2006
      Preferred Stock;

            (b) alter or change the rights,  preferences  or  privileges  of any
      capital stock of the Company so as to affect  adversely the 2006 Preferred
      Stock or otherwise  alter or change the rights,  preferences or privileges
      of the 2006 Preferred Stock in relation to the shares of the Common Stock;

            (c)  create or issue any  class or  series of  capital  stock of the
      Company  specifically  ranking,  by its terms, on parity with or senior to
      the 2006 Preferred Stock, in each case as to distribution of assets upon a
      Liquidation  Event (as defined in the  Certificate of Amendment) (it being
      understood,  acknowledged  and  agreed  by the  Purchaser  that  the  2005
      Preferred  Stock is  senior  to the 2006  Preferred  Stock in  respect  of
      distribution of assets upon a Liquidation Event);

            (d) issue any shares of 2006 Preferred  Stock other than pursuant to
      the Securities Purchase Agreement;

            (e) redeem,  repurchase or otherwise acquire,  or declare or pay any
      cash dividend or distribution  on, any class or series of capital stock of
      the Company,  other than the 2006  Preferred  Stock or the 2005  Preferred
      Stock;

            (f) increase the par value of the Common Stock;

            (g) redeem, repurchase,  prepay or otherwise acquire any outstanding
      debt  securities  or  indebtedness  of the  Company,  except as  expressly
      required by the terms of such securities or indebtedness;

            (h) enter into any  agreement,  commitment,  understanding  or other
      arrangement to take any of the foregoing actions;

            (i) cause or authorize  any  Subsidiary  of the Company to engage in
      any of the foregoing actions; or

                                       38
<PAGE>

            (j)  consummate  a  transaction  that  would  constitute  a Dilutive
      Issuance (as defined in the Certificate of Amendment).

Notwithstanding  the foregoing,  no action set forth in subsections  (a) through
(j) above that is  approved by the holders of at least 51% of the shares of 2006
Preferred  Stock  then  outstanding  pursuant  to this  Section  4.27  shall  be
permitted to the extent that, by its terms, such action applies to less than all
of the holders of 2006 Preferred Stock then outstanding.

The Company shall not amend,  restate or file any  certificate of designation in
respect  of, its  certificate  of  incorporation  prior to the  Closing,  except
through the filing of the  Certificate  of Amendment  substantially  in the form
attached hereto as Exhibit A as contemplated hereby.

      4.28 Stockholder Approval.

            (a)  Subject to Section  4.28(c),  following  the date  hereof,  the
      Company shall take all measures reasonably determined by the Company to be
      necessary  and  appropriate  in order to obtain  Stockholder  Approval  as
      promptly as practicable,  which Stockholder  Approval shall be obtained on
      or before  October 31,  2006.  Without  limiting the  foregoing,  promptly
      following the date hereof,  the Company and its Board of Directors  shall,
      subject to Section  4.28(c):  (i)  prepare  proxy  materials  and  solicit
      proxies requesting  Stockholder  Approval,  (ii) call an annual or special
      meeting  of the  Company's  stockholders  for  the  purpose  of  obtaining
      Stockholder Approval, (iii) recommend that the Company's stockholders vote
      in  favor  of such  approval  and  (iv)  otherwise  use  its  commercially
      reasonable efforts to solicit proxies and obtain Stockholder Approval. The
      Company shall request each member of the Company's  Board of Directors and
      shall cause each of the Company's  executive  officers to vote any and all
      shares of Common Stock  beneficially owned by them in favor of Stockholder
      Approval at the Company's meeting of stockholders.

            (b) Except as permitted by Section  4.28(c),  the Company shall not,
      and  the  Company   shall  cause  its  officers,   directors,   employees,
      representatives and agents not to:

                  (i)   withdraw   or   modify   its   recommendation   to   the
                        stockholders;

                  (ii)  directly or indirectly,  encourage, solicit, participate
                        in or initiate  discussions  or  negotiations  with,  or
                        provide any  information  to, any Person (other than the
                        Purchasers   and   their   respective    Affiliates   or
                        representatives)  in  connection  with a proposal for, a
                        Qualified  Equity  Financing,  except  as  permitted  by
                        Section 4.28(c); or

                  (iii) approve or recommend to the stockholders any proposal or
                        offer received by the Company from any Person other than
                        a Purchaser or any  Affiliate of a Purchaser to purchase
                        securities   of  the  Company  in  a  Qualified   Equity
                        Financing (a "Qualified Equity Financing Proposal"),  or
                        enter into any  agreement  with respect to any Qualified
                        Equity Financing Proposal.

                                       39
<PAGE>

      (c) Notwithstanding  anything in this Section 4.28 to the contrary,  prior
to the date as of which Stockholder Approval is obtained:

                  (i)   the  Company  may   participate   in   discussions   and
                        negotiations  with any  Person  concerning  a  Qualified
                        Equity  Financing  Proposal  if  such  Person  has on an
                        unsolicited basis submitted a bona fide written proposal
                        (a  "Superior   Equity   Financing   Proposal")  to  the
                        Company's  Board  of  Directors  relating  to  any  such
                        transaction  which the Board  determines  in good  faith
                        represents a  transaction  on better  economic  terms (a
                        "Superior  Equity   Financing")  than  the  transactions
                        contemplated hereby; provided, that the Company notifies
                        each  Purchaser  of the  existence  and  terms  of  such
                        Superior Equity  Financing  Proposal and the identity of
                        the Person making such proposal  within two (2) Business
                        Days  after the  Company's  receipt  thereof  and in any
                        event at least two (2)  Business  Days prior to agreeing
                        to the terms of any such Superior Equity Financing; and

                  (ii)  the Company and its Board of  Directors  may withdraw or
                        modify   its   approval   or   recommendation   of   the
                        transactions  contemplated by this Agreement and approve
                        or recommend a Superior Equity  Financing  Proposal,  or
                        enter  into an  agreement  with  respect  to a  Superior
                        Equity  Financing  Proposal,  in each  case at any  time
                        after the fifth  Business Day following the  Purchaser's
                        receipt  of  written  notice  of  the  Superior   Equity
                        Financing  Proposal  from the  Company,  but only if the
                        Company   agrees   to  pay  to   each   Purchaser   upon
                        consummation of the Superior Equity  Financing an amount
                        of cash  equal to the sum of (I) the  product of (x) the
                        number of shares of Common Stock (without  giving effect
                        to the  Limitations on Ownership)  underlying the shares
                        of 2006 Preferred Stock that would have been issuable to
                        such  Purchaser  upon  payment of the Issue  Price to be
                        paid  by  such  Purchaser  at  the  Closing   hereunder,
                        multiplied  by  (y)  the  excess  of (1)  the  effective
                        purchase  price of the Common  Stock issued (or issuable
                        upon  exercise,  exchange  or  conversion  of the Common
                        Stock  Equivalents that are issued) to the purchasers in
                        the Superior Equity  Financing,  in excess of (2) $1.15,
                        plus (II) the Purchasers'  reasonable  expenses (subject
                        to a maximum of $50,000  per Section  4.12)  incurred in
                        connection with the transactions contemplated; provided,
                        however,  that, in the event the securities  sold by the
                        Company in the Superior Equity Financing  include shares
                        of Common Stock, the effective  purchase price of Common
                        Stock  in  the  Superior   Equity   Financing  shall  be
                        increased  by  $0.15  per  share  for  purposes  of this
                        Section 4.28(c)(ii).

                                       40
<PAGE>

                                   ARTICLE V.
                                  MISCELLANEOUS

      5.1  Termination.  This Agreement may be terminated by any  Purchaser,  by
written notice to the other parties,  if the Closing has not been consummated on
or  before  the date  which is ten (10) days  after  Stockholders'  Approval  is
obtained or November 20,  2006,  whichever  is earlier;  provided,  that no such
termination  will  affect  the right of any  party to sue for any  breach by the
other party (or parties).

      5.2 Fees and Expenses. The Company shall also pay all transfer agent fees,
stamp taxes and other taxes and duties levied in connection with the issuance of
any Securities.

      5.3  Entire  Agreement.  The  Transaction  Documents,  together  with  the
exhibits and schedules thereto,  contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

      5.4 Notices.  Any and all notices or other  communications  or  deliveries
required or permitted to be provided  hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of  transmission,  if
such notice or  communication is delivered via facsimile at the facsimile number
set forth on the signature  pages  attached  hereto prior to 5:30 p.m. (New York
City  time)  on a  Trading  Day,  (b) the next  Trading  Day  after  the date of
transmission,  if such notice or communication is delivered via facsimile at the
facsimile  number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second  Trading Day following the date of mailing,  if sent by U.S.
nationally  recognized  overnight courier service, or (d) upon actual receipt by
the party to whom such  notice is  required  to be given.  The  address for such
notices and communications shall be as set forth on the signature pages attached
hereto.

      5.5 Amendments;  Waivers.  No provision of this Agreement may be waived or
amended except in a written instrument  signed, in the case of an amendment,  by
the Company and each Purchaser or, in the case of a waiver, by the party against
whom  enforcement  of any such waiver is sought.  No waiver of any default  with
respect to any provision,  condition or  requirement of this Agreement  shall be
deemed to be a  continuing  waiver in the  future or a waiver of any  subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise  any right  hereunder in
any manner impair the exercise of any such right.

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

      5.7  Equitable  Adjustments.  References  herein to  specific  amounts  or
numbers of shares of 2006  Preferred  Stock  shall,  automatically  and  without
amendment of this Agreement, be equitably adjusted to reflect any adjustments to
the number of shares of 2006  Preferred  Stock to give  effect to stock  splits,
stock dividends, recapitalizations or similar events.

                                       41
<PAGE>

      5.8  Certain  Approval  Requirements.  Prior  to the  Closing  Date,  each
requirement set forth herein for the approval of an action by the holders of all
or a  portion  of the  outstanding  shares  of 2006  Preferred  Stock  shall  be
interpreted  and given  effect as if all of the shares of 2006  Preferred  Stock
proposed to be issued at the Closing  had been issued and were  outstanding  and
held by the  Purchasers  according  to the  allocations  set forth in Schedule 1
hereto.

      5.9 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their  successors and permitted  assigns.  The
Company may not assign this  Agreement  or any rights or  obligations  hereunder
without the prior written  consent of each  Purchaser.  Any Purchaser may assign
any or all of its  rights  under  this  Agreement  to any  Person  to whom  such
Purchaser  assigns or transfers any Securities,  provided,  that such transferee
agrees in writing to be bound,  with respect to the transferred  Securities,  by
the provisions hereof that apply to the "Purchasers."

      5.10 No  Third-Party  Beneficiaries.  This  Agreement  is intended for the
benefit of the parties  hereto and their  respective  successors  and  permitted
assigns and is not for the benefit of, nor may any provision  hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.13.

      5.11 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.

      5.12 Governing Law. All questions  concerning the construction,  validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance  with the internal laws of the State of
New York,  without  regard to the  principles of conflicts of law thereof.  Each
party  agrees  that  all  legal  proceedings   concerning  the  interpretations,
enforcement and defense of the  transactions  contemplated by this Agreement and
any other Transaction  Documents  (whether brought against a party hereto or its
respective affiliates,  directors, officers, stockholders,  employees or agents)
shall be commenced  exclusively  in the state and federal  courts sitting in the
City of New  York.  Each  party  hereby  irrevocably  submits  to the  exclusive
jurisdiction  of the state and federal  courts  sitting in the City of New York,
County  of New  York,  for  the  adjudication  of any  dispute  hereunder  or in
connection  herewith or with any  transaction  contemplated  hereby or discussed
herein  (including  with respect to the  enforcement  of any of the  Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action  or  proceeding,  any  claim  that it is not  personally  subject  to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding.  Each party hereby irrevocably waives
personal  service of process and  consents to process  being  served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or  overnight  delivery  (with  evidence of  delivery) to such party at the
address in effect for  notices to it under this  Agreement  and agrees that such
service  shall  constitute  good and  sufficient  service of process  and notice
thereof.  Nothing contained herein shall be deemed to limit in any way any right
to serve  process in any manner  permitted by law. The parties  hereby waive all
rights  to a trial  by jury.  If  either  party  shall  commence  an  action  or
proceeding to enforce any  provisions  of the  Transaction  Documents,  then the
prevailing  party in such action or proceeding  shall be reimbursed by the other
party for its  attorneys'  fees and other costs and expenses  incurred  with the
investigation, preparation and prosecution of such action or proceeding.

                                       42
<PAGE>

      5.13 Survival.  The  representations and warranties of the parties and the
agreements  and  covenants  contained  herein shall  survive the Closing and the
delivery,  exercise and/or  conversion of the Securities,  as applicable for the
applicable statue of limitations notwithstanding any due diligence investigation
conducted   by  or  on  behalf  of  any   Purchaser.   Moreover,   none  of  the
representations  and warranties made by the Company herein shall act as a waiver
of any rights or remedies any Purchaser may have under  applicable U.S.  federal
or state securities laws.

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

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

      5.16  Rescission and  Withdrawal  Right.  Notwithstanding  anything to the
contrary  contained in (and  without  limiting  any similar  provisions  of) the
Transaction  Documents,  whenever  any  Purchaser  exercises a right,  election,
demand or option  under a  Transaction  Document and the Company does not timely
perform its related  obligations within the periods therein provided,  then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice,  demand or election in whole
or in part without prejudice to its future actions and rights; provided, that in
the case of a  rescission  of any  exchange  of the 2006  Preferred  Stock,  the
Purchaser  shall be required to return any shares of Common Stock subject to any
such rescinded conversion or exercise notice.

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

                                       43
<PAGE>

      5.18  Remedies.  No provision of this  Agreement or any other  Transaction
Document  providing  for any remedy to a Purchaser  shall limit any other remedy
which  would  otherwise  be  available  to such  Purchaser  at law, in equity or
otherwise.  Nothing in this  Agreement or any other  Transaction  Document shall
limit any rights any  Purchaser may have under any  applicable  federal or state
securities laws with respect to the investment  contemplated hereby. The Company
acknowledges  that  a  breach  by it of its  obligations  hereunder  will  cause
irreparable  harm to the  Purchasers  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  hereunder  (including,  but not
limited to, its obligations pursuant to Article 4 hereof) will be inadequate and
agrees,  in the event of a breach or  threatened  breach by the  Company  of the
provisions of this  Agreement  (including,  but not limited to, its  obligations
pursuant  to  Article 4  hereof),  that each  Purchaser  shall be  entitled,  in
addition to all other  available  remedies,  to an  injunction  restraining  any
breach and requiring immediate issuance and transfer of the Securities,  without
the necessity of showing  economic  loss and without any bond or other  security
being required.

      5.19 Payment Set Aside.  To the extent that the Company makes a payment or
payments to any Purchaser  pursuant to any  Transaction  Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such  enforcement  or exercise or any part thereof are  subsequently
invalidated,  declared to be fraudulent or  preferential,  set aside,  recovered
from, disgorged by or are required to be refunded,  repaid or otherwise restored
to the  Company,  a  trustee,  receiver  or  any  other  person  under  any  law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable  cause of action),  then to the extent of any such  restoration
the  obligation  or part thereof  originally  intended to be satisfied  shall be
revived and  continued  in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

      5.20 Exculpation  Among  Purchasers;  No "Group".  The obligations of each
Purchaser  under any  Transaction  Document  are  several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in any
way for the  performance  or  non-performance  of the  obligations  of any other
Purchaser under any Transaction  Document.  Nothing  contained  herein or in any
other  Transaction  Document,  and no  action  taken by any  Purchaser  pursuant
thereto,  shall be deemed to  constitute  the  Purchasers as a  partnership,  an
association,  a  joint  venture  or any  other  kind  of  entity,  or  create  a
presumption that the Purchasers are in any way acting in concert or as a "group"
for  purposes  of  Section  13(d)  of the  Exchange  Act  with  respect  to such
obligations or the transactions  contemplated by the Transaction Documents. Each
party  to  this  Agreement   confirms  that  it  has  had  the   opportunity  to
independently  participate in the negotiation and drafting of this Agreement and
the other Transaction Documents with the advice of its own counsel and advisors,
that it has independently determined to enter into the transactions contemplated
hereby and thereby,  that it is not relying on any advice from or  evaluation by
any  other  Purchaser,  and that it is not  acting  in  concert  with any  other
Purchaser in making its purchase of Securities  hereunder or in  monitoring  its
investment in the Company.  The  Purchasers  have not agreed to act together for
the purpose of acquiring,  holding,  voting or disposing of equity securities of
the  Company.  Each  Purchaser  shall be entitled to  independently  protect and
enforce its rights,  including without limitation the rights arising out of this
Agreement  or  out of the  other  Transaction  Documents,  and it  shall  not be
necessary  for any other  Purchaser to be joined as an  additional  party in any
proceeding for such purpose. Each Purchaser  acknowledges that SDS Capital Group
SPC, Ltd. has retained Drinker Biddle & Reath LLP ("DB&R") to act as its counsel
in connection with the transactions contemplated by this Agreement and the other
Transaction  Documents  and that  DB&R has not acted as  counsel  for any of the
other  Purchasers in connection  therewith and none of the other Purchasers have
the status of a client of DB&R for  conflict of interest or other  purposes as a
result thereof.  The Company has elected to provide all Purchasers with the same
terms and  Transaction  Documents  for the  convenience  of the  Company and not
because it was  required or requested  to do so by the  Purchasers.  The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption  that the  Purchasers are in any way acting in concert
or as a "group" for  purposes of Section  13(d) of the Exchange Act with respect
to the Transaction Documents or the transactions contemplated hereby or thereby.

                                       44
<PAGE>

      5.21  Liquidated  Damages.  The Company's  obligations  to pay any partial
liquidated  damages or other amounts owing under the Transaction  Documents is a
continuing  obligation of the Company and shall not  terminate  until all unpaid
partial liquidated damages and other amounts have been paid  notwithstanding the
fact that the instrument or security  pursuant to which such partial  liquidated
damages  or  other  amounts  are due  and  payable  shall  have  been  canceled.
Notwithstanding  the  foregoing  and for the  avoidance  of  doubt  and  without
limiting the  Purchasers'  rights to pursue other  damages  claims,  the Company
shall in no event be liable for the  payment  of  liquidated  damages  under the
Transaction  Documents to any Purchaser (or affiliate  thereof) in excess of the
Liquidated Damages Cap applicable to such Purchaser.

                            (SIGNATURE PAGES FOLLOW)

                                       45
<PAGE>

            [COMPANY SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]

      IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.

DIOMED HOLDINGS, INC.                           Address for Notice:

By:___________________________                  One Dundee Park
     Name:  James A. Wylie, Jr.                 Andover, MA 01810
     Title:  Chief Executive Officer            Attn: Chief Executive Officer
                                                (978) 475-7771 Telephone
                                                (978) 475-8488 Facsimile

With a copy (which shall not constitute notice) to:

McGuireWoods LLP
1345 Avenue of the Americas
New York, New York 10105
Attn: William A. Newman, Esq.
(212) 548-2160 Telephone
(212) 548-2170 Facsimile

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                      SIGNATURE PAGE FOR PURCHASER FOLLOWS]

                                       46
<PAGE>

           [PURCHASER SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]

      IN WITNESS WHEREOF,  the undersigned have caused this Securities  Purchase
Agreement to be duly executed by their respective  authorized  signatories as of
the date first indicated above.

Name of Investing Entity: ______________________________________________________

By: __________________________________
      (Signature of Authorized Signatory)

Name of Authorized Signatory: __________________________________________________

Title of Authorized Signatory: _________________________________________________

Email Address of Authorized Signatory: _________________________________________

Telephone Number of Authorized Signatory: ______________________________________

Address (including facsimile number) for Notice to Investing Entity:

Address for Delivery of Securities to Investing Entity (if not same as above):

US Tax ID Number:  _________________________

Total Number Shares of 2006 Preferred Stock Purchased:   ____________________

Issue Amount in Cash (at $11,500 per Share):             $___________________

No. Shares 2005 Preferred Stock exchanged through MFN Rights:
____________________

No. Shares Purchased for Cash:                           ____________________

No. Shares Purchased via MFN Rights:                     ____________________

                                       47
<PAGE>

                                    EXHIBITS

Exhibit A                  Form of Certificate of Amendment

Exhibit B                  Form of Registration Rights Agreement

Exhibit C                  Form of 2005 Stockholder Waiver

Exhibit D                  Form of Company Counsel Opinion

Exhibit E                  Form of Par Warrant

                                       48
<PAGE>

                                    SCHEDULES

Company Disclosure Schedules

Schedule 4.17A

Schedule 4.17B

                                       49
<PAGE>

                                                                  SCHEDULE 4.17A

              Purchasers Subject to 4.99% Limitations on Ownership

                                       50
<PAGE>

                                                                  SCHEDULE 4.17B

              Purchasers Subject to 9.99% Limitations on Ownership

                                       51EXHIBIT 10.2

                              DIOMED HOLDINGS, INC.

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

                            CERTIFICATE OF AMENDMENT
                                       OF
                          CERTIFICATE OF INCORPORATION

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

         Pursuant to Section 242 of the Delaware General Corporation Law

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

      Diomed Holdings, Inc., a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:

      FIRST: The name of the Corporation  (hereinafter called the "Corporation")
is Diomed  Holdings,  Inc., a corporation  organized and now existing  under the
General Corporation Law of the State of Delaware ("DGCL").

      SECOND:  The certificate of  incorporation of the Corporation was filed at
the Office of the  Secretary of State of the State of Delaware on April 19, 2002
(the "Certificate of Incorporation").

      THIRD:  The article of the Certificate of  Incorporation  affected by this
Certificate is Article FIFTH.

      FOURTH:  This  Certificate  of Amendment  is being filed to authorize  the
Corporation  to issue from the Twenty Million  (20,000,000)  shares of preferred
stock,  par value $0.001 per share,  that are  authorized by the  Certificate of
Incorporation  (the  "Authorized  Preferred  Stock") a new series of  Authorized
Preferred Stock, which shall be in addition to the Preferred Stock created under
the Certificate of  Designations of the Corporation  filed with the Secretary of
State of the State of Delaware on September  30, 2005,  and which shall have the
voting powers (if any), designations,  preferences and relative,  participating,
option  or  other  special  rights  and  the  qualifications,   limitations  and
restrictions as set forth in the amendment to Article FIFTH set forth below.

      FIFTH:  The  Certificate  of  Incorporation  is hereby amended by deleting
Section 2 of Article FIFTH thereof in its entirety and inserting in lieu thereof
the  following  new text (all  references  below to this Article  FIFTH shall be
deemed to be references to Section 2B of this Article FIFTH):

      Section 2A. Share  Status.  All common shares will be equal to each other,
and when issued, shall be fully paid and nonassessable, and the private property
of the stockholders  shall not be liable for corporate  debts.  Preferred shares
issued  prior to  September  ___,  2006 shall have such  preferences  and voting
rights as the  Directors  assigned to them prior to  issuance.  Each holder of a
common  share of  record  shall  have one vote for each  share of  common  stock
outstanding  in his or her name on the  books of the  Corporation  and  shall be
entitled to vote said stock.  Each holder of a preferred  share of record issued
prior to  September  ___,  2006 of record  shall have one vote for each share of
preferred stock  outstanding in his or her name on the books of the Corporation,
if such voting right was assigned to such shares by the Board of Directors  upon
issuance.

                                       1
<PAGE>

      Section  2B.  2006  Preferred  Stock.   [_________________________________
(_____________)] shares of the [_____________________  (____________)] shares of
the  Authorized  Preferred  Stock of the  Corporation  which are  authorized but
unissued  shares shall hereby be designated  Series 2006  Preferred  Stock,  par
value  $0.001 per share (the "2006  Preferred  Stock"),  and shall  possess  the
voting powers (if any), designations,  preferences and relative,  participating,
option  or  other  special  rights  and  the  qualifications,   limitations  and
restrictions  set forth  below.  The face  amount (the "Face  Amount")  shall be
Eleven  Thousand  Five Hundred  Dollars  ($11,500)  per share of 2006  Preferred
Stock.

      1.  Dividends.  The holders of outstanding  shares of 2006 Preferred Stock
(each a "Holder" and collectively,  the "Holders") shall be entitled to receive,
as, when and if  declared  by the Board of  Directors  of the  Corporation  (the
"Board of  Directors"),  out of lawfully  available funds  cumulative  dividends
("Dividends")  as set forth below.  No Dividends  shall accrue or become payable
unless and until a Dividend Commencement Event shall occur. For purposes hereof,
the term  "Dividend  Commencement  Event"  shall  mean the  consummation  by the
Corporation,  from and after the  Closing  Date (as  defined  in the  Securities
Purchase Agreement, dated as of July 27, 2006, between the Corporation and those
Purchasers  signatory  thereto  (the  "Securities  Purchase  Agreement")),  of a
transaction  (other than the issuance and sale of the 2006 Preferred Stock) that
reduces the price (the  "Conversion  Price") at which  common  stock,  par value
$0.001 per share, of the Corporation (the "Common Stock"), shall become issuable
upon  conversion  of the  Debentures  (as  defined  in the  Securities  Purchase
Agreement)  pursuant to the provisions of Section 5(b) thereof;  provided,  that
such  reduction in the  Conversion  Price takes effect for  Debentures  that are
outstanding in the aggregate  principal  amount of at least One Million  Dollars
($1,000,000).  From  and  after  the  date  of a  Dividend  Commencement  Event,
Dividends shall accrue at the rate of Fifteen Percent (15%) per annum, and shall
be payable (pro rata over the applicable  period,  if less than a full quarterly
period) (i)  quarterly  in arrears as of the end of each  fiscal  quarter of the
Corporation  (payable on the first business day of the subsequent fiscal quarter
of the  Corporation),  for so  long  as  shares  of  2006  Preferred  Stock  are
outstanding,  (ii) upon the date of (1) the consummation of a Liquidating  Event
pursuant  to  Section 3 of this  Article  FIFTH or (2)  exchange  by the  Holder
pursuant to Section 4 below or by the Corporation  pursuant to Section 6 or 7 of
this Article FIFTH or (iii) upon the redemption by the  Corporation  pursuant to
Section 8 of this Article FIFTH (as  applicable,  the "Dividend  Payment Date").
Such  Dividends  shall be  cumulative  so that if  Dividends  in  respect of any
previous  or  current  quarterly  Dividend  period  shall  not have been paid or
declared and a sum sufficient for the payment  thereof has not been set aside by
the Corporation, the deficiency shall first be fully paid before any Dividend or
other distribution shall be paid or declared and set aside for the Common Stock.
Dividends shall be payable in cash only.

                                       2
<PAGE>

      2. Voting.

      (a) Except as otherwise expressly provided elsewhere in the Certificate of
Incorporation  or as  otherwise  required  by the DGCL,  (i) each  share of 2006
Preferred  Stock  shall be  entitled  to a number  votes  equal to the number of
shares of Common  Stock into which such share of 2006  Preferred  Stock,  on the
record  date  for the  determination  of  stockholders  entitled  to vote on all
matters  submitted to a vote of the  stockholders  of the  Corporation  would be
exchangeable  pursuant  to  Section  4 of this  Article  FIFTH  (subject  to the
Limitations on Ownership (as defined in Section  4(a)),  and (ii) the holders of
shares of 2006 Preferred  Stock and Common Stock shall vote together (or consent
in writing in lieu of a vote) as a single class on all matters  submitted to the
stockholders of the Corporation.

      (b) The Corporation shall provide each holder of 2006 Preferred Stock with
prior  notification  of any  meeting of the  stockholders  (and  copies of proxy
materials and other information sent to stockholders).  If the Corporation takes
a  record  of its  stockholders  for the  purpose  of  determining  stockholders
entitled (i) to receive payment of any Dividend or other distribution, any right
to subscribe  for,  purchase or otherwise  acquire  (including by way of merger,
consolidation  or  recapitalization)  any  share  of  any  class  or  any  other
securities  or  property,  or to  receive  any other  right,  or (ii) to vote in
connection with any proposed sale,  lease or conveyance of all or  substantially
all of the assets of the  Corporation,  or any proposed  merger,  consolidation,
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder of 2006 Preferred  Stock, at least 15 days prior to
the record date specified  therein (or 45 days prior to the  consummation of the
transaction or event,  whichever is earlier, but in no event earlier than public
announcement of such proposed transaction), of the date on which any such record
is to be taken for the purpose of such vote,  dividend,  distribution,  right or
other event,  and a brief  statement  regarding the amount and character of such
vote, dividend,  distribution,  right or other event to the extent known at such
time.

      (c) To the extent  that under the DGCL the vote of the holders of the 2006
Preferred  Stock,  voting  separately as a class or series,  as  applicable,  is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the holders of at least 65% of the shares of the 2006 Preferred Stock
at the time issued and outstanding (the "Required Holders") present in person or
by proxy at a duly held  meeting  at which a quorum  is  present  or by  written
consent of the Required  Holders  (except as otherwise may be required under the
DGCL) shall constitute the approval of such action by the class.

      3. Liquidation.

      (a) The 2006  Preferred  Stock shall be  preferred  over and senior to the
Common Stock and any class or series of capital stock of  Corporation  hereafter
created as to the assets of the  Corporation  available for  distribution to its
stockholders  upon the occurrence of any  Liquidating  Event (as defined below),
whether  voluntary or involuntary,  or from the net proceeds from a sale, lease,
exchange or other  disposition  of the assets of the  Corporation  in connection
with a Change of Control (as defined in Section 7 of this Article FIFTH) (in any
such case, the  "Proceeds").  In the case of any  Liquidating  Event (as defined
below) or Change of Control,  upon the consummation of such Liquidating Event or
Change of Control, all then-outstanding  shares of 2006 Preferred Stock shall be
extinguished  automatically  and in lieu of such shares of 2006 Preferred  Stock
the holders of the 2006  Preferred  Stock so  extinguished  shall be entitled to
receive out of the Proceeds,  and before any  distribution or payment is made to
any  holders  of any  shares  of Common  Stock or any  other  class or series of
capital stock of the Corporation  hereafter created (but following  distribution
of Proceeds to repay the Corporation's  obligations under the Debentures and the
Corporation's  Preferred Stock issued on September 30, 2005 (the "2005 Preferred
Stock"),  an amount equal to the greater of: (i) Thirteen Thousand Eight Hundred
Dollars ($13,800) per share of 2006 Preferred Stock, plus all accrued and unpaid
Dividends  thereon,  if  any,  whether  or not  earned  or  declared,  up to and
including  the date full  payment  shall be  tendered to the holders of the 2006
Preferred Stock with respect to such  Liquidating  Event (which amount per share
shall be payable in cash) and (ii) such amount per share of 2006 Preferred Stock
as would  have been  payable  had each such share  been  tendered  by the Holder
thereof for  exchange  into Common  Stock  pursuant to Section 4 of this Article
FIFTH  (without  giving  effect to the  Limitations  on Ownership (as defined in
Section 4(a) of this Article FIFTH)) immediately prior to such Liquidating Event
(which  amount  per share  shall be  payable in cash,  securities  and/or  other
property  in the same amount and  proportion  as would be paid to the holders of
Common Stock) (as applicable, the "Liquidation Preference").

                                       3
<PAGE>

      (b) If,  upon any  Liquidating  Event or Change of Control,  the  Proceeds
available for  distribution  to the holders of the 2006 Preferred Stock shall be
insufficient to permit payment to such Holders of the full preferential  amounts
as provided for above, then such Holders shall share ratably in any distribution
of available assets according to the respective amounts which would otherwise be
payable  with  respect to the shares of 2006  Preferred  Stock held by them upon
such Liquidating Event or Change of Control  distribution if all amounts payable
on or with  respect to said shares were paid in full,  based upon the  aggregate
liquidation value of all 2006 Preferred Stock  outstanding  immediately prior to
such Liquidating Event or Change of Control.

      (c) After such payment  shall have been made in full to the holders of the
2006 Preferred Stock, the remaining Proceeds shall be distributed  ratably among
the holders of the shares of Common Stock.

      (d) The amounts to be paid or set aside for  payment as provided  above in
Section  3(a) of this  Article  FIFTH  shall  be  proportionately  increased  or
decreased in inverse relation to the change in the number of outstanding  shares
resulting from any  consolidation or combination of capital stock,  stock split,
stock dividend,  subdivision of shares,  recapitalization,  reclassification  or
similar event.

      (e) Liquidating  Event. Any liquidation,  dissolution or winding up of the
Corporation,  whether voluntary or involuntary,  other than in connection with a
Change of Control  shall be considered a  "Liquidating  Event" and shall entitle
the holders of the 2005 Preferred Stock, the 2006 Preferred Stock and the Common
Stock to receive promptly after the Corporation's  realization thereof, in cash,
securities or other  property,  those amounts  specified in Section 3(a) of this
Article FIFTH in accordance with the terms thereof.

                                       4
<PAGE>

      4. Holder's Right to Exchange 2006 Preferred Stock for Common Stock.

      (a) Subject to the applicable  Limitations on Ownership (as defined below)
at any time and from time to time,  the Holder  may  tender any whole  number of
shares of 2006 Preferred Stock held by it in exchange for a number of fully paid
and non  assessable  shares of Common  Stock per share of 2006  Preferred  Stock
determined in accordance with the following formula (the "Exchange Formula"):

      Face Amount of Shares Tendered for Exchange
      -------------------------------------------
                      Exchange Rate

      Where:

      "Exchange  Rate" shall mean $1.15,  subject to  adjustment as set forth in
      Section 5 of this Article FIFTH.

      The following  provisions shall also apply:  Unless a Holder has delivered
      to the Corporation written notice prior to the Closing Date (as defined in
      the Securities  Purchase  Agreement) or at least sixty-one (61) days prior
      to the effective date of such notice that the Limitations on Ownership (as
      defined below) shall not apply to such Holder,  in no event shall a Holder
      have the right to exchange  shares of 2006 Preferred Stock into, nor shall
      the  Corporation  issue to such  Holder,  shares  of Common  Stock,  or to
      dispose of or vote any shares of 2006 Preferred  Stock, to the extent that
      such  exchange,  disposition  or voting would result in the Holder and its
      affiliates  together  beneficially  owning  more than (a) with  respect to
      those Holders  identified  on Schedule  4.17A of the  Securities  Purchase
      Agreement,  4.99% of the then  issued  and  outstanding  shares  of Common
      Stock,  or (b) with respect with respect to those  Holders  identified  on
      Schedule 4.17B of the  Securities  Purchase  Agreement,  9.99% of the then
      issued and  outstanding  shares of Common Stock (each,  a  "Limitation  on
      Ownership," and together, the "Limitations on Ownership"); provided, that,
      if and to the extent that the  Limitation  on Ownership  applicable to any
      Holder  would  otherwise  be violated by the  issuance of shares of Common
      Stock as  aforesaid,  the  Corporation  may issue to such  Holder a Common
      Stock  purchase  warrant  (a "Par  Warrant"),  in  substantially  the form
      attached as Exhibit E to the Securities  Purchase  Agreement,  exercisable
      for the purchase at $0.001 per share (or the then-current par value of the
      Common Stock,  if other than $0.001 per share) of that number of shares of
      Common Stock  constituting  the excess of the amount which would otherwise
      be  issuable  but for the  Limitations  on  Ownership  less that number of
      shares  of Common  Stock  issued to such  Holder  in  compliance  with the
      applicable Limitation on Ownership.  Notwithstanding the foregoing,  in no
      event shall SDS Capital Group SPC, Ltd. have the right to exchange  shares
      of 2006 Preferred Stock into, and in no event shall the Corporation  issue
      to SDS Capital Group SPC, Ltd.,  shares of Common Stock,  or to dispose of
      or vote  shares  of  Common  Stock,  to the  extent  that  such  exchange,
      disposition  or voting would result in SDS Capital Group SPC, Ltd. and its
      affiliates  together  beneficially  owning  more  than  9.99%  of the then
      outstanding  shares of Common  Stock.  For purposes of this Section  4.17,
      beneficial  ownership shall be determined in accordance with Section 13(d)
      of the Securities  Exchange Act of 1934, as amended,  and Regulation 13D-G
      thereunder.

                                       5
<PAGE>

Furthermore, if on the Exchange Date (as defined in Section 4(b) of this Article
FIFTH),  the Common  Stock is listed on a Trading  Market (as defined in Section
4(e) of this Article  FIFTH) and the rules of such Trading  Market  require that
any shares of Common Stock to be issued by the Corporation  must first be listed
for trading or exchange  with such Trading  Market,  then the Holder's  right to
exchange the 2006 Preferred  Stock shall be conditioned on the listing with such
Trading  Market of the shares of Common Stock sought to be issued upon  exchange
by the Holder,  and limited to the number of shares of Common  Stock then listed
on such Trading Market which are available for issuance upon the exchange of the
2006 Preferred Stock.

      (b) The Holders may exercise  their  exchange  right under Section 4(a) of
this Article FIFTH by providing  written  irrevocable  notice to the Corporation
(the "Exchange Notice"),  substantially in the form of Exhibit A hereto (and, if
the  2006  Preferred  Stock  is  in  certificated  form,   surrendering  to  the
Corporation  along with the Exchange  Notice the Holder's stock  certificate(s),
with stock power(s)  endorsed in blank,  representing  the 2006 Preferred  Stock
tendered for  exchange),  in accordance  with Section 14 of this Article  FIFTH,
which  Exchange  Notice  shall be deemed  given and  effective  on the date (the
"Exchange  Date") as  provided  under  Section 14 of this  Article  FIFTH.  Upon
receipt by the Corporation of an Exchange Notice from a Holder (the  "Exchanging
Holder"),  the Corporation shall promptly send, via facsimile, a confirmation to
such Exchanging  Holder stating that the Exchange Notice has been received,  the
date upon which the  Corporation  expects to deliver the Common  Stock  issuable
upon such exchange and the name and telephone  number of a contact person at the
Corporation regarding the exchange.

      (c) Upon  delivery of an Exchange  Notice,  the  Corporation  (itself,  or
through  its  transfer  agent)  shall,  no later  than the  second  Trading  Day
following the Exchange Date (the  "Delivery  Period"),  issue and deliver (i.e.,
deposit with a nationally  recognized overnight courier service postage prepaid)
to the  Exchanging  Holder or its nominee  that number of shares of Common Stock
issuable upon exchange of such shares of 2006 Preferred  Stock being  exchanged.
Notwithstanding   the  foregoing,   if  the  Corporation's   transfer  agent  is
participating  in  the  Depository  Trust  Corporation  ("DTC")  Fast  Automated
Securities  Transfer  program,  and so long as the certificates  therefor do not
bear a legend  and the  holder  thereof  is not then  required  to  return  such
certificate for the placement of a legend thereon,  the Corporation  shall cause
its transfer agent to promptly electronically transmit the Common Stock issuable
upon the  exchange  to the  Exchanging  Holder by  crediting  the account of the
Holder or its nominee with DTC through its Deposit  Withdrawal  Agent Commission
system ("DTC Transfer").  If the aforementioned conditions to a DTC Transfer are
not  satisfied,  and the 2006  Preferred  Stock  is in  certificated  form,  the
Corporation shall deliver as provided above to the Holder physical  certificates
representing  the Common Stock  issuable  upon  exchange.  Further,  if the 2006
Preferred Stock is in certificated  form, an Exchanging  Holder may instruct the
Corporation  to  deliver  to  the  Exchanging   Holder   physical   certificates
representing  the Common Stock  issuable upon the exchange in lieu of delivering
such shares by way of DTC Transfer.

                                       6
<PAGE>

      (d) The  Corporation  shall pay any and all taxes that may be imposed upon
it with  respect to the issuance and delivery of the shares of Common Stock upon
the exchange of the 2006 Preferred Stock hereunder.

      (e) If any exchange of 2006  Preferred  Stock would result in the issuance
of a fractional share of Common Stock  (aggregating all shares of 2006 Preferred
Stock being  exchanged  pursuant to a given Exchange  Notice),  such  fractional
share shall be payable in cash based upon the ten day VWAP (as defined below) of
the Common Stock at such time, and the number of shares of Common Stock issuable
upon exchange of the 2006  Preferred  Stock shall be the next lower whole number
of shares. For purposes of the foregoing, "VWAP" means, for any Trading Day, the
price determined by the first of the following clauses that applies:  (i) if the
Common  Stock is then  listed or quoted on a Trading  Market,  the daily  volume
weighted  average price of the Common Stock for such date on the Trading  Market
on which the Common  Stock is then  listed or quoted as  reported  by  Bloomberg
Financial L.P. (based on a Trading Day from 9:30 a.m.  Eastern Time to 4:00 p.m.
Eastern  Time);  (ii) if the  Common  Stock is not then  listed  or  quoted on a
Trading  Market and if prices for the  Common  Stock are then  quoted on the OTC
Bulletin Board,  the volume weighted  average price of the Common Stock for such
date on the OTC Bulletin Board;  (iii) if the Common Stock is not then listed or
quoted on the OTC  Bulletin  Board and if prices for the  Common  Stock are then
reported  in the  "Pink  Sheets"  published  by the  National  Quotation  Bureau
Incorporated (or a similar organization or agency succeeding to its functions of
reporting  prices),  the most recent bid price per share of the Common  Stock so
reported; or (iv) in all other cases, the fair market value of a share of Common
Stock as determined by an  independent  appraiser  selected in good faith by the
holders  of  the  2006  Preferred   Stock  and  reasonably   acceptable  to  the
Corporation, where "Trading Day" means a day on which the Common Stock is traded
on a Trading  Market,  and  "Trading  Market"  means the  following  markets  or
exchanges  on which the Common Stock is listed or quoted for trading on the date
in question:  the Nasdaq SmallCap Market,  the American Stock Exchange,  the New
York Stock Exchange or the Nasdaq National Market.

      (f)  In  the  case  of  any  dispute  with  respect  to an  exchange,  the
Corporation  shall  promptly  issue such number of shares of Common Stock as are
not  disputed  in  accordance  with  subparagraph  (ii) above.  If such  dispute
involves the  calculation of the Exchange Rate, and such dispute is not promptly
resolved by discussion  between the Exchanging  Holder and the Corporation,  the
Corporation  shall submit the disputed  calculations  to an independent  outside
accountant  via facsimile  within three business days of receipt of the Exchange
Notice. The accountant,  at the Corporation's sole expense, shall promptly audit
the  calculations  and notify the Corporation  and the Exchanging  Holder of the
results no later than three business days from the date it receives the disputed
calculations.  The accountant's  calculation shall be deemed conclusive,  absent
manifest  error.  The  Corporation  shall then issue the  appropriate  number of
shares of Common Stock in accordance with subparagraph (ii) above.

      (g) Upon the exchange of any shares of 2006 Preferred  Stock,  all amounts
then accrued or payable on such shares hereunder (including, without limitation,
any  Dividends,  if any Dividends  have accrued and have not been paid) or under
the  Securities  Purchase  Agreement or the  Registration  Rights  Agreement (as
defined in the Stock Purchase Agreement) through and including the Exchange Date
shall be paid in cash by the Corporation.

                                       7
<PAGE>

      (h) If fewer than all shares of 2006 Preferred Stock held by an Exchanging
Holder  are  tendered  for  exchange,  then the  Corporation  shall  record  the
cancellation  of those shares which were tendered on its books and records (and,
if the 2006 Preferred Stock is in certificated  form,  shall issue in due course
one or  more  new  stock  certificates  representing  those  shares  held by the
Exchanging Holder which remain issued and outstanding).

      (i) If, at any time, (i) an Exchanging  Holder submits an Exchange  Notice
and the Corporation fails for any reason (other than because such issuance would
exceed such  Exchanging  Holder's  Limitations  on Ownership) to deliver,  on or
prior to the fifth Trading Day following the  expiration of the Delivery  Period
for such  exchange,  such number of freely  tradable  shares of Common  Stock to
which  such  Holder is  entitled  upon such  exchange,  or (ii) the  Corporation
provides written notice to any holder of 2006 Preferred Stock (or makes a public
announcement via press release) at any time of its intention not to issue freely
tradable  shares of Common Stock upon exercise by any  Exchanging  Holder of its
exchange  rights in  accordance  with the terms of this  Agreement  (other  than
because such issuance would exceed such Holder's Limitations on Ownership) (each
of (i) and (ii) being an "Exchange  Default"),  then,  subject to the Liquidated
Damages Cap (as defined in the Securities Purchase  Agreement),  the Corporation
shall pay to the Exchanging Holder  Liquidated  Damages (as defined below) until
the  earliest to occur of (i) the date of the cure of such  Exchange  Default by
the Corporation and (ii) the date when the Liquidated  Damages Cap has been met,
as the case may be. For  purposes  hereof,  "Liquidated  Damages"  shall mean an
amount in cash equal to 1% per day of the  aggregate  Issue  Amount  paid by the
initial  Purchaser of the shares of 2006  Preferred  Stock for those such shares
which are the subject of the Exchange Default,  payable on demand by the Holder,
as full liquidated  damages and not as a penalty,  provided,  that the aggregate
Liquidated  Damages  payable in respect of such shares of 2006  Preferred  Stock
shall in no event exceed the Liquidated Damages Cap.

      (j) Unless the Corporation  has notified the Exchanging  Holder in writing
prior to the delivery by such Holder of an Exchange  Notice that the Corporation
is unable to honor requests for exchanges,  if (i) (a) the Corporation  fails to
promptly  deliver  during  the  Delivery  Period  shares of  Common  Stock to an
Exchanging  Holder  upon an exchange  of shares of 2006  Preferred  Stock or (b)
there  shall  occur a  Legend  Removal  Failure  (as  defined  below)  and  (ii)
thereafter,  such Exchanging Holder purchases (in an open market  transaction or
otherwise)  shares of Common Stock to make delivery in satisfaction of a sale by
such  Exchanging  Holder of the  unlegended  shares of Common  Stock  (the "Sold
Shares") which such Exchanging Holder  anticipated  receiving upon such exchange
(a "Buy-In"),  the Corporation shall pay such Exchanging  Holder, in addition to
any other remedies  available to the Exchanging  Holder, the amount by which (x)
such Exchanging Holder's total purchase price (including brokerage  commissions,
if any) for the unlegended  shares of Common Stock so purchased  exceeds (y) the
net  proceeds  received  by such  Exchanging  Holder  from  the sale of the Sold
Shares.  For example,  if an Exchanging  Holder purchases  unlegended  shares of
Common  Stock  having a total  purchase  price of $11,000 to cover a Buy-In with
respect to shares of Common Stock it sold for $10,000,  the Corporation  will be
required to pay the Exchanging Holder $1,000. An Exchanging Holder shall provide
the Corporation written notification and supporting documentation indicating any
amounts payable to such Holder pursuant to this provision.  For purposes hereof,
a "Legend Removal  Failure" shall occur if the  Corporation  fails to remove any
restrictive  legend on any  certificate  or any shares of Common Stock issued to
the Holder of 2006 Preferred  Stock upon exchange of the 2006 Preferred Stock as
and when  required  hereunder or under the  Registration  Rights  Agreement  and
permitted by  applicable  law, and any such failure  continues  uncured for five
business days after the Corporation has been notified  thereof in writing by the
Holder.  The rights set forth in this  Section  4(j) shall be in addition to the
rights to seek payment set forth in Section 4(i) above.

                                       8
<PAGE>

      5. Adjustments to Exchange Rate.

      (a) If at any time  while  shares of 2006  Preferred  Stock are issued and
outstanding,  the  Corporation  proposes  to offer,  sell,  grant any  option to
purchase  or offer,  sell or grant  any  right to  reprice  its  securities,  or
otherwise  dispose of or issue (or announce or be deemed to have made any offer,
sale, grant or any option to purchase or other  disposition) any Common Stock or
Common Stock  Equivalents (as defined below) (i) entitling any Person to acquire
shares of Common  Stock at an  effective  price per share less than the Exchange
Rate (but  excluding (A) shares of Common Stock or options  issued to employees,
officers,  directors  or  consultants  of the  Company  pursuant to any stock or
option  plan duly  adopted by the  stockholders  of the Company in any amount or
outside  of any such plan in an amount  not to exceed  100,000  shares of Common
Stock (or the  equivalent  thereof)  in any fiscal  year of the  Company and (B)
Existing Securities Rights (as defined in the Securities Purchase Agreement)) or
(ii) which would cause a reduction  (whether by  operation  of an  anti-dilution
adjustment or otherwise)  in the effective  purchase  price at which a holder of
Common Stock Equivalents outstanding immediately prior to such issuance would be
entitled to purchase  shares of Common  Stock (at any time after such  issuance)
upon the conversion, exchange or exercise of such Common Stock Equivalents, to a
price below the Exchange Rate (in each case,  such lower price,  with respect to
each  class  of  securities  being  issued,  the  "Base  Share  Price"  of  such
securities,   and  each  such  issuance  a  "Dilutive  Issuance"),  as  adjusted
hereunder,  then upon consummation of the Dilutive Issuance,  provided, that the
holders of 2006 Preferred Stock have approved such Dilutive Issuance pursuant to
Section 4.27(j) of the Securities Purchase Agreement, the Exchange Rate shall be
adjusted to the amount determined by the following calculation:

          (Fully Diluted Shares Outstanding Before x Base Share Price)
                              + Total Consideration
 AER      =  ER  x --------------------------------------------------
                       Fully Diluted Shares Outstanding After

            Where:

            "AER" shall mean the adjusted Exchange Rate;

            "ER" shall mean the Exchange Rate in effect immediately prior to the
            consummation of the Dilutive Issuance;

            "Fully  Diluted  Shares  Outstanding  Before"  shall  mean the total
            number of shares of Common Stock  outstanding  immediately  prior to
            the consummation of such Dilutive Issuance, assuming the issuance of
            all shares of Common Stock underlying  Common Stock  Equivalents (as
            defined below) then outstanding;

                                       9
<PAGE>

            "Common  Stock   Equivalents"  shall  mean  any  securities  of  the
            Corporation  or its  Subsidiaries  which  would  entitle  the holder
            thereof to  acquire  at any time  Common  Stock,  including  without
            limitation,   any   securities  or  other   instruments   which  are
            convertible  into or  exercisable or  exchangeable  for Common Stock
            ("Convertible  Securities") or options,  warrants or other rights to
            purchase or  subscribe  for Common Stock or  Convertible  Securities
            ("Purchase Rights"),  whether or not such Convertible  Securities or
            Purchase   Rights  are  immediately   convertible,   exercisable  or
            exchangeable,  including without limitation the 2006 Preferred Stock
            and the 2005 Preferred Stock;

            "Total  Consideration"  shall  mean  the  sum of  all  consideration
            received by the  Corporation  in the Dilutive  Issuance,  calculated
            pursuant to this Section 5(b)(iv) of this Article FIFTH; and

            "Fully Diluted Shares Outstanding After" shall mean the total number
            of  shares  of  Common  Stock  outstanding   immediately  after  the
            consummation of such Dilutive Issuance, assuming the issuance of all
            shares of Common  Stock  underlying  Common Stock  Equivalents  then
            outstanding.

In each instance of an adjustment  pursuant to the  foregoing,  such  adjustment
shall be made whenever Common Stock or Common Stock  Equivalents are issued in a
Dilutive  Issuance.  The  Corporation  shall  notify each Holder that holds 2006
Preferred  Stock in writing,  no later than five (5) Trading Days  following the
consummation of a Dilutive Issuance,  indicating therein the applicable issuance
price and other pricing terms. For the avoidance of doubt, in no event shall the
Exchange Rate after giving  effect to the Dilutive  Issuance be greater than the
Exchange Rate in effect prior to such Dilutive  Issuance,  subject to adjustment
for reverse and forward stock splits,  stock dividends,  stock  combinations and
other similar transactions of the Common Stock that occur in connection with the
Dilutive Issuance.

      (b) Effect on Exchange Rate of Certain Events. For purposes of determining
the  adjusted  Exchange  Rate under  Section  5(a) of this  Article  FIFTH,  the
following will be applicable:

            (i)  Issuance of Purchase  Rights.  If,  after the Closing  Date (as
      defined in the Securities Purchase  Agreement),  the Corporation issues or
      sells any Purchase Rights, whether or not immediately exercisable, and the
      price per share for which  Common  Stock is issuable  upon the exercise of
      such  Purchase  Rights  (and the price of any  conversion  of  Convertible
      Securities, if applicable) is less than the Exchange Rate in effect on the
      date of issuance or sale of such Purchase  Rights,  then the maximum total
      number of shares of Common  Stock  issuable  upon the exercise of all such
      Purchase  Rights  (assuming  full  conversion,  exercise  or  exchange  of
      Convertible  Securities,  if  applicable)  shall,  as of the  date  of the
      issuance or sale of such Purchase Rights,  be deemed to be outstanding and
      to have been issued and sold by the  Corporation for such price per share.
      For  purposes of the  preceding  sentence,  the "price per share for which
      Common Stock is issuable upon the exercise of such Purchase  Rights" shall
      be  determined  by  dividing  (A) the total  amount,  if any,  received or
      receivable by the Corporation as consideration for the issuance or sale of
      all such Purchase Rights,  plus the minimum aggregate amount of additional
      consideration, if any, payable to the Corporation upon the exercise of all
      such Purchase Rights, plus, in the case of Convertible Securities issuable
      upon the exercise of such Purchase Rights, the minimum aggregate amount of
      additional consideration payable upon the conversion, exercise or exchange
      thereof  (determined in accordance with the  calculation  method set forth
      above) at the time such Convertible  Securities first become  convertible,
      exercisable or exchangeable,  by (B) the maximum total number of shares of
      Common  Stock  issuable  upon the  exercise  of all such  Purchase  Rights
      (assuming full conversion, exercise or exchange of Convertible Securities,
      if applicable).  No further  adjustment to the Exchange Rate shall be made
      upon the actual  issuance of such Common  Stock upon the  exercise of such
      Purchase  Rights  or  upon  the   conversion,   exercise  or  exchange  of
      Convertible Securities issuable upon exercise of such Purchase Rights.

                                       10
<PAGE>

            (ii) Issuance of Convertible  Securities.  If the Corporation issues
      or  sells  any   Convertible   Securities,   whether  or  not  immediately
      convertible,  exercisable or exchangeable (and whether in contravention of
      any restriction in this Certificate,  the Securities Purchase Agreement or
      otherwise),  and the price per share for which  Common  Stock is  issuable
      upon such conversion,  exercise or exchange is less than the Exchange Rate
      in effect on the date of issuance or sale of such Convertible  Securities,
      then the maximum total number of shares of Common Stock  issuable upon the
      conversion, exercise or exchange of all such Convertible Securities shall,
      as of the date of the issuance or sale of such Convertible Securities,  be
      deemed  to be  outstanding  and  to  have  been  issued  and  sold  by the
      Corporation  for such price per share.  If the  Convertible  Securities so
      issued or sold do not have a fluctuating  conversion or exercise  price or
      exchange  ratio,  then for the  purposes of the  preceding  sentence,  the
      "price per share for which Common Stock is issuable upon such  conversion,
      exercise  or  exchange"  shall be  determined  by  dividing  (A) the total
      amount, if any, received or receivable by the Corporation as consideration
      for the  issuance  or sale of all such  Convertible  Securities,  plus the
      minimum aggregate amount of additional  consideration,  if any, payable to
      the  Corporation  upon  the  conversion,   exercise  or  exchange  thereof
      (determined in accordance  with the  calculation  method set forth in this
      clause (i) of above) at the time such Convertible  Securities first become
      convertible,  exercisable or exchangeable, by (B) the maximum total number
      of  shares of Common  Stock  issuable  upon the  exercise,  conversion  or
      exchange of all such Convertible Securities. If the Convertible Securities
      so issued or sold  have a  fluctuating  conversion  or  exercise  price or
      exchange ratio (a "Variable Rate Convertible Security"), then for purposes
      of the next  preceding  sentence,  the "price  per share for which  Common
      Stock is issuable  upon such  conversion,  exercise or exchange"  shall be
      deemed  to be the  lowest  price  per  share  which  would  be  applicable
      (assuming  all  holding  period  and  other  conditions  to any  discounts
      contained in such Variable Rate Convertible  Security have been satisfied)
      if the conversion price of such Variable Rate Convertible  Security on the
      date of issuance or sale  thereof was  seventy-five  percent  (75%) of the
      actual  conversion  price  on such  date  (the  "Assumed  Variable  Market
      Price"),  and,  further,  if the  conversion  price of such  Variable Rate
      Convertible Security at any time or times thereafter is less than or equal
      to the Assumed  Variable  Market Price last used for making any adjustment
      under this Section 7(b) of this Article FIFTH with respect to any Variable
      Rate Convertible Security,  the Exchange Rate in effect at such time shall
      be  readjusted to equal the Exchange Rate which would have resulted if the
      Assumed Variable Market Price at the time of issuance of the Variable Rate
      Convertible  Security had been  seventy-five  percent  (75%) of the actual
      conversion  price of such Variable Rate Convertible  Security  existing at
      the  time  of  the  adjustment  required  by  this  sentence.  No  further
      adjustment to the Exchange Rate shall be made upon the actual  issuance of
      such  Common  Stock  upon   conversion,   exercise  or  exchange  of  such
      Convertible Securities.

                                       11
<PAGE>

            (iii)  Change  in Option  Price or  Conversion  Rate.  If there is a
      change at any time in (A) the amount of additional  consideration  payable
      to the  Corporation  upon the  exercise of any  Purchase  Rights;  (B) the
      amount of additional  consideration,  if any,  payable to the  Corporation
      upon the conversion,  exercise or exchange of any Convertible  Securities;
      or (C) the rate at which any Convertible  Securities are convertible  into
      or exercisable or exchangeable  for Common Stock (in each such case, other
      than  under  or by  reason  of  provisions  designed  to  protect  against
      dilution), the Exchange Rate in effect at the time of such change shall be
      readjusted  to the  Exchange  Rate which would have been in effect at such
      time had such Purchase Rights or Convertible  Securities still outstanding
      provided for such changed additional  consideration or changed conversion,
      exercise  or  exchange  rate,  as the case may be,  at the time  initially
      issued or sold.

            (iv)  Calculation of  Consideration  Received.  If any Common Stock,
      Purchase Rights or Convertible Securities are issued or sold for cash, the
      consideration  received  therefor  will  be  the  amount  received  by the
      Corporation  therefor  (in the case of an  underwritten  public  offering,
      after deduction of all underwriting discounts or allowances) in connection
      with such  issuance,  grant or sale.  In case any Common  Stock,  Purchase
      Rights or Convertible  Securities  are issued or sold for a  consideration
      part or all of which shall be other than cash,  including in the case of a
      strategic  or similar  arrangement  in which the other entity will provide
      services to the  Corporation,  purchase  services from the  Corporation or
      otherwise provide intangible consideration to the Corporation,  the amount
      of  the  consideration   other  than  cash  received  by  the  Corporation
      (including  the net  present  value of the  consideration  expected by the
      Corporation  for the  provided or  purchased  services)  shall be the fair
      market  value  of such  consideration,  except  where  such  consideration
      consists  of  securities  the  class of which is  listed  for  trading  or
      exchange on a Trading  Market,  in which case the amount of  consideration
      received by the Corporation  will be the median bid and ask prices thereof
      on  the  Trading  Market  as  of  the  date  of  receipt  thereof  by  the
      Corporation.  In case any Common  Stock,  Purchase  Rights or  Convertible
      Securities are issued in connection  with any merger or  consolidation  in
      which  the  Corporation  is  the  surviving  corporation,  the  amount  of
      consideration  therefor will be deemed to be the fair market value of such
      portion of the net assets and business of the non-surviving corporation as
      is  attributable  to such Common  Stock,  Purchase  Rights or  Convertible
      Securities,  as the case may be.  Notwithstanding  anything else herein to
      the contrary, if Common Stock,  Purchase Rights or Convertible  Securities
      are  issued or sold in  conjunction  with  each  other as part of a single
      transaction or in a series of related  transactions,  the Holder may elect
      to  determine  the amount of  consideration  deemed to be  received by the
      Corporation therefor by deducting the fair value of any type of securities
      (the  "Disregarded  Securities")  issued  or sold in such  transaction  or
      series of  transactions.  If the Holder makes an election  pursuant to the
      immediately  preceding sentence,  no adjustment to the Exchange Rate shall
      be made  pursuant to this Section 7 of this Article FIFTH for the issuance
      of the Disregarded Securities or upon any conversion, exercise or exchange
      thereof.  The  Corporation  shall  calculate,  using  standard  commercial
      valuation  methods  appropriate  for valuing such assets,  the fair market
      value  of any  consideration  other  than  cash or  securities;  provided,
      however,  that if the  Holder  does not  agree to such fair  market  value
      calculation  within three  business  days after  receipt  thereof from the
      Corporation, then such fair market value shall be determined in good faith
      by an investment banker or other appropriate expert of national reputation
      selected by the Corporation and reasonably  acceptable to the Holder, with
      the costs of such appraisal to be borne by the Corporation.

                                       12
<PAGE>

      6. Forced Exchange by Corporation.

      (a) So long as that  number of shares of Common  Stock into which the 2006
Preferred  Stock is  exchangeable  hereunder  are listed  with or eligible to be
traded on, as applicable,  a Trading  Market,  if the VWAP equals or exceeds Two
and One Half (2.5) times the Exchange  Price (the "Trigger  Price") for a period
of at least thirty (30) consecutive  Trading Days, the Corporation may force the
Holders of 2006 Preferred Stock to exchange into that number of shares of Common
Stock determined by the Exchange  Formula some or all of the outstanding  shares
of 2006  Preferred  Stock (a  "Forced  Exchange"),  provided,  that  each of the
following  conditions (the "Required  Conditions") shall have been met and shall
at all times during the period beginning on the date on which the VWAP equals or
exceeds the Trigger Price and ending as of the opening of business on the Forced
Exchange Date (as defined in Section 6(b) of this Article FIFTH): (i) the Common
Stock  underlying  the 2006  Preferred  Stock  included in such Forced  Exchange
Notice (including  without limitation the Common Stock issuable upon exercise of
any Par  Warrants) is (1) covered by a valid  Registration  Statement  which has
been declared effective by the United States Securities and Exchange  Commission
and which  remains  effective  at all times during such period and (2) is listed
with or  eligible to be traded on, as  applicable,  a Trading  Market;  (ii) the
number shares of Common Stock shares  underlying the 2006 Preferred  Stock to be
exchanged in the Forced  Exchange does not exceed the cumulative  trading volume
of the Common Stock for the thirty (30)  consecutive  Trading Days prior to such
notice; (iii) the Corporation has not issued a Forced Exchange Notice within the
sixty  (60)  days  prior to the date of the  Forced  Exchange  Notice;  (iv) the
Corporation  has not filed,  and has no plans to file, a registration  statement
with the  Securities and Exchange  Commission in connection  with a proposed new
equity  financing  in the  sixty  (60) days  prior to or  following  the  Forced
Exchange  Notice (as defined in Section  6(b) of this  Article  FIFTH);  (v) all
amounts,  if any, then accrued and payable under the  Transaction  Documents (as
defined in the Securities  Purchase  Agreement)  shall have been paid;  (vi) the
Corporation  shall  have  obtained  such  approval(s)  of the  Holders as may be
required  pursuant to Section 4.27 of the  Securities  Purchase  Agreement;  and
(vii) the  Corporation  shall at the time not otherwise be in material breach or
violation of any provision of the Transaction Documents.

                                       13
<PAGE>

      (b) Procedures for Forced  Exchange.  The  Corporation may effect a Forced
Exchange by providing  written  irrevocable  notice to the Holders in any manner
set forth in Section 14 of this Article  FIFTH (a "Forced  Exchange  Notice") in
such form as the Corporation  shall approve,  setting forth the number of shares
of 2006  Preferred  Stock subject to the Forced  Exchange (and if less than all,
the percentage of shares held by each Holder on a pro rata basis),  the Exchange
Rate then in effect,  the Trigger  Price,  the date that the Forced  Exchange is
proposed to occur (which date shall be not less than Thirty (30) days  following
the effective date of the Forced Exchange Notice (the "Forced Exchange Date"), a
certification from the Company that all of the Required Conditions have been met
and remain  satisfied as of the opening of business on the Forced Exchange Date,
and such other information as the Corporation shall in its discretion determine.
If any shares of 2006  Preferred  Stock to be redeemed are held in  certificated
form, the Forced Exchange Notice shall also include  instructions for Holders to
surrender  their  shares,  duly  endorsed  in  blank,  to  the  Corporation  for
redemption.  On the  Forced  Exchange  Date,  all  2006  Preferred  Stock  to be
exchanged in the Forced Exchange shall be exchanged for Common Stock (and/or, to
the  extent  necessary  to  satisfy  the  Holder's  applicable   Limitations  on
Ownership, a Par Warrant) in accordance with the Exchange Formula.

      7.  Exchange  upon  Change of  Control.  If there  shall occur a Change of
Control (as defined below),  all issued and outstanding shares of 2006 Preferred
Stock that are not the subject of a pending  exchange under Section 4 or Section
6 of this  Article  FIFTH  shall,  automatically  and without  any other  action
required by the Holder or the Corporation, be exchanged for the right to receive
the greater of (a) the  Liquidation  Preference  of such shares,  plus an amount
equal to accrued  but  unpaid  dividends,  and (b) such  cash,  shares of stock,
securities  and/or other property as would have been issued or payable  pursuant
to the  transaction  effecting  the  Change of Control  (the  "Change of Control
Consideration")  in exchange for the shares of Common Stock issuable pursuant to
Section 6 of this  Article  FIFTH  (assuming  that the date  that the  Change of
Control  occurs is the Exchange Date and that all Required  Conditions  had been
satisfied, and without giving effect to the applicable Limitations on Ownership)
on an as-exchanged basis, without giving effect to the Limitations on Ownership,
where the  Change  of  Control  Consideration  shall be  valued,  if all or part
thereof  consists of property other than cash, at the value ascribed  thereto by
the Board of  Directors in the Change of Control  transaction  and agreed by the
Required Holders, which agreement shall not be unreasonably withheld or delayed.
For purposes hereof,  "Change of Control" shall mean the occurrence of either of
the following  events which is not deemed a Liquidating  Event:  the Corporation
shall (i) sell, convey or dispose of all or substantially all of its assets (the
presentation of any such  transaction for stockholder  approval being conclusive
evidence that such transaction  involves the sale of all or substantially all of
the assets of the Company); or (ii) merge or consolidate with or into, or engage
in any other business combination with, any other person or entity, in any case,
in which the Corporation is not the surviving entity, or which results in either
(x) the holders of the voting securities of the Corporation immediately prior to
such  transaction  holding  or having  the right to direct  the  voting of fifty
percent  (50%)  or  less  of the  total  outstanding  voting  securities  of the
Corporation  immediately  following  such  transaction or (y) the members of the
board of directors or other governing body of the Corporation  comprising  fifty
percent  (50%)  or  less  of  the  members  of the  board  of  directors  of the
Corporation immediately following such transaction.

      8. Redemption by the Corporation.

      (a) Corporation's  Optional  Redemption  Rights.  From and after the fifth
(5th)  anniversary  of the Closing  Date,  to the extent that the Holder has not
exercised  its  exchange  rights under  Section 4(a) of this Article  FIFTH with
respect to such shares, the Corporation may redeem for cash any or all shares of
2006 Preferred Stock then outstanding (an "Optional Redemption") at a price (the
"Optional  Redemption  Price") equal to One Hundred Twenty Percent (120%) of the
Face Amount of the 2006 Preferred  Stock being  redeemed,  together with any and
all accrued and unpaid Dividends thereon. If the Corporation elects to redeem in
an  Optional  Redemption  less than all  shares  of 2006  Preferred  Stock  then
outstanding,  then the  Corporation  shall redeem shares of 2006 Preferred Stock
pro rata,  based on the total amount of shares to be redeemed and the proportion
that the number of shares held by each Holder bears to the number of shares then
held by all Holders.

                                       14
<PAGE>

      (b) Procedures for Optional Redemption by Corporation. The Corporation may
effect an Optional  Redemption by providing  written  irrevocable  notice to the
Holders  in any  manner  set forth in  Section  14 of this  Article  FIFTH  (the
"Optional  Redemption  Notice") in such form as the  Corporation  shall approve,
setting forth the number of shares of 2006 Preferred  Stock being redeemed (and,
if less than all,  the  percentage  of shares  held by each Holder on a pro rata
basis), the Optional  Redemption Price, the date that the Optional Redemption is
proposed to occur (which date shall be not less than Twenty (20) days  following
the effective date of the Optional  Redemption Notice (the "Optional  Redemption
Date") and such other  information  as the  Corporation  shall in its discretion
determine.  If any shares of 2006  Preferred  Stock to be  redeemed  are held in
certificated   form,   the  Optional   Redemption   Notice  shall  also  include
instructions  for Holders to surrender their shares,  duly endorsed in blank, to
the Corporation for redemption.  On the Optional Redemption Date, unless earlier
tendered for exchange by the Holders  pursuant to Sections 4(a) and 8(c) of this
Article FIFTH,  the Corporation  shall issue payment of the Optional  Redemption
Price to the Holders and the Corporation  shall record the cancellation of those
shares  which  were so  redeemed  on its books  and  records  (and,  if the 2006
Preferred Stock is in certificated  form,  shall issue in due course one or more
new stock certificates representing those shares held by the Holder which remain
issued and outstanding).

      (c) Holders' Right to Exchange following Corporation's Optional Redemption
Notice.  For the first Twenty (20) days  following  the  Holder's  receipt of an
Optional  Redemption  Notice and prior to the  Optional  Redemption  Date,  each
Holder shall have the right to tender for exchange  into Common Stock any or all
shares of 2006 Preferred Stock held by it (including  those that are the subject
of the Optional Redemption Notice) in the manner set forth under Section 4(a) of
this Article FIFTH.

      9. Uncertificated  Shares. The shares of the 2006 Preferred Stock shall be
uncertificated  shares;  provided,  that,  to the extent  permitted by the DGCL,
every  Holder  having   uncertificated  shares  shall  be  entitled  to  have  a
certificate  signed  by, or in the name of,  the  Corporation  representing  the
number of shares  owned of record by such  Holder in  certificated  form if such
Holder so requests.

      10.  Cancellation of 2006 Preferred Stock. If any shares of 2006 Preferred
Stock  are  exchanged  for  Common  Stock,   redeemed  or   repurchased  by  the
Corporation, the shares so exchanged, redeemed or repurchased shall be canceled,
shall return to the status of shares of  authorized,  but  unissued,  Authorized
Preferred  Stock and shall not be issuable by the  Corporation as 2006 Preferred
Stock.

                                       15
<PAGE>

      11.  Payment of Cash;  Defaults.  Whenever the  Corporation is required to
make any cash payment to a Holder under this  Certificate of  Incorporation  (as
payment of any Dividend or  otherwise),  such cash payment  shall be made to the
Holder  within  five  business  days after the  earlier of (a) the date for such
payment  provided for in this  Certificate of  Incorporation  or (b) delivery by
such  Holder of a notice  specifying  that the  Holder  elects to  receive  such
payment  in cash and the  method  (e.g.,  by  check,  wire  transfer,  including
instructions  therefor) in which such payment  should be made and any supporting
documentation  reasonably  requested  by the  Corporation  to  substantiate  the
Holder's  claim to such cash payment or the amount  thereof.  If such payment is
not delivered within such five business day period, such Holder shall thereafter
be entitled  to  interest on the unpaid  amount at a per annum rate equal to the
lower of eighteen  percent  (18%) and the highest  interest  rate  permitted  by
applicable law until such amount is paid in full to the Holder.

      12.  Remedies  Cumulative.  The remedies  provided in this  Certificate of
Incorporation  shall  be  cumulative  and  in  addition  to all  other  remedies
available  under  this  Certificate  of  Incorporation,  at  law  or  in  equity
(including a decree of specific performance and/or other injunctive relief), and
nothing  herein shall limit a Holder's  right to pursue  actual  damages for any
failure  by the  Corporation  to comply  with the terms of this  Certificate  of
Incorporation.  The  Corporation  acknowledges  that  a  breach  by  it  of  its
obligations  hereunder  will  cause  irreparable  harm  to the  holders  of 2006
Preferred  Stock  and  that  the  remedy  at law  for  any  such  breach  may be
inadequate. The Corporation therefore agrees, in the event of any such breach or
written  threatened  breach,  that the holders of 2006 Preferred  Stock shall be
entitled,  in  addition  to  all  other  available  remedies,  to an  injunction
restraining  any breach,  without the  necessity  of showing  economic  loss and
without any bond or other security being required.

      13.  Waiver.   Notwithstanding   any  provision  in  this  Certificate  of
Incorporation to the contrary,  any provision  contained herein and any right of
the holders of 2006  Preferred  Stock granted  hereunder may be waived as to all
shares of 2006  Preferred  Stock  (and the  holders  thereof)  upon the  written
consent of the  Required  Holders,  unless a higher  percentage  is  required by
applicable  law,  in which case the  written  consent of the Holders of not less
than such higher percentage of shares of 2006 Preferred Stock shall be required.

      14. Notices. 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,  by  nationally  recognized  overnight  carrier or by
confirmed facsimile  transmission,  and shall be effective five days after being
placed in the mail,  if  mailed,  or upon  receipt or  refusal  of  receipt,  if
delivered personally or by nationally  recognized overnight carrier or confirmed
facsimile  transmission,  in each case  addressed to a party.  The addresses for
such communications are (i) if to the Corporation to Diomed Holdings,  Inc., One
Dundee Park, Andover, MA 01810, Attn: Chief Executive Officer,  Telephone: (978)
475-7771,  Facsimile:  (978)  475-8488,  with a copy to  McGuireWoods  LLP, 1345
Avenue of the Americas,  7th Floor, New York, NY 10105, Attn: William A. Newman,
Esq.,  Telephone  (212) 548-2160,  Facsimile (212) 548-2170,  and (ii) if to any
Holder  to the  address  set forth  under  such  Holder's  name on the books and
records of the Corporation.

      SIXTH:  This Amendment of the Certificate of Incorporation  was authorized
by the unanimous  vote of the directors of the  Corporation  at a meeting of the
Board of Directors  duly noticed and held,  and by the  affirmative  vote of the
holders  of a  majority  of the  capital  stock of the  Corporation  issued  and
outstanding  as of the record date for a special  meeting of  stockholders  duly
noticed and conducted on  [_____________],  2006] in accordance with the By-Laws
of the Corporation.

                                       16
<PAGE>

      Page 18 IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment   to   be   signed   by   [_______________],    its   Secretary,    on
[____________________], 2006.

                                         DIOMED HOLDINGS, INC.

                                         By:
                                            ----------------------------------
                                            Name: [____________________]
                                            Title:   Secretary

                                       17

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00107-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00107-of-00352.parquet"}]]