Document:

Unassociated Document

    WARRANT
      AND COMMON STOCK PURCHASE AGREEMENT

     

    This
      WARRANT AND COMMON STOCK PURCHASE AGREEMENT is dated effective as of June 30,
      2006 by and between Protalex, Inc., a Delaware corporation with its principal
      office at 145 Union Square Drive, New Hope, PA 18938 (the "Company"),
      and
      the several purchasers identified from time to time in the attached Exhibit A
      (individually, a "Purchaser"
      and
      collectively, the "Purchasers").

     

    NOW,
      THEREFORE, in consideration of the mutual agreements, representations,
      warranties and covenants herein contained, the parties hereto agree as
      follows:

     

    1. Definitions.
      As used
      in this Agreement, the following terms shall have the following respective
      meanings:

     

    (a) “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.

     

    (b) "Agreement"
      means
      this Warrant and Common Stock Purchase Agreement.

     

    (c) “Exchange
      Act"
      means
      the Securities Exchange Act of 1934, as amended, and all of the rules and
      regulations promulgated thereunder.

     

    (d) “Closing”
means
      the closing of the purchase and sale of the Securities pursuant to Section
      2.1.

     

    (e) “Closing
      Date”
means
      the Trading Day when all of the Operative Agreements have been executed and
      delivered by the applicable parties thereto, and all conditions precedent to
      (i)
      the Purchasers’ obligations to pay the Purchase Price and (ii) the Company’s
      obligations to deliver the Securities have been satisfied or
      waived.

     

    (f) “Common
      Stock”
means
      the common stock of the Company, par value $0.00001 per share, and any other
      class of securities into which such securities may hereafter be reclassified
      or
      changed into. 

     

    (g) “Common
      Stock Equivalents”
means
      any securities of the Company or the Subsidiaries which would entitle the holder
      thereof to acquire at any time Common Stock, including, without limitation,
      any
      debt, preferred stock, rights, options, warrants or other instrument that is
      at
      any time convertible into or exercisable or exchangeable for, or otherwise
      entitles the holder thereof to receive, Common Stock.

     

    (h) “Disclosure
      Schedules”
means
      the Disclosure Schedules of the Company delivered concurrently
      herewith.

     

    
      
        
        

      

      
        -
          1
          -

        
          

        

      

      
        
        

      

    

    (i) “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
      SEC.

     

    (j) “Exempt
      Issuance”
means
      the issuance of (a) shares of Common Stock or options to employees, officers
      or
      directors of the Company (or to consultants where with respect to consultants
      only such annual issuances to consultants do not exceed 200,000 shares of Common
      Stock or options to acquire 200,000 shares of Common Stock) pursuant to any
      stock or option plan duly adopted by a majority of the non-employee members
      of
      the Board of Directors of the Company or a majority of the members of a
      committee of non-employee directors established for such purpose, (b) securities
      upon the exercise or exchange of or conversion of any Securities issued
      hereunder and/or other securities exercisable or exchangeable for or convertible
      into shares of Common Stock issued and outstanding on the date of this
      Agreement, provided that such securities have not been amended since the date
      of
      this Agreement to increase the number of such securities or to decrease the
      exercise, exchange or conversion price of any such securities, and (c)
      securities issued pursuant to acquisitions or strategic transactions approved
      by
      a majority of the disinterested directors, provided 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.

     

    (k) “Force
      Majeure”
shall
      mean any act or omission that is beyond the direct control of the Company,
      including, but not limited to, an act of god, an act of war, terrorism, natural
      disaster, failure of communication or electrical services; provided,
      however,
      Force
      Majeure shall not include any act or omission by the SEC, the Trading Market
      or
      the Company’s transfer agent.

     

    (l) "Operative
      Agreements"
      shall
      mean the Registration Rights Agreement and Warrants together with this
      Agreement.

     

    (m) “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.

     

    (n) “Placement
      Agent”
shall
      mean Griffin
      Securities, Inc. 

     

    (o) “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.

     

    (p) “Purchaser
      Consent”
shall
      have the meaning set forth in Section 8.9.

     

    
      
        
        

      

      
        -
          2
          -

        
          

        

      

      
        
        

      

    

    (q) “Qualified
      Purchaser”
shall
      have the meaning set forth in Section 6.3.

     

    (r) "Registration
      Rights Agreement"
      shall
      mean that certain Registration Rights Agreement, dated as of the date hereof,
      among the Company and the Purchasers.

     

    (s) “Registration
      Statement”
means
      a
      registration statement meeting the requirements set forth in the Registration
      Rights Agreement and covering the resale by the Purchasers of the Shares and
      the
      Warrant Shares.

     

    (t) “Rule
      144”
means
      Rule 144 promulgated by the SEC 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 SEC having substantially the same effect as such
      Rule.

     

    (u) "SEC"
      shall
      mean the Securities and Exchange Commission.

     

    (v) “SEC
      Documents”
shall
      have the meaning set forth in Section 3.6.

     

    (w) “Securities”
means
      the Shares, the Warrants and the Warrant Shares.

     

    (x) "Securities
      Act"
      shall
      mean the Securities Act of 1933, as amended, and all of the rules and
      regulations promulgated thereunder.

     

    (y) “Shares”
means
      the shares of Common Stock issued or issuable to each Purchaser pursuant to
      this
      Agreement.

     

    (z) “Short
      Sales”
shall
      include all “short sales” as defined in Rule 200 of Regulation SHO under the
      Exchange Act (but
      shall not be deemed to include the location and/or reservation of borrowable
      shares of Common Stock). 

     

    (aa) “Trading
      Day”
means
      a
      day on which the Common Stock is traded on a Trading Market.

     

    (bb) “Trading
      Market”
means
      the OTC Bulletin Board.

     

    (cc) “VWAP”
means,
      for any date, the price determined by the first of the following clauses that
      applies: (a) the daily volume weighted average price of the Common Stock for
      such date (or the nearest preceding date) on the Trading Market as reported
      by
      Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. (New York City
      time) to 4:02 p.m. (New York City time); (b) if the Common Stock is not then
      quoted for trading on the Trading Market and if prices for the Common Stock
      are
      then reported in the “Pink Sheets” published by Pink Sheets, LLC (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 (c) 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 Holder and reasonably
      acceptable to the Company.

     

    
      
        
        

      

      
        -
          3
          -

        
          

        

      

      
        
        

      

    

    (dd) “Warrants”
means
      collectively the Common Stock purchase warrants, in the form of Exhibit
      C
      delivered to the Purchasers at the Closing in accordance with Section 2.2
      hereof, which Warrants shall be exercisable immediately and have a term of
      exercise equal to 5 years.

     

    (ee) “Warrant
      Shares”
means
      the shares of Common Stock issuable upon exercise of the Warrants.

     

    2. Purchase
      and Sale of Shares.

     

    2.1 Purchase
      and Sale.
      Subject
      to and upon the terms and conditions set forth in this Agreement, the Company
      agrees to issue and sell to each Purchaser, and each Purchaser, severally and
      not jointly with the other Purchasers, hereby agrees to purchase from the
      Company, at the Closing (as defined below), the number of shares of Common
      Stock
      set forth opposite the name of such Purchaser under the heading "Number
      of Shares to be Purchased"
      on
Exhibit A
      hereto,
      at a purchase price of $2.50 per share. The total purchase price payable by
      each
      Purchaser for the number of shares of Common Stock that such Purchaser is hereby
      agreeing to purchase is set forth opposite the name of such Purchaser under
      the
      heading "Purchase
      Price"
      on
Exhibit A
      hereto.

     

    2.2 As
      additional consideration for the purchase of the Shares, subject to the terms
      and conditions of this Agreement, each Purchaser agrees, severally and not
      jointly with the other Purchasers, to purchase and the Company agrees to sell
      and issue to each Investor, a five-year cashless exercise Warrant in form and
      substance attached hereto as Exhibit
      B
      to
      acquire one (1) share of the Company's Common Stock at an exercise price equal
      to $3.85 per share (subject to adjustment therein) for each four (4) shares
      of
      Common Stock acquired pursuant to Section 2.1 above. No fractional shares shall
      be issued under the Warrants (any fractional shares shall be rounded up to
      the
      nearest whole number).

     

    2.3 Closing.
      The
      purchase and sale of the Shares and Warrants shall take place at the offices
      of
      Reed Smith, LLP Two Embarcadero, 20th
      Floor,
      San Francisco, CA 94111 at 10:00 A.M., effective as of June 30, 2006, or at
      such
      other time and place as the Company and each Qualified Purchaser mutually agree
      upon, but in no event later than July 7, 2006. Within five (5) Trading Days
      after the Closing, the Company shall deliver to each Purchaser a certificate
      representing the Shares and a corresponding Warrant, registered in the name
      of
      such Purchaser, or in such nominee's or nominees' name(s) as designated by
      such
      Purchaser in writing in the form of the Investor Questionnaire attached hereto
      as Appendix
      I
      which
      such Purchaser is purchasing against delivery to the Company by such Purchaser
      of a cashiers check or wire transfer in the aggregate amount of the Purchase
      Price therefor payable to the Company's order as identified on Exhibit
      A.

     

    3. Representations
      and Warranties of the Company.
      Except
      as set forth under the corresponding section of the Disclosure Schedules which
      Disclosure Schedules shall be deemed a part hereof and to qualify any
      representation or warranty otherwise made herein to the extent of such
      disclosure, the Company hereby represents and warrants to each of the Purchasers
      as follows immediately prior to the Closing:

     

    
      
        
        

      

      
        -
          4
          -

        
          

        

      

      
        
        

      

    

    3.1 Incorporation.
      The
      Company is a corporation duly organized, validly existing and in good standing
      under the laws of the State of Delaware and
      is
      qualified to do business and is in good standing in each jurisdiction in which
      the character of its properties or the nature of its business requires such
      qualification, except where the failure to so qualify would not have a material
      adverse effect on the business, condition (financial or otherwise) or prospects
      of the Company ("Material
      Adverse Effect")
      and 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. The Company does not have any direct or indirect subsidiaries.
      Except for short-term investments and investments that are not material to
      the
      Company, the Company does not own any shares of stock or any other equity or
      long-term debt securities of any corporation or have any equity interest in
      any
      firm, partnership, limited liability company, joint venture, association or
      other entity. Complete and correct copies of the certificate of incorporation
      (the "Certificate
      of Incorporation")
      and
      bylaws (the "Bylaws")
      of the
      Company as in effect on the Closing Date have been filed by the Company with
      the
      SEC. The Company has all requisite corporate power and authority to carry on
      its
      business as now conducted.

     

    3.2 Capitalization.
      The
      authorized capital stock of the Company consists of (i) 100,000,000 shares
      of Common Stock, of which 22,389,951 shares are outstanding on the date hereof.
      The outstanding shares of capital stock of the Company have been duly and
      validly issued and are fully paid and nonassessable, have been issued in
      material compliance with all federal and state securities laws, and were not
      issued in violation of any preemptive or similar rights to subscribe for or
      purchase securities. Except for (i) options to purchase up to 3,823,876 shares
      of Common Stock or other equity awards issued to employees and consultants
      of
      the Company pursuant to the employee benefits plans disclosed in the SEC
      Documents and (ii) warrants to purchase up to 4,685,913 shares of Common Stock,
      which options and warrants are more fully described on Schedule
      3.2
      attached
      hereto, there are no existing options, warrants, calls, preemptive (or similar)
      rights, subscriptions or other rights, agreements, arrangements or commitments
      of any character obligating the Company to issue, transfer or sell, or cause
      to
      be issued, transferred or sold, any shares of the capital stock of the Company
      or other equity interests in the Company or any securities convertible into
      or
      exchangeable for such shares of capital stock or other equity interests, and
      there are no outstanding contractual obligations of the Company to repurchase,
      redeem or otherwise acquire any shares of its capital stock or other equity
      interests. 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
      any
      of such securities. The Company has not adopted a stockholder rights plan or
      similar arrangement relating to accumulations of beneficial ownership of Common
      Stock or a change in control of the Company. The Company does not maintain
      any
      pension benefit plan, or other retirement plan, subject to the Employee
      Retirement Income Security Act.

     

    
      
        
        

      

      
        -
          5
          -

        
          

        

      

      
        
        

      

    

    3.3 Authorization.
      All
      corporate action on the part of the Company, its officers, directors and
      stockholders necessary for the authorization, execution, delivery and
      performance of the Operative Agreements and the consummation of the transactions
      contemplated therein has been taken. When executed and delivered by the Company,
      each of the Operative Agreements shall constitute the legal, valid and binding
      obligation of the Company, enforceable against the Company in accordance with
      its terms, except as such may be limited by bankruptcy, insolvency,
      reorganization or other laws affecting creditors' rights generally and by
      general equitable principles. The Company has all requisite corporate power
      to
      enter into the Operative Agreements and to carry out and perform its obligations
      under the terms of the Operative Agreements.

     

    3.4 Valid
      Issuance of the Shares.
      The
      Shares being purchased by the Purchasers hereunder and the Warrant Shares upon
      exercise of the Warrants will, upon issuance pursuant to the terms hereof and
      thereof, be duly authorized and validly issued, fully paid and nonassessable.
      No
      preemptive rights or other rights to subscribe for or purchase the Company's
      capital stock exist with respect to the issuance and sale of the Securities
      by
      the Company pursuant to this Agreement, except as set forth on Schedule
      3.4
      attached
      hereto. As of the date hereof, no further approval or authority of the
      stockholders or the Board of Directors of the Company shall be required for
      the
      issuance and sale of the Securities by the Company, or the filing of the
      Registration Statement by the Company, as contemplated in the Operative
      Agreements. The Shares, Warrants and Warrant Shares issuable upon exercise
      of
      the Warrants will, upon issuance pursuant to the terms hereof and thereof,
      be
      free and clear from any security interest, pledge, mortgage, lien (statutory
      or
      other), charge, option to purchase, lease or otherwise acquire any interest
      or
      any claim, restriction or covenant, title defect, hypothecation, assignment,
      deposit arrangement or other encumbrance of any kind or any preference, priority
      or other security agreement or preferential arrangement of any kind or nature
      whatsoever (including, without limitation, any conditional sale or other title
      retention agreement). The Company has reserved from its duly authorized capital
      stock the maximum number of shares of Common Stock issuable pursuant to this
      Agreement and the Warrants.

     

    3.5 Financial
      Statements.
      As of
      their respective dates, the financial statements of the Company included in
      the
      SEC Documents complied as to form in all material respects with applicable
      accounting requirements and the published rules and regulations of the SEC
      with
      respect thereto. Such financial statements have been prepared in accordance
      with
      generally accepted accounting principles, consistently applied, during the
      periods involved (except (i) as permitted pursuant to Regulation G promulgated
      under the Exchange Act, or (ii) in the case of unaudited interim financial
      statements, to the extent they may exclude footnotes or may be condensed or
      summary statements) and fairly present in all material respects the financial
      position of the Company as of the dates thereof and the results of its
      operations and cash flows for the periods then ended (subject, in the case
      of
      unaudited statements, to normal year end audit adjustments). Except as set
      forth
      in the subset of SEC Documents filed and publicly available beginning with
      the
      Company’s Annual Report on Form 10-KSB for the fiscal year ended May 31, 2005
      and prior to the date hereof, since February 28, 2006, (a) there has been no
      event, occurrence or development that has had or could result in a Material
      Adverse Effect, (b) the Company has not incurred any liabilities (contingent
      or
      otherwise) other than (x) liabilities incurred in the ordinary course of
      business consistent with past practice and (y) liabilities not required to
      be
      reflected in the Company’s financial statements pursuant to generally accepted
      accounting principals or required to be disclosed in filings made with the
      SEC,
      (c) the Company has not altered its method of accounting or the identity of
      its
      auditors and (d) the Company has not declared or made any payment or
      distribution of cash or other property to its stockholders or officers or
      directors (other than in compliance with existing Company stock option plans)
      with respect to its capital stock, or purchased, redeemed (or made any
      agreements to purchase or redeem) any shares of its capital stock. As of
      February 28, 2006, the Company’s cash and cash equivalents was equal to
      approximately $10,816,904.

     

    
      
        
        

      

      
        -
          6
          -

        
          

        

      

      
        
        

      

    

    3.6 SEC
      Documents.
      The
      Company has filed all reports, schedules, forms, statements (collectively,
      and
      in each case including all exhibits, financial statements and schedules thereto
      and documents incorporated by reference therein and including all registration
      statements and prospectuses filed with the SEC) required to be filed by it
      with
      the SEC through the Closing Date, and the Company will file, on a timely basis,
      all similar documents with the SEC during the period commencing on the date
      hereof and ending on the Closing Date (all of the foregoing being hereinafter
      referred to as the “SEC
      Documents”).
      As of
      their respective dates, the SEC Documents complied or will comply in all
      material respects with the requirements of the Securities Act, the Exchange
      Act
      and the rules and regulations of the SEC promulgated thereunder applicable
      to
      the SEC Documents, and none of the SEC Documents, contained or will contain
      any
      untrue statement of a material fact or omitted or will omit to state a material
      fact required to be stated therein or necessary in order to make the statements
      made therein, in light of the circumstances under which they were made, not
      misleading, as of their respective filing dates, except to the extent corrected
      by a subsequently filed SEC Document.

     

    3.7 Consents.
      All
      consents, approvals, orders and authorizations required on the part of the
      Company in connection with the execution, delivery or performance of the
      Operative Agreements and the consummation of the transactions contemplated
      therein have been obtained and will be effective as of the Closing
      Date.

     

    3.8 No
      Conflict.
      The
      execution and delivery the Operative Agreements by the Company and the
      consummation of the transactions contemplated thereby will not conflict with
      or
      result in any violation of or default (with or without notice or lapse of time,
      or both) under, or give rise to a right of termination, cancellation or
      acceleration of any obligation or to a loss of a material benefit under
      (i) any provision of the Certificate of Incorporation or Bylaws of the
      Company, (ii) any material bond, debenture, note or other evidence of
      indebtedness, or any material lease, contract, indenture, mortgage, deed of
      trust, loan agreement, joint venture, franchise, license or other agreement
      or
      instrument to which the Company is a party or by which it or its property is
      bound or (iii) any judgment, order, statute, law, ordinance, rule or
      regulations, applicable to the Company or its respective properties or
      assets.

     

    3.9 Brokers
      or Finders.
      Except
      as disclosed on Schedule
      3.9
      attached
      hereto, the Company has not dealt with any broker or finder in connection with
      the transactions contemplated by this Agreement or incurred any liability for
      any brokerage or finders' fees or agents commissions or any similar charges
      in
      connection with this Agreement or any transaction contemplated hereby. 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.

     

    
      
        
        

      

      
        -
          7
          -

        
          

        

      

      
        
        

      

    

    3.10 Nasdaq
      Stock Market.
      The
      Common Stock is registered pursuant to Section 12(g) of the Exchange Act and
      is
      quoted on the Nasdaq Stock Market Over-the-Counter Bulletin Board ("OTCBB")
      under
      the ticker symbol "PRTX.OB." The Company has taken no action designed to remove,
      or which, to the Company's knowledge, is likely to have the effect of,
      suspending or terminating the quotation of the Common Stock on the OTCBB. The
      Company shall comply with all requirements, if any, of the National Association
      of Securities Dealers, Inc. (the "NASD")
      with
      respect to the issuance of the Shares and Warrant Shares and the quoting of
      the
      Shares and Warrant Shares (when issued) on the OTCBB.

     

    3.11 Absence
      of Litigation.
      There
      is no action, suit or proceeding or, to the Company's knowledge, any
      investigation, pending, or to the Company's knowledge, threatened by or before
      any court, governmental body or regulatory agency against the Company that
      is
      required to be disclosed in the SEC Documents and is not so disclosed. Neither
      the Company, nor, to the Company’s knowledge, any current or former director or
      officer of the Company, has received any written or oral notification of, or
      request for information in connection with, any formal or informal inquiry,
      investigation or proceeding from the SEC or the NASD. The foregoing includes,
      without limitation, any such action, suit, proceeding or investigation that
      questions this Agreement or the Registration Rights Agreement or the right
      of
      the Company to execute, deliver and perform under same. The SEC has not issued
      any stop order or other order suspending the effectiveness of any registration
      statement filed by the Company under the Securities Act.

     

    3.12 Intellectual
      Property.
      

     

    (a) To
      the
      knowledge of the Company, the Company has ownership of or license or legal
      right
      to use all patents, copyrights, trade secrets, trademarks, domain names,
      customer lists, designs, manufacturing or other processes, computer software,
      systems, data compilations, research results and other intellectual property
      or
      proprietary rights (collectively, "Intellectual
      Property")
      used
      in the business of the Company and material to the Company. The Company knows
      of
      no reason why its patent applications do not or would not comply with any
      statutory or legal requirements or would not issue into valid and enforceable
      patents.

     

    (b) To
      the
      Company's knowledge, there is no material default by the Company under any
      material licenses or other material agreements under which (i) the Company
      is
      granted rights in Intellectual Property or (ii) the Company has granted rights
      to others in Intellectual Property owned or licensed by the Company. There
      are
      no outstanding or threatened claims, disputes or disagreements with respect
      to
      any such licenses or agreements.

     

    
      
        
        

      

      
        -
          8
          -

        
          

        

      

      
        
        

      

    

    (c) To
      the
      knowledge of the Company, the present business, activities and products of
      the
      Company do not infringe or misappropriate any Intellectual Property of any
      third
      party. The Company has not been notified that any proceeding charging the
      Company with infringement or misappropriation of any Intellectual Property
      held
      by any third party has been filed. To the Company's knowledge, there exists
      no
      patent held by any third party which includes claims that would be infringed
      by
      the Company in the conduct of its business as currently conducted where such
      infringement would have a Material Adverse Effect. To the knowledge of the
      Company, the Company is not making unauthorized use of any confidential
      information or trade secrets of any third party. Neither the Company nor, to
      the
      knowledge of the Company, any of its employees have any agreements or
      arrangements with any Persons other than the Company restricting the Company's
      or any such employee's engagement in business activities that are material
      aspects of the Company's business as currently conducted.

     

    (d) None
      of
      the Intellectual Property owned or, to the Company's knowledge, licensed by
      the
      Company that is used in the business of the Company and material to the Company,
      is subject to any outstanding judgment or order, and no action, suit,
      proceeding, hearing, investigation, charge, complaint, claim or demand is
      pending or, to the knowledge of the Company, threatened, which challenges the
      validity, enforceability, scope, use, or ownership of, or otherwise relates
      to,
      any such Intellectual Property anywhere in the world. No Patent has been or
      is
      now involved in any interference, reissue, reexamination, opposition, or other
      proceeding.

     

    (e) Each
      employee of the Company has executed a confidential information and invention
      assignment agreement in the form made available to Purchasers. No such employee
      has excluded works or inventions made prior to his or her employment with the
      Company from his or her assignment of inventions pursuant to such employee's
      confidential information and invention assignment agreement, which works or
      inventions are necessary to the business of the Company as it is proposed to
      be
      conducted. Each consultant to the Company has entered into an agreement
      containing appropriate confidentiality and invention assignment provisions,
      in
      the form acceptable to Purchasers. The Company does not believe it is or will
      be
      necessary to utilize any inventions, trade secrets or proprietary information
      of
      any of its employees made prior to their employment by the Company, except
      for
      inventions, trade secrets or proprietary information that have been assigned
      to
      the Company. 

     

    3.13 Offering.
      The
      Company has not in the past nor will it hereafter take any action to sell,
      offer
      for sale or solicit offers to buy any securities of the Company which would
      require the offer, issuance or sale of the Securities, as contemplated by this
      Agreement, to be registered under Section 5 of the Securities Act.

     

    
      
        
        

      

      
        -
          9
          -

        
          

        

      

      
        
        

      

    

    3.14 Investment
      Company.
      The
      Company is not and, after giving effect to the offering and sale of the Shares
      and the Warrants, will not be required to register as, an “investment company”
as such term is defined in the Investment Company Act of 1940, as
      amended.

     

    3.15 No
      Manipulation of Stock.
      The
      Company has not, and to its knowledge no one acting on its behalf has, (i)
      taken, directly or indirectly, any action in the last 90 days designed to cause
      or to result in the stabilization or manipulation of the price of any security
      of the Company, (ii) sold, bid for, purchased, or, paid any compensation for
      soliciting purchases of, any of the Securities, or (iii) paid or agreed to
      pay
      to any Person any compensation for soliciting another to purchase any other
      securities of the Company, other than, in the case of clauses (ii) and (iii),
      compensation paid to the Company’s placement agent in connection with the
      placement of the Securities.

     

    3.16 No
      Violations.
      The
      Company is not in violation of its Certificate of Incorporation, Bylaws or
      other
      organizational documents, or in violation of any law, administrative regulation,
      ordinance or order of any court or governmental agency, arbitration panel or
      authority applicable to the Company, which violation, individually or in the
      aggregate, would be reasonably expected to have a Material Adverse Effect,
      or is
      not in default (and there exists no condition which, with the passage of time
      or
      otherwise, would constitute a default) in the performance of any material bond,
      debenture, note or any other evidence of indebtedness in any indenture,
      mortgage, deed of trust or any other material agreement or instrument to which
      the Company is a party or by which the Company is bound or by which the property
      of the Company is bound, which would be reasonably expected to have a Material
      Adverse Effect.

     

    3.17 Accountants.
      Grant
      Thornton, LLP, who issued their report with respect to the financial statements
      to be incorporated by reference from the Company's Annual Report on Form 10-KSB
      for the year ended May 31, 2005 into the Registration Statement and the
      prospectus which forms a part thereof, are an independent registered public
      accounting firm as required by the Securities Act. The Company expects such
      accountants 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 ending
      May 31, 2006.

     

    3.18 Taxes.
      The
      Company has filed all necessary federal, state and foreign income and franchise
      tax returns and has paid or accrued all taxes shown as due thereon, and the
      Company has no knowledge of a tax deficiency which has been or might be asserted
      or threatened against it which would have a Material Adverse
      Effect.

     

    3.19 Title.
      The
      Company has good and marketable title to all real property and good and
      marketable title to all Personal property owned by it which is material to
      the
      business of the Company, in each case free and clear of all encumbrances and
      defects, except such as do not have a Material Adverse Effect. Any facilities
      and items of equipment held under lease by the Company are held by it under
      valid, subsisting and enforceable leases with such exceptions as are not
      material and do not interfere with the use made and proposed to be made of
      such
      facilities and items of equipment by the Company. The Company is in compliance
      with all material terms of each lease to which it is a party or is otherwise
      bound. 

     

    
      
        
        

      

      
        -
          10
          -

        
          

        

      

      
        
        

      

    

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

     

    3.21 Employee
      Relations.
      The
      Company is not involved in any union labor dispute, nor, to the knowledge of
      the
      Company, is any such dispute threatened. The Company is not a party to a
      collective bargaining agreement, and the Company believes that its relations
      with its employees are good. No executive officer (as defined in Rule 501(1)
      of
      the Securities Act) of the Company has notified the Company that such officer
      intends to leave the employ of the Company or otherwise terminate such officer’s
      employment with the Company. To the knowledge of the Company, no employee of
      the
      Company, as a consequence of his employment by the Company is, or is now
      expected to be, in violation of any material term of any agreement, covenant
      or
      contract (including any employment contract, confidentiality, disclosure or
      proprietary information agreement, non-competition agreement, or any other
      contract or agreement or any restrictive covenant with any previous employer),
      and the continued employment of each such employee by the Company will not
      subject the Company to any liability with respect to any of the foregoing
      matters.

     

    3.22 Internal
      Accounting Controls.
      The
      Company maintains a system of internal accounting controls (as such term is
      defined in Rule 13a-14 and 15d-14 under the Exchange Act) 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
      generally accepted accounting principles and to maintain asset accountability,
      (iii) access to assets is permitted only in accordance with management’s general
      or specific authorization and (iv) the recorded accountability for assets is
      compared with the existing assets at reasonable intervals and appropriate action
      is taken with respect to any differences.

     

    3.23 Disclosure
      Controls.
      The
      Company has established and maintains disclosure controls and procedures (as
      such term is defined in Rule 13a-14 and 15d-14 under the Exchange Act); such
      disclosure controls and procedures are designed to ensure that material
      information relating to the Company, including its consolidated subsidiaries,
      if
      any, is made known to the Company’s Chief Executive Officer and its Chief
      Financial Officer by others within those entities, and such disclosure controls
      and procedures are effective to perform the functions for which they were
      established; the Company’s auditors and the Audit Committee of the Board of
      Directors have been advised of: (i) any significant deficiencies in the design
      or operation of internal controls which could adversely affect the Company’s
      ability to record, process, summarize, and report financial data; and (ii)
      any
      fraud, whether or not material, that involves management or other employees
      who
      have a role in the Company’s internal controls; any material weaknesses in
      internal controls have been identified for the Company’s auditors; since the
      date of the most recent evaluation of such disclosure controls and procedures,
      there have been no significant changes in internal controls or in other factors
      that could significantly affect internal controls, including any corrective
      actions with regard to significant deficiencies and material weaknesses; the
      principal executive officers (or their equivalents) and principal financial
      officers (or their equivalents) of the Company have made all certifications
      required by the Sarbanes Oxley Act of 2002 (the “Sarbanes Oxley Act”) and any
      related rules and regulations promulgated by the SEC, and the statements
      contained in any such certification are complete and correct; and the Company
      is
      otherwise in compliance in all material respects with all applicable effective
      provisions of the Sarbanes Oxley Act.

     

    
      
        
        

      

      
        -
          11
          -

        
          

        

      

      
        
        

      

    

    3.24 Disclosure.
      Except
      with respect to the material terms and conditions of the transactions
      contemplated by the Operative Agreements and except with respect to those
      Purchasers, set forth on Schedule
      3.24,
      that
      have entered into Non-Disclosure or similar Confidentiality Agreements with
      the
      Company, the Company confirms that, neither it nor any other Person acting
      on
      its behalf has provided any of the Purchasers or their agents or counsel with
      any information that it believes constitutes or might constitute material,
      non-public information. The Company understands and confirms that the Purchasers
      will rely on the foregoing representation in effecting transactions in
      securities of the Company. Neither the Operative Agreements, any of the
      schedules or exhibits hereto or thereto, nor any other document or certificate
      provided by the Company to the Purchasers in connection herewith or therewith
      contains any untrue statement of a material fact or, when considered as a whole,
      omits a material fact necessary to make the statements contained herein or
      therein, in light of the circumstances in which they were made, not misleading.
      The Company acknowledges and agrees that no Purchaser makes or has made any
      representations or warranties with respect to the transactions contemplated
      hereby other than those specifically set forth in Section 4 hereof and as set
      forth in the Investor Questionnaire.

     

    3.25 Regulatory
      Permits.
      The
      Company 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 Documents, 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
      the Company has not received any notice of proceedings relating to the
      revocation or modification of any Material Permit.

     

    3.26 Insurance.
      The
      Company is 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 is engaged, including, but not limited to,
      directors and officers insurance coverage in the amount as set forth on
Schedule
      3.26.
      The
      Company has no 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.

     

    
      
        
        

      

      
        -
          12
          -

        
          

        

      

      
        
        

      

    

    3.27 Transactions
      With Affiliates and Employees.
      Except
      as set forth in the SEC Documents, none of the officers or directors of the
      Company and, to the knowledge of the Company, none of the employees of the
      Company is presently a party to any transaction with the Company (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 any
      such
      employee has a substantial interest or is an officer, director, trustee or
      partner, in each case in excess of $50,000 other than (i) for payment of salary
      or consulting fees for services rendered, (ii) reimbursement for expenses
      incurred on behalf of the Company and (iii) for other employee benefits,
      including stock option agreements under any stock option plan of the
      Company.

     

    3.28 Registration
      Rights.
      Other
      than each of the Purchasers and except as set forth on Schedule 3.28, no Person
      has any right to cause the Company to effect the registration under the
      Securities Act of any securities of the Company.

     

    3.29 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) that is or could become applicable
      to the Purchasers as a result of the Purchasers and the Company fulfilling
      their
      obligations or exercising their rights under the Operative Agreements, including
      without limitation as a result of the Company’s issuance of the Securities and
      the Purchasers’ ownership of the Securities.

     

    3.30 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 at least
      $10 million of Securities hereunder, (i) the fair saleable value of the
      Company’s 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 as now conducted
      and as proposed to be conducted for the next 12 months including its capital
      needs taking into account the particular capital requirements of the business
      conducted by the Company during such period, and projected capital requirements
      and capital availability thereof during such period; 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
      liabilities when such amounts are required to be paid. The Company does not
      intend in the 12 months following the Closing Date 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). The Company has
      no
      knowledge of any facts or circumstances which lead it to believe that it will
      file for reorganization or liquidation under the bankruptcy or reorganization
      laws of any jurisdiction within one year from the Closing Date. The SEC
      Documents set forth as of the dates thereof all outstanding secured and
      unsecured Indebtedness of the Company, or for which the Company has commitments.
      For the purposes of this Agreement, “Indebtedness”
shall
      mean (a) any liabilities for borrowed money or amounts owed in excess of $75,000
      (other than trade accounts payable incurred in the ordinary course of business),
      (b) all guaranties, endorsements and other contingent obligations in respect
      of
      indebtedness of others, whether or not the same are or should be reflected
      in
      the Company’s balance sheet (or the notes thereto), except guaranties by
      endorsement of negotiable instruments for deposit or collection or similar
      transactions in the ordinary course of business; and (c) the present value
      of
      any lease payments
      in excess of $75,000 due under leases required to be capitalized in accordance
      with GAAP.

     

    
      
        
        

      

      
        -
          13
          -

        
          

        

      

      
        
        

      

    

    3.31 No
      General Solicitation.
      Neither
      the Company nor any person acting on behalf of the Company has offered or sold
      any of the Securities by any form of general solicitation 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.

     

    3.32 Real
      Property Holding Corporation.
      The
      Company is not a real property holding corporation within the meaning of Section
      897(c)(2) of the Internal Revenue Code of 1986, as amended (the “Code”) and any
      regulations promulgated thereunder.

     

    3.33 Acknowledgment
      Regarding Purchasers’ Purchase of Securities.
      The
      Company acknowledges and agrees that each of the Purchasers is acting solely
      in
      the capacity of an arm’s length purchaser with respect to the Operative
      Agreements and the transactions contemplated thereby. The Company further
      acknowledges that no Purchaser is acting as a financial advisor or fiduciary
      of
      the Company (or in any similar capacity) with respect to the Operative
      Agreements and the transactions contemplated thereby and any advice given by
      any
      Purchaser or any of their respective representatives or agents in connection
      with the Operative Agreements and the transactions contemplated thereby is
      merely incidental to the Purchasers’ purchase of the Securities. The Company
      further represents to each Purchaser that the Company’s decision to enter into
      this Agreement and the other Operative Agreements has been based solely on
      the
      independent evaluation of the transactions contemplated hereby by the Company
      and its representatives.

     

    3.34 Acknowledgement
      Regarding Purchasers’ Trading Activity.
      Anything in this Agreement or elsewhere herein to the contrary notwithstanding,
      it is understood and acknowledged by the Company (i) that none of the Purchasers
      have been asked to agree by the Company, nor has any Purchaser agreed with
      the
      Company, to desist from purchasing or selling, long and/or short, securities
      of
      the Company, or “derivative” securities based on securities issued by the
      Company or to hold the Securities for any specified term; (ii) that past or
      future open market or other transactions by any Purchaser, including short
      sales, and specifically including, without limitation, Short Sales or
“derivative” transactions, before or after the closing of this or future private
      placement transactions, may negatively impact the market price of the Company’s
      publicly-traded securities; (iii) that any Purchaser, and counter-parties in
      “derivative” transactions to which any such Purchaser is a party, directly or
      indirectly, presently may have a “short” position in the Common Stock, and (iv)
      that each Purchaser shall not be deemed to have any affiliation with or control
      over any arm’s length counter-party in any “derivative” transaction.
The
      Company further understands and acknowledges that (a) one or more Purchasers
      may
      engage in hedging activities at various times during the period that the
      Securities are outstanding, including, without limitation, during the periods
      that the value of the Warrant Shares deliverable with respect to Securities
      are
      being determined and (b) such hedging activities (if any) could reduce the
      value
      of the existing stockholders' equity interests in the Company at and after
      the
      time that the hedging activities are being conducted.  The Company
      acknowledges that such aforementioned hedging activities do not constitute
      a
      breach of any of the Operative Agreements.

     

    
      
        
        

      

      
        -
          14
          -

        
          

        

      

      
        
        

      

    

    4. Representations
      and Warranties of the Purchasers.
      Each
      Purchaser severally for itself, and not jointly with the other Purchasers,
      represents and warrants to the Company as follows:

     

    4.1 Authorization.
      All
      action on the part of such Purchaser and, if applicable, its officers, directors
      and shareholders necessary for the authorization, execution, delivery and
      performance of the Operative Agreements and the consummation of the transactions
      contemplated therein has been taken. When executed and delivered by the Company
      and such Purchaser, each of the Operative Agreements will constitute the legal,
      valid and binding obligation of such Purchaser, enforceable against such
      Purchaser in accordance with its terms, except as such may be limited by
      bankruptcy, insolvency, reorganization or other laws affecting creditors' rights
      generally and by general equitable principles. Such Purchaser has all requisite
      power to enter into each of the Operative Agreements and to carry out and
      perform its obligations under the terms of the Operative Agreements. Such
      Purchaser has the knowledge and experience in financial and business matters
      as
      to be capable of evaluating the merits and risks of an investment in the
      Securities and has the ability to bear the economic risks of an investment
      in
      the Securities for an indefinite period of time. Furthermore, the Purchaser
      acknowledges that the Company has made no representations or warranties except
      as set for in this Agreement or the Registration Rights Agreement.

     

    4.2 Purchase
      Entirely for Own Account.
      Except
      for permitted transfers pursuant to Section 8.11, such Purchaser is acquiring
      the Securities being purchased by it hereunder for its own account, and not
      for
      resale or with a view to distribution thereof in violation of the Securities
      Act
      (this representation and warranty not limiting such Purchaser’s right to sell
      the Securities pursuant to a registration statement or otherwise in compliance
      with applicable federal and state securities laws). Such Purchaser has not
      entered into an agreement or understanding with any other party to resell or
      distribute such Securities. 

     

    4.3 Investor
      Status; Etc.
      Such
      Purchaser certifies and represents to the Company that it is an “Accredited
      Investor” as defined in Rule 501 of Regulation D promulgated under the
      Securities Act and was not organized for the purpose of acquiring the
      Securities. Such Purchaser’s financial condition is such that it is able to bear
      the risk of holding the Securities for an indefinite period of time and the
      risk
      of loss of its entire investment. Subject to the truth and accuracy of the
      representations and warranties of the Company set forth in Section 3 of this
      Agreement (as modified by the Company Disclosure Schedule), such Purchaser
      has
      received, reviewed and considered all information it deems necessary in making
      an informed decision to make an investment in the Securities and has been
      afforded the opportunity to ask questions of and receive answers from the
      management of the Company concerning this investment and has sufficient
      knowledge and experience in investing in companies similar to the Company in
      terms of the Company’s stage of development so as to be able to evaluate the
      risks and merits of its investment in the Company.

     

    
      
        
        

      

      
        -
          15
          -

        
          

        

      

      
        
        

      

    

    4.4 No
      Conflict.
      The
      execution and delivery of the Operative Agreements by such Purchaser and the
      consummation of the transactions contemplated thereby will not conflict with
      or
      result in any violation of or default by such Purchaser (with or without notice
      or lapse of time, or both) under, or give rise to a right of termination,
      cancellation or acceleration of any obligation or to a loss of a material
      benefit under (i) any provision of the organizational documents of such
      Purchaser, (ii) any material agreement or instrument, permit, franchise, or
      license or (iii) any judgment, order, statute, law, ordinance, rule or
      regulations, applicable to such Purchaser or its respective properties or
      assets.

     

    4.5 Brokers.
      Such
      Purchaser has not retained, utilized or been represented by any broker or finder
      in connection with the transactions contemplated by this Agreement.

     

    4.6 Consents.
      All
      consents, approvals, orders and authorizations required on the part of such
      Purchaser in connection with the execution, delivery or performance of this
      Agreement and the consummation of the transactions contemplated herein have
      been
      obtained and are effective as of the Closing Date.

     

    4.7 No
      Intent to Effect a Change of Control.
      Such
      Purchaser has no present intent to change or influence the control of the
      Company within the meaning of Rule 13d-1 of the Exchange Act.

     

    4.8 Short
      Sales and Confidentiality Prior To The Date Hereof.
      Other than the transaction contemplated hereunder, such Purchaser has not
      directly or indirectly, nor has any Person acting on behalf of or pursuant
      to
      any understanding with such Purchaser, executed any disposition, including
      Short
      Sales, in the securities of the Company during the period commencing
      from
      the time
      that such Purchaser first received a term sheet (written or oral) from the
      Company or any other Person setting forth the material terms of the transactions
      contemplated hereunder until the date hereof (“Discussion
      Time”).
      Notwithstanding the foregoing, in the case of a Purchaser that is a
      multi-managed investment vehicle whereby separate portfolio managers manage
      separate portions of such Purchaser's assets and the portfolio managers have
      no
      direct knowledge of the investment decisions made by the portfolio managers
      managing other portions of such Purchaser's assets, the representation set
      forth
      above shall only apply with respect to the portion of assets managed by the
      portfolio manager that made the investment decision to purchase the Securities
      covered by this Agreement. Other than to other Persons who are a party to this
      Agreement, such Purchaser has maintained the confidentiality of all disclosures
      made to it in connection with this transaction (including the existence and
      terms of this transaction).

     

    
      
        
        

      

      
        -
          16
          -

        
          

        

      

      
        
        

      

    

    4.9  Securities
      Not Registered.
      Such Purchaser understands that the Securities have not been registered under
      the Securities Act, by reason of their issuance by the Company in a transaction
      exempt from the registration requirements of the Securities Act, and that the
      Securities must continue to be held by such Purchaser unless a subsequent
      disposition thereof is registered under the Securities Act as contemplated
      under
      this Agreement or is exempt from such registration. The Purchaser understands
      that the exemptions from registration afforded by Rule 144 (the provisions
      of
      which are known to it) promulgated under the Securities Act depend on the
      satisfaction of various conditions, and that, if applicable, Rule 144 may afford
      the basis for sales only in limited amounts.

     

    5. Conditions
      Precedent.

     

    5.1 Conditions
      to the Obligation of the Purchasers to Consummate the Closing.
      The
      obligation of each Purchaser to consummate the Closing and to purchase and
      pay
      for the Securities being purchased by it pursuant to this Agreement is subject
      to the satisfaction of the following conditions precedent:

     

    (a) The
      representations and warranties of the Company contained herein shall be true
      and
      correct on and as of the Closing Date with the same force and effect as though
      made on and as of the Closing Date (it being understood and agreed by each
      Purchaser that, in the case of any representation and warranty of the Company
      contained herein which is not hereinabove qualified by application thereto
      of a
      materiality standard, such representation and warranty need be true and correct
      only in all material respects in order to satisfy as to such representation
      or
      warranty the condition precedent set forth in the foregoing provisions of this
      Section 5.1(a)).

     

    (b) The
      Registration Rights Agreement and respective Warrant shall have been executed
      and delivered by the Company.

     

    (c) The
      Company shall not have been adversely affected in any material way prior to
      the
      Closing Date; and the Company shall have performed all obligations and
      conditions herein required to be performed or observed by the Company on or
      prior to the Closing Date.

     

    (d) No
      proceeding challenging this Agreement or the transactions contemplated hereby,
      or seeking to prohibit, alter, prevent or materially delay the Closing, shall
      have been instituted before any court, arbitrator or governmental body, agency
      or official and shall be pending.

     

    
      
        
        

      

      
        -
          17
          -

        
          

        

      

      
        
        

      

    

    (e) The
      purchase of and payment for the Securities by the Purchasers shall not be
      prohibited by any law or governmental order or regulation. All necessary
      consents, approvals, licenses, permits, orders and authorizations of, or
      registrations, declarations and filings with, any governmental or administrative
      agency or of any other Person with respect to any of the transactions
      contemplated hereby shall have been duly obtained or made and shall be in full
      force and effect.

     

    (f) All
      instruments and corporate proceedings in connection with the transactions
      contemplated by this Agreement to be consummated at the Closing shall be
      satisfactory in form and substance to such Purchaser. Such Purchaser shall
      have
      received such certificates of the Company's officers as such Purchaser may
      have
      reasonably requested in connection with such transactions.

     

    (g) A
      legal
      opinion from Reed Smith LLP has been delivered to the Purchasers in the form
      of
Exhibit
      D
      attached
      hereto.

     

    (h) The
      aggregate Purchase Price shall not be less than $10,000,000 nor more than
      $20,000,000.

     

    (i) From
      the
      date hereof to the Closing Date, trading in the Common Stock shall not have
      been
      suspended by the SEC or the Trading Market (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 nor shall there have occurred any
      material outbreak or escalation of hostilities or other national or
      international calamity of such magnitude in its effect on, or any material
      adverse change in, any financial market which, in each case, in the reasonable
      judgment of each Purchaser, makes it impracticable or inadvisable to purchase
      the Shares at the Closing.

     

    5.2 Conditions
      to the Obligation of the Company to Consummate the Closing.
      The
      obligation of the Company to consummate the Closing and to issue and sell to
      each of the Purchasers the Securities to be purchased by it at the Closing
      is
      subject to the satisfaction of the following conditions precedent:

     

    (a) The
      representations and warranties contained herein of such Purchaser shall be
      true
      and correct on and as of the Closing Date with the same force and effect as
      though made on and as of the Closing Date (it being understood and agreed by
      the
      Company that, in the case of any representation and warranty of each Purchaser
      contained herein which is not hereinabove qualified by application thereto
      of a
      materiality standard, such representation and warranty need be true and correct
      only in all material respects in order to satisfy as to such representation
      or
      warranty the condition precedent set forth in the foregoing provisions of this
      Section 5.2(a)).

     

    
      
        
        

      

      
        -
          18
          -

        
          

        

      

      
        
        

      

    

    (b) The
      Registration Rights Agreement shall have been executed and delivered by each
      Purchaser.

     

    (c) Each
      Purchaser shall have performed all obligations and conditions herein required
      to
      be performed or observed by such Purchaser on or prior to the Closing
      Date.

     

    (d) No
      proceeding challenging this Agreement or the transactions contemplated hereby,
      or seeking to prohibit, alter, prevent or materially delay the Closing, shall
      have been instituted before any court, arbitrator or governmental body, agency
      or official and shall be pending.

     

    (e) The
      sale
      of the Securities by the Company shall not be prohibited by any law or
      governmental order or regulation. All necessary consents, approvals, licenses,
      permits, orders and authorizations of, or registrations, declarations and
      filings with, any governmental or administrative agency or of any other Person
      with respect to any of the transactions contemplated hereby shall have been
      duly
      obtained or made and shall be in full force and effect.

     

    (f) Each
      such
      Purchaser shall have executed and delivered to the Company an Investor
      Questionnaire, in the form attached hereto as Appendix
      I,
      pursuant to which such Purchaser shall provide information necessary to confirm
      each such Purchaser’s status as an "accredited investor" (as such term is
      defined in Rule 501 promulgated under the Securities Act) and to enable the
      Company to comply with the Registration Rights Agreement.

     

    6. Transfer,
      Legends.

     

    6.1 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 (so long as the
      Company is furnished with satisfactory and customary evidence of compliance
      with
      Rule 144), to the Company or to an Affiliate of a Purchaser (so long as the
      Company is furnished with satisfactory and customary evidence of compliance
      with
      Rule 144) or in connection with a pledge as permitted in Section 6.3, the
      Company may require the transferor thereof to provide to the Company an opinion
      of counsel selected by the transferor and reasonably acceptable to the Company,
      the form and substance of which opinion shall be reasonably satisfactory to
      the
      Company, 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 the Warrant (if applicable) and shall have the rights of a
      Purchaser under this Agreement and the Registration Rights Agreement. Each
      non-U.S. Purchaser shall comply with all applicable laws and regulations in
      each
      foreign jurisdiction in which it purchases, offers, sells or delivers Securities
      or has in its possession or distributes any offering material, in all cases
      at
      its own expense.  

     

    
      
        
        

      

      
        -
          19
          -

        
          

        

      

      
        
        

      

    

    6.2 The
      Purchasers agree to the imprinting, so long as is required by this Section
      6.1,
      of a legend on any of the Securities in the following form:

     

    "THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933 AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED,
      TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
      STATEMENT UNDER SAID ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION
      UNDER SAID ACT AND, IF REQUESTED BY THE COMPANY, UPON DELIVERY OF AN OPINION
      OF
      COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THE PROPOSED TRANSFER IS
      EXEMPT FROM SAID ACT."

     

    “THE
      SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
      TRANSFERABILITY AND RESALE PURSUANT TO A PURCHASE AGREEMENT, A COPY OF WHICH
      MAY
      BE OBTAINED AT THE PRINCIPAL OFFICE OF THE COMPANY.” 

     

    6.3 The
      Company acknowledges and agrees that any Purchaser, along with and aggregated
      with its Affiliates, acquiring $2 million or more in Shares pursuant to this
      Purchase Agreement (a “Qualified
      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
      Securities 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 this Agreement and the Registration Rights Agreement 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.

     

    6.4 Subject
      to the conditions set forth in Section 6.6 below and the indemnification set
      forth in the Registration Rights Agreement, certificates evidencing the Shares
      and Warrant Shares shall not contain any legend (including the legend set forth
      in Section 6.2), (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 Shares or Warrant Shares
      pursuant to Rule 144, or (iii) if such Shares or Warrant 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 SEC). Subject to the conditions set
      forth in Section 6.6 below and the indemnification set forth in the Registration
      Rights Agreement, if all or any portion of a Warrant is exercised at a time
      when
      there is an effective registration statement to cover the resale of the Warrant
      Shares, such Warrant Shares shall be issued free of all legends. The Company
      agrees that following the Effective Date or at such time as such legend is
      no
      longer required under this Section 6, it will, no later than three Trading
      Days
      following the delivery by a Purchaser to the Company or the Company’s transfer
      agent of a certificate representing Shares or Warrant Shares, as the case may
      be, issued with a restrictive legend (such third Trading Day, the “Legend
      Removal Date”),
      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. Certificates for Securities subject to legend removal hereunder shall
      be transmitted by the transfer agent of the Company to the Purchasers by
      crediting the account of the Purchaser’s prime broker with the Depository Trust
      Company System.

     

    
      
        
        

      

      
        -
          20
          -

        
          

        

      

      
        
        

      

    

    6.5 In
      addition to such Purchaser’s other available remedies, except for delays arising
      from Force Majeure, the Company shall pay to a Purchaser, in cash, as partial
      liquidated damages and not as a penalty, for each $2,000 of Shares or Warrant
      Shares (based on the Closing Price of the Common Stock on the date such
      Securities are submitted to the Company’s transfer agent) delivered for removal
      of the restrictive legend and subject to Section 6.1, $10 per Trading Day
      (increasing to $20 per Trading Day five (5) Trading Days after such damages
      have
      begun to accrue) for each Trading Day after the 2nd
      Trading
      Day following the Legend Removal Date until such certificate is delivered
      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 Operative Agreements, 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.

     

    6.6 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 is predicated upon the Purchaser not being an
      Affiliate of the Company and 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, and that if Securities are sold pursuant to a Registration
      Statement, they will be sold in compliance with the plan of distribution set
      forth therein. Each Purchaser, severally and not jointly with the other
      Purchasers, acknowledges that the Company’s agreement hereunder to remove all
      legend from Shares or Warrants Shares contemplated under this Section 6 is
      not
      an affirmative statement or representation that such Shares or Warrant Shares
      are freely tradable.

     

    
      
        
        

      

      
        -
          21
          -

        
          

        

      

      
        
        

      

    

    7. Additional
      Covenants.

     

    7.1 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.

     

    7.2 Securities
      Laws Disclosure; Publicity.
      The
      Company shall, by 8:30 a.m. Eastern time on the 4th
      Trading
      Day immediately following the date hereof, issue a Current Report on Form 8-K,
      disclosing the material terms of the transactions contemplated hereby which
      disclosure shall be subject to the approval of the Qualified Purchasers, and
      shall attach the Operative Agreements thereto. The Company and each Qualified
      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 which references the other party without the prior consent of such
      other party, which consent shall not unreasonably be withheld or delayed, 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. Notwithstanding the foregoing, the Company shall not publicly
      disclose the name of any Qualified Purchaser, or include the name of any
      Qualified Purchaser in any filing with the SEC or any regulatory agency or
      Trading Market, without the prior written consent of such Qualified Purchaser,
      except (i) as required by federal securities law in connection with (A) any
      registration statement contemplated by the Registration Rights Agreement and
      (B)
      the filing of final Operative Agreements (including signature pages thereto)
      with the SEC or (ii) to the extent such disclosure is required by law or Trading
      Market regulations, in which case the Company shall provide each Qualified
      Purchasers with prior notice of such disclosure permitted under this subclause
      (ii).

     

    7.3 Shareholder
      Rights Plan.
      No
      claim will be made or enforced by the Company or, with the consent of the
      Company, any other Person, that any Purchaser is an “Acquiring Person” under any
      control share acquisition, business combination, poison pill (including any
      distribution under a rights agreement) or similar anti-takeover 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,
      solely by virtue of receiving Securities under the Operative
      Agreements.

     

    7.4 Non-Public
      Information.
      Except
      with respect to the material terms and conditions of the transactions
      contemplated by the Operative Agreements, the Company covenants and agrees
      that
      neither it nor any other Person acting on its behalf will provide any Purchaser
      or its agents or counsel with any information that the Company believes
      constitutes material non-public information, unless prior thereto such Purchaser
      shall have executed a written agreement regarding the confidentiality and use
      of
      such information. The Company understands and confirms that each Purchaser
      shall
      be relying on the foregoing representations in effecting transactions in
      securities of the Company.

     

    
      
        
        

      

      
        -
          22
          -

        
          

        

      

      
        
        

      

    

    7.5 Use
      of
      Proceeds.
      Except
      as set forth on Schedule
      7.6
      attached
      hereto, the Company shall use the net proceeds from the sale of the Securities
      hereunder for working capital purposes and not 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), to redeem any
      Common Stock or Common Stock Equivalents or to settle any outstanding
      litigation.

     

    7.6 Indemnification
      of Purchasers.
      Subject
      to the provisions of this Section 7.6, the Company will indemnify and hold
      each
      Purchaser and its directors, officers, shareholders, members, partners,
      employees and agents (and any other Persons with a functionally equivalent
      role
      of a Person holding such titles notwithstanding a lack of such title or any
      other title), each Person who controls such Purchaser (within the meaning of
      Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
      directors, officers, shareholders, agents, members, partners or employees (and
      any other Persons with a functionally equivalent role of a Person holding such
      titles notwithstanding a lack of such title or any other title) of such
      controlling persons (each, a “Purchaser
      Party”)
      harmless from any and all losses, liabilities, obligations, claims,
      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 breach of any of the representations, warranties,
      covenants or agreements made by the Company in this Agreement or in the other
      Operative Agreements 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, with respect to any of the transactions
      contemplated by the Operative Agreements (unless such action is based upon
      a
      breach of such Purchaser’s representations, warranties or covenants under the
      Operative Agreements 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). 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 reasonably acceptable to the Purchaser Party. 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, in which case the Company shall be responsible for the
      reasonable fees and expenses of no more than one such separate counsel. The
      Company will not be liable to any Purchaser Party under this Agreement (i)
      for
      any settlement by a 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 such Purchaser Party in this
      Agreement or in the other Operative Agreements.

     

    
      
        
        

      

      
        -
          23
          -

        
          

        

      

      
        
        

      

    

    7.7 Reservation
      of Common Stock.
      As of
      the date hereof, the Company has reserved and the Company shall continue to
      reserve and keep available at all times, free of preemptive rights, a sufficient
      number of shares of Common Stock for the purpose of enabling the Company to
      issue Shares pursuant to this Agreement and Warrant Shares pursuant to any
      exercise of the Warrants. 

     

    7.8 Listing
      of Common Stock.
      The
      Company hereby agrees to use best efforts to maintain the listing of the Common
      Stock on a Trading Market. The Company further agrees, if the Company applies
      to
      have the Common Stock traded on any other market or exchange, it will include
      in
      such application all of the Shares and Warrant Shares, and will take such other
      action as is necessary to cause all of the Shares and Warrant Shares to be
      listed on such other market or exchange as promptly as possible. The Company
      will take all action reasonably necessary to continue the listing and trading
      of
      its Common Stock on the Trading Market, market or exchange and will comply
      in
      all respects with the Company’s reporting, filing and other obligations under
      the bylaws or rules of the Trading Market or if applicable, future market or
      exchange.

     

    7.9 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 Operative Agreements
      unless the same consideration is also offered to all of the parties to the
      Operative Agreements. 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 to treat for the Company the
      Purchasers 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.

     

    7.10 Short
      Sales and Confidentiality After The Date Hereof.
      Each
      Purchaser severally and not jointly with the other Purchasers covenants that
      neither it nor any Affiliate acting on its behalf or pursuant to any
      understanding with it will execute any Short Sales during the period commencing
      at the Discussion Time and ending at the time that the transactions contemplated
      by this Agreement are first publicly announced as described in Section 7.2.
      Each
      Purchaser, severally and not jointly with the other Purchasers, covenants that
      until such time as the transactions contemplated by this Agreement are publicly
      disclosed by the Company as described in Section 7.2, such Purchaser will
      maintain the confidentiality of all disclosures made to it in connection with
      this transaction (including the existence and terms of this transaction). Each
      Purchaser understands and acknowledges, severally and not jointly with any
      other
      Purchaser, that the SEC currently takes the position that coverage of short
      sales of shares of the Common Stock “against the box” prior to the Effective
      Date of the Registration Statement with the Securities is a violation of Section
      5 of the Securities Act, as set forth in Item 65, Section A, of the Manual
      of
      Publicly Available Telephone Interpretations, dated July 1997, compiled by
      the
      Office of Chief Counsel, Division of Corporation Finance. Notwithstanding
      the foregoing, no Purchaser makes any representation, warranty or covenant
      hereby that it will not engage in Short Sales in the securities of the Company
      after the time that the transactions contemplated by this Agreement are first
      publicly announced as described in Section 7.2. Notwithstanding
      the foregoing, in the case of a Purchaser that is a multi-managed investment
      vehicle whereby separate portfolio managers manage separate portions of such
      Purchaser's assets and the portfolio managers have no direct knowledge of the
      investment decisions made by the portfolio managers managing other portions
      of
      such Purchaser's assets, the covenant set forth above shall only apply with
      respect to the portion of assets managed by the portfolio manager that made
      the
      investment decision to purchase the Securities covered by this
      Agreement

     

    
      
        
        

      

      
        -
          24
          -

        
          

        

      

      
        
        

      

    

    7.11 Subsequent
      Equity Sales.

     

    (a) From
      the
      date hereof until 90 days after the Effective Date, neither the Company nor
      any
      Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
      provided, however, the 90 day period set forth in this Section 7.11 shall be
      extended for the number of Trading Days during such period in which (i) trading
      in the Common Stock is suspended by any Trading Market, or (ii) following the
      Effective Date, the Registration Statement is not effective or the prospectus
      included in the Registration Statement may not be used by the Purchasers for
      the
      resale of the Shares and Warrant Shares. 

    

    (b) From
      the
      date hereof until such time as no Qualified Purchaser holds any of the
      Securities, the Company shall be prohibited from effecting or entering into
      an
      agreement to effect any Subsequent Financing involving a “Variable Rate
      Transaction”. The term “Variable
      Rate Transaction”
shall
      mean a transaction in which the Company issues or sells (i) any debt or equity
      securities that are convertible into, exchangeable or exercisable for, or
      include the right to receive additional shares of Common Stock either (A) at
      a
      conversion, exercise or exchange rate or other price that is based upon and/or
      varies with the trading prices of or quotations for the shares of Common Stock
      at any time after the initial issuance of such debt or equity securities, or
      (B)
      with a conversion, exercise or exchange price that is subject to being reset
      at
      some future date after the initial issuance of such debt or equity security
      or
      upon the occurrence of specified or contingent events directly or indirectly
      related to the business of the Company or the market for the Common Stock or
      (ii) enters into any agreement, including, but not limited to, an equity line
      of
      credit, whereby the Company may sell securities at a future determined price.
      Any Purchaser shall be entitled to obtain injunctive relief against the Company
      to preclude any such issuance, which remedy shall be in addition to any right
      to
      collect damages. 

     

    (c) Notwithstanding
      the foregoing, this Section 7.11 shall not apply in respect of an Exempt
      Issuance, except that no Variable Rate Transaction shall be an Exempt
      Issuance.

     

    7.12 Form
      D; Blue Sky Filings.
      The
      Company agrees to timely file a Form D with respect to the Securities as
      required under Regulation D and to provide a copy thereof, promptly upon request
      of any Purchaser. The Company shall take such action as the Company shall
      reasonably determine is necessary in order to obtain an exemption for, or to
      qualify the Securities for, sale to the Purchasers at the Closing under
      applicable securities or “Blue Sky” laws of the states of the United States, and
      shall provide evidence of such actions promptly upon request of any
      Purchaser.

     

    
      
        
        

      

      
        -
          25
          -

        
          

        

      

      
        
        

      

    

    7.13 Capital
      Changes.
      Until
      the one year anniversary of the Effective Date, the Company shall not undertake
      a reverse or forward stock split or reclassification of the Common Stock without
      the prior written consent of each Qualified Purchasers holding a majority in
      interest of the Shares.

     

    8. Miscellaneous
      Provisions.

     

    8.1 Termination.
      This
      Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations
      hereunder only and without any effect whatsoever on the obligations between
      the
      Company and the other Purchasers, by written notice to the other parties, if
      the
      Closing has not been consummated on or before June 30, 2006; provided,
      however,
      that no
      such termination will affect the right of any party to sue for any breach by
      the
      other party (or parties).

     

    8.2 Fees
      and Expenses.
      At the
      Closing, the Company has agreed to reimburse Lehman Brothers (“Lehman”)
      for
      its legal fees and expenses. Accordingly, in lieu of the foregoing payments,
      Lehman shall have the right to reduce the aggregate amount that it is to pay
      for
      the Securities at the Closing by the amount of such fees and expenses in lieu
      thereof. Except as expressly set forth in the Operative Agreements to the
      contrary, each party shall pay the fees and expenses of its advisers, counsel,
      accountants and other experts, if any, and all other expenses incurred by such
      party incident to the negotiation, preparation, execution, delivery and
      performance of this Agreement. The Company shall pay all transfer agent fees,
      stamp taxes and other taxes and duties levied in connection with the delivery
      of
      any Securities to the Purchasers.

     

    8.3 Rights
      Cumulative.
      Each
      and all of the various rights, powers and remedies of the parties shall be
      considered to be cumulative with and in addition to any other rights, powers
      and
      remedies which such parties may have at law or in equity in the event of the
      breach of any of the terms of this Agreement. The exercise or partial exercise
      of any right, power or remedy shall neither constitute the exclusive election
      thereof nor the waiver of any other right, power or remedy available to such
      party.

     

    8.4 Pronouns.
      All
      pronouns or any variation thereof shall be deemed to refer to the masculine,
      feminine or neuter, singular or plural, as the identity of the Person, Persons,
      entity or entities may require.

     

    8.5 Notices.
      Except
      as otherwise expressly provided under this Agreement, any notices, reports
      or
      other correspondence (hereinafter collectively referred to as "correspondence")
      required or permitted to be given hereunder shall be in writing and shall be
      sent by postage prepaid first class mail, courier or telecopy or delivered
      by
      hand to the party to whom such correspondence is required or permitted to be
      given hereunder, and shall be deemed sufficient upon receipt when delivered
      Personally or by courier, overnight delivery service or confirmed facsimile,
      or
      three (3) Trading Days after being deposited in the regular mail as certified
      or
      registered mail (airmail if sent internationally) with postage prepaid, if
      such
      notice is addressed to the party to be notified at such party's address or
      facsimile number as set forth below:

     

    
      
        
        

      

      
        -
          26
          -

        
          

        

      

      
        
        

      

    

    (a) All
      correspondence to the Company shall be addressed as follows:

     

    Protalex,
      Inc.

    145
      Union
      Square Drive, 

    New
      Hope,
      PA 18938

    Attention:
       Steven
      Kane 

    Chief
      Executive Officer

    Facsimile: (215) 862-6614

     

    with
      a
      copy to:

     

    Reed
      Smith LLP

    Two
      Embarcadero Center, Suite 2000

    San
      Francisco, CA 94111

    Attention:
       Donald
      C.
      Reinke, Esq.

    Facsimile: (415) 391.8269

    

    (b) All
      correspondence to any Purchaser shall be sent to such Purchaser at the address
      set forth in Exhibit A.

     

    (c) Any
      entity may change the address to which correspondence to it is to be addressed
      by written notification as provided for herein.

     

    8.6 Captions.
      The
      captions and paragraph headings of this Agreement are solely for the convenience
      of reference and shall not affect its interpretation.

     

    8.7 Severability.
      Should
      any part or provision of this Agreement be held unenforceable or in conflict
      with the applicable laws or regulations of any jurisdiction, the invalid or
      unenforceable part or provisions shall be replaced with a provision which
      accomplishes, to the extent possible, the original business purpose of such
      part
      or provision in a valid and enforceable manner, and the remainder of this
      Agreement shall remain binding upon the parties hereto.

     

    8.8 Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of the Operative Agreements 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 Operative Agreements
      (whether brought against a party hereto or its respective affiliates, directors,
      officers, shareholders, 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, borough of Manhattan 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 Operative Agreements), 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 is an 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 other
      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 Operative Agreements, then the prevailing party in such action or
      proceeding shall be reimbursed by the other party for its reasonable attorneys’
fees and other costs and expenses incurred with the investigation, preparation
      and prosecution of such action or proceeding.

     

    
      
        
        

      

      
        -
          27
          -

        
          

        

      

      
        
        

      

    

    8.9 Amendments.
      Any
      term of this Agreement may be amended or terminated and the observance of any
      term of this Agreement may be waived (either generally or in a particular
      instance and either retroactively or prospectively), only with the written
      consent of the Company and the Purchasers holding a majority in interest of
      the
      Securities then outstanding, so long as such consenting Purchasers include
      each
      Qualified Purchaser who then holds at least $250,000 of the Shares originally
      purchased pursuant to this Agreement or Warrant Shares exercisable under such
      Qualified Purchaser’s Warrant (or any combination thereof) (collectively, the
“Purchasers
      Consent”).
      Notwithstanding the foregoing, a waiver or consent to depart from the provisions
      hereof with respect to a matter that relates exclusively to the rights of a
      Purchaser that does not directly or indirectly affect the rights of other
      Purchasers may be given by such Purchaser to which such waiver or consent
      relates without the consent of a majority in interest of the Securities then
      outstanding and of the Purchasers Consent; provided,
      however,
      that
      the provisions of this sentence may not be amended, modified or supplemented
      except in accordance with the provisions of the immediately preceding sentence.
      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 any party to exercise
      any right hereunder in any manner impair the exercise of any such
      right.

     

    8.10 Exculpation.
      Each
      Purchaser acknowledges that it is not relying upon any Person, entity or
      corporation, other than the Company and its officers and directors, in making
      its investment or decision to invest in the Company. The obligations of each
      Purchaser hereunder are several and not joint with the obligations of any other
      Purchaser, and no Purchaser shall be responsible in any way for the performance
      of the obligations of any other Purchaser hereunder. Nothing contained herein,
      and no action taken by any Purchaser pursuant hereto, shall be deemed to
      constitute the Purchasers as a partnership, an association, a joint venture
      or
      any other kind of entity, or create a presumption that the Purchasers are in
      any
      way acting in concert or as a group with respect to such obligations or the
      transactions contemplated hereunder. Each Purchaser shall be entitled to
      independently protect and enforce its rights hereunder, 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 has been represented by its own
      separate legal counsel in their review and negotiation of this Agreement. The
      Company has elected to provide all Purchasers with the same terms and forms
      of
      Operative Agreements for the convenience of the Company and not because it
      was
      required or requested to do so by the Purchasers. Each Purchaser agrees that
      no
      Purchaser nor the respective controlling Persons, officers, directors, partners,
      agents, or employees of any Purchaser shall be liable to any other Purchaser
      for
      any action heretofore or hereafter taken or omitted to be taken by any of them
      in connection with the Securities or the Operative Agreements.

     

    
      
        
        

      

      
        -
          28
          -

        
          

        

      

      
        
        

      

    

    8.11 Assignment.
      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 (other than by merger or sale of substantially all
      of
      its assets). Any Purchaser may assign any or all of its rights under this
      Agreement (subject to any limitations set forth in the Registration Rights
      Agreement) to any Person to whom such Purchaser assigns or transfers any
      Securities, provided such transferee agrees in writing to be bound, with respect
      to the transferred Securities, by the provisions of the Operative Agreements
      that apply to the “Purchasers”.

     

    8.12 Survival.
      The
      respective representations and warranties given by the parties hereto shall
      survive the Closing Date and the consummation of the transactions contemplated
      herein for a period of three years, without regard to any investigation made
      by
      any party. 

     

    8.13 Counterpart.
      This
      Agreement may be executed in two or more counterparts, each of which shall
      be
      deemed an original and all of which together shall constitute one instrument.
      In
      the event that any signature is delivered by facsimile transmission or by e-mail
      delivery of a “.pdf” format data file, 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 or “.pdf”
signature page were an original thereof.

     

    8.14 Entire
      Agreement.
      This
      Agreement, the Warrants and the Registration Rights Agreement constitute the
      entire agreement between the parties hereto respecting the subject matter hereof
      and supersede all prior agreements, negotiations, understandings,
      representations and statements respecting the subject matter hereof, whether
      written or oral. No modification, alteration, waiver or change in any of the
      terms of this Agreement shall be valid or binding upon the parties hereto unless
      made in writing and duly executed by the Company and the
      Purchasers.

     

    8.15 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 7.6.

     

    
      
        
        

      

      
        -
          29
          -

        
          

        

      

      
        
        

      

    

    8.16 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 (in the case of mutilation),
      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. The applicant for a new certificate or instrument under
      such circumstances shall also pay any reasonable third-party costs (including
      customary indemnity) associated with the issuance of such replacement
      Securities.

     

    8.17 Remedies.
      In
      addition to being entitled to exercise all rights provided herein or granted
      by
      law, including recovery of damages, each of the Purchasers and the Company
      will
      be entitled to specific performance under the Operative Agreements. The parties
      agree that monetary damages may not be adequate compensation for any loss
      incurred by reason of any breach of obligations contained in the Operative
      Agreements and hereby agrees to waive and not to assert in any action for
      specific performance of any such obligation the defense that a remedy at law
      would be adequate.

     

    8.18 Liquidated
      Damages.
      The
      Company’s obligations to pay any partial liquidated damages or other amounts
      owing under the Operative Agreements 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.

     

    8.19 Construction.
      The
      parties agree that each of them and/or their respective counsel has reviewed
      and
      had an opportunity to revise the Operative Agreements and, therefore, the normal
      rule of construction to the effect that any ambiguities are to be resolved
      against the drafting party shall not be employed in the interpretation of the
      Operative Agreements or any amendments hereto.

     

    [Signature
      Page to Follow]

     

    
      
        
        

      

      
        -
          30
          -

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties hereto have executed this Warrant and Common Stock
      Purchase Agreement as of the day and year first above written.

     

    PROTALEX,
      INC.

     

    

    By:
      _________________________

    Name:

    Title:

     

    THE
      PURCHASER’S SIGNATURE TO THE INVESTOR QUESTIONNAIRE DATED AS OF THE CLOSING
      SHALL CONSTITUTE THE PURCHASER’S SIGNATURE TO THIS WARRANT AND COMMON STOCK
      PURCHASE AGREEMENT.

     

    
      
        
        

      

      
        -
          31
          -

        
          

        

      

      
        
        

      

    

    Exhibit
      A

     

    SCHEDULE
      OF PURCHASERS

     

    
      	
              Purchaser
                Name and Address

            	
              Number
                of Shares to be Purchased

            	
              Aggregate
                Purchase Price

            
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 

    

    

    
      
        
        

      

      
        -
          32
          -

        
          

        

      

      
        
        

      

    

    Exhibit
      B

     

    FORM
      OF
      WARRANT

     

    
      
        
        

      

      
        -
          33
          -

        
          

        

      

      
        
        

      

    

    Exhibit
      C

     

    See
      attachment to Subscription Agreement.

     

    
      
        
        

      

      
        -
          34
          -

        
          

        

      

      
        
        

      

    

    Appendix
      I

    

    INVESTOR
      QUESTIONNAIRE

    

    See
      attachment to Subscription Agreement. 

    

    
      
        
        

      

      
        -
          35
          -Unassociated Document

     

    REGISTRATION
      RIGHTS AGREEMENT

     

    This
      Registration Rights Agreement (this “Agreement”)
      is
      entered into as of June 30, 2006 by and among Protalex, Inc., a Delaware
      corporation (the “Company”),
      those
      investors who have entered into that certain Purchase Agreement (defined below)
      who are also identified on Schedule I attached hereto (the “Investors”)
      and
      the Placement Agents (as identified in Schedule 3.9 to the Purchase Agreement)
      with reference to the following facts:

     

    WHEREAS,
      the Investors and the Company have entered into a Warrant and Common Stock
      Purchase Agreement (the “Purchase
      Agreement”)
      of
      even date with this Agreement; and

     

    WHEREAS,
      to induce the Investors to enter into the Purchase Agreement, the Company has
      agreed to grant certain rights to the Investors as reflected in this
      Agreement.

     

    NOW
      THEREFORE, in consideration of the mutual promises and covenants contained
      herein, and other good and valuable consideration, the receipt of which is
      hereby acknowledged, the parties agree as follows:

     

    1. Certain
      Definitions.
      As used
      in this Agreement, the following terms shall have the following respective
      meanings. All terms not otherwise defined in this Agreement shall have the
      meaning set forth in the Purchase Agreement.

     

    1.1 “Effectiveness
      Date”
means,
      with respect to the initial Registration Statement required to be filed
      hereunder, the 120th
      calendar
      day following the date hereof and, with respect to any additional Registration
      Statements which may be required pursuant to Section 2.3, the 90th
      calendar
      day following the date on which the Company first knows, or reasonably should
      have known, that such additional Registration Statement is required hereunder;
      provided,
      however,
      in the
      event the Company is notified by the Securities and Exchange Commission (“SEC”)
      that one of the above Registration Statements will not be reviewed or is no
      longer subject to further review and comments, the Effectiveness Date as to
      such
      Registration Statement shall be the fifth Trading Day following the date on
      which the Company is so notified if such date precedes the dates required
      above.

     

    1.2 “Filing
      Date”
      means,
      with respect to the initial Registration Statement required hereunder, the
      30th
      calendar
      day following the date hereof and, with respect to any additional Registration
      Statements which may be required pursuant to Section 2.3, the 30th
      day
      following the date on which the Company first knows, or reasonably should have
      known that such additional Registration Statement is required
      hereunder.

     

    1.3 “Holder”
or
      “Holders”
      shall
      mean the Investors and the Placement Agents holding Registrable Securities
      or
      securities exercisable into Registrable Securities and any Person holding such
      securities to whom rights under this Agreement have been transferred in
      accordance with Section 2.10 hereof.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    1.4 “Prospectus”
      means
      the prospectus included in a Registration Statement (including, without
      limitation, a prospectus that includes any information previously omitted from
      a
      prospectus filed as part of an effective registration statement in reliance
      upon
      Rule 430A promulgated under the Securities Act), as amended or supplemented
      by
      any prospectus supplement, with respect to the terms of the offering of any
      portion of the Registrable Securities covered by a Registration Statement,
      and
      all other amendments and supplements to the Prospectus, including post-effective
      amendments, and all material incorporated by reference or deemed to be
      incorporated by reference in such Prospectus.

     

    1.5 “Registrable
      Securities”
means
      (1) the Shares and the Warrant Shares (including any additional shares
      issuable in connection with any anti-dilution provisions in the Warrants)
      (without giving effect to any limitations on exercise set forth in the Warrant)
      and (2) any Common Stock of the Company issued as (or issuable upon the
      conversion or exercise of any warrant, right or other security which is issued
      as) a dividend or other distribution with respect to, or in exchange for or
      in
      replacement of, the Shares or Warrant Shares, excluding in all cases, however,
      (i) any Registrable Securities sold by a Person in a transaction in which
      such Person’s rights under this Agreement are not assigned, or (ii) any
      Registrable Securities sold pursuant to a Registration Statement or Rule 144
      or
      (iii) any Registrable Securities that may be sold without restriction under
      Rule
      144(k)(or successor rule).

     

    1.6 The
      terms
“register,”
      “registered”
and
      “registration”
refer
      to a registration effected by preparing and filing a registration statement
      in
      compliance with the Securities Act, and the declaration or ordering of the
      effectiveness of such registration statement. 

     

    1.7 “Registration
      Expenses”
shall
      mean all expenses, except Selling Expenses as defined below, incurred by the
      Company in complying with the registration obligations under this Agreement,
      including, without limitation, all registration, qualification and filing fees,
      printing expenses, escrow fees, fees and disbursements of counsel for the
      Company, blue sky fees, trading market fees and expenses, the expense of any
      special audits incident to or required by any such registration (but excluding
      the compensation of regular employees of the Company which shall be paid in
      any
      event by the Company).

     

    1.8 “Registration
      Statement”
shall
      mean a registration statement of the Company, on Form S-3, or if the
      Company is ineligible to use Form S-3, on Form SB-2 (or successor
      forms) filed by the Company with the SEC pursuant to this Agreement permitting
      registration of the Registrable Securities for resale by the respective Holders
      thereof and any additional registration statements contemplated by Section
      2.3,
      including (in each case) the Prospectus, amendments and supplements to such
      registration statement or Prospectus, including pre- and post-effective
      amendments, all exhibits thereto, and all material incorporated by reference
      or
      deemed to be incorporated by reference in such registration
      statement.

     

    1.9 “Selling
      Expenses”
shall
      mean all underwriting discounts, selling commissions and stock transfer taxes,
      if any, applicable to the securities registered by the Holders.

     

    
      
        
        

      

      
        -
          2 -

        
          

        

      

      
        
        

      

    

    1.10 “Rule
      424”
      means
      Rule 424 promulgated by the SEC 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 SEC having substantially the same purpose and effect as such
      Rule.

     

    2. Registration
      Rights.

     

    2.1 Required
      Registration.
      The
      Company shall file with the SEC and any applicable state securities authorities
      on or before the Filing Date, and use its best efforts to cause to be declared
      effective by the SEC on or before the Effectiveness Date, a Registration
      Statement in order to register the Registrable Securities for resale and
      distribution under the Securities Act. The Registration Statement shall contain
      substantially the Plan of Distribution attached hereto as Exhibit A.
      The
      Company shall use its best efforts to cause a Registration Statement to be
      declared effective under the Securities Act as promptly as possible after the
      filing thereof, but in any event prior to the applicable Effectiveness Date.
      The
      Company shall maintain the effectiveness of the Registration Statement with
      respect to a Holder until such time as all remaining Registrable Securities
      held
      by such Holder (assuming cashless exercise of the Warrant Shares) may be sold
      without restriction under Rule 144(k) (or successor rule) (the
“Effectiveness
      Period”).
      The
      Company shall telephonically request effectiveness of a Registration Statement
      as of 5:00 pm Eastern Time on a Trading Day. The Company shall immediately
      notify the Holders via facsimile or e-mail of the effectiveness of a
      Registration Statement on the same Trading Day that the Company telephonically
      confirms effectiveness with the SEC, which shall be the date requested for
      effectiveness of a Registration Statement. The Company shall, by 9:30 am Eastern
      Time on the Trading Day after the Effective Date (as defined in the Purchase
      Agreement), file a final Prospectus with the SEC as required by Rule
      424.

     

    2.2 Partial
      liquidated damages.

     

    (a) If
      the
      Registration Statement is not filed with the SEC on or before the Filing Date
      (a
“Filing
      Default”),
      the
      Company shall pay partial liquidated damages to each Holder, from and including
      the day that the day following such Filing Default until the date that the
      Registration Statement is filed with the SEC, at a rate per month (or portion
      thereof) equal to 0.50% of the total purchase price of the Shares purchased
      by
      such Holder pursuant to the Purchase Agreement (the “Default
      Rate”).

     

    (b) If
      prior
      to its Effectiveness Date, the Company fails to file a pre-effective amendment
      and otherwise respond in writing to comments made by the SEC in respect of
      such
      Registration Statement within 30 calendar days after the receipt of comments
      by
      or notice from the SEC that such amendment is required in order for a
      Registration Statement to be declared effective (“Prefiling
      Default”),
      the
      Company shall pay partial liquidated damages to each Holder, from and including
      the day following such Prefiling Default until such filing is made with the
      SEC.

     

    (c) If
      the
      Registration Statement is not declared effective by the SEC on or before the
      Effectiveness Date (a “Registration
      Default”),
      the
      Company shall pay partial liquidated damages to each Holder, from and including
      the day following such Registration Default until the earlier of (i) the
      time that the Registration Statement is declared effective by the SEC, or
      (ii) the time that the Effectiveness Period expires, at the Default Rate.

     

    
      
        
        

      

      
        -
          3 -

        
          

        

      

      
        
        

      

    

    (d) In
      the
      event that the Company exercises its right pursuant to Section 2.7 to
      suspend the availability of the Registration Statement for a period exceeding
      the maximum number of days specified therein for the applicable Suspension
      Period (a “Suspension
      Default”),
      the
      Company shall pay partial liquidated damages to each Holder, from and including
      the day following such Suspension Default until such time as the Company
      delivers the Advice (as defined in Section 2.7) to the Holders described in
      Section 2.7, at the Default Rate. 

     

    (e) In
      the
      event that the Registration Statement ceases to be effective or available for
      use by the Holders for a period in excess of sixty (60) days in any single
      instance or ninety (90) days in the aggregate during any 12-month period (an
      “Effectiveness
      Default”),
      the
      Company shall pay partial liquidated damages to each Holder, from and including
      the day following such Effectiveness Default until such time as the Registration
      Statement is again effective and available for use by the Holders, at the
      Default Rate.

     

    (f) The
      Company’s obligation to pay partial liquidated damages pursuant to this
      Section 2.2 shall accrue and be discharged on a monthly basis on the last
      Trading of each such month. If the Company fails to pay any partial liquidated
      damages pursuant to this Section in full within seven days after the date
      payable, the Company will pay interest thereon at a rate of 18% per annum (or
      such lesser maximum amount that is permitted to be paid by applicable law)
      to
      the Holder, accruing daily from the date such partial liquidated damages are
      due
      until such amounts, plus all such interest thereon, are paid in full. The
      partial liquidated damages pursuant to the terms hereof shall apply on a daily
      pro-rata basis for any portion of a month prior to the cure of a
      default.

     

    (g) In
      no
      event, however, shall the Company be required to pay partial liquidated damages
      in the aggregate under this Section 2 in excess of 10.0% of the total purchase
      price of the Shares purchased by such Holder pursuant to the Purchase
      Agreement.

     

    2.3 Additional
      Registration Rights.
      If
      during the Effectiveness Period, the number of Registrable Securities at any
      time exceeds 95% of the number of shares of Common Stock then registered in
      a
      Registration Statement, then the Company shall file as soon as reasonably
      practicable but in any case prior to the applicable Filing Date, an additional
      Registration Statement covering the resale by the Holders of not less than
      110%
      of the number of such Registrable Securities. The Default Rates set forth in
      Section 2.2 shall apply to any Registration Statement required to be filed
      hereunder. Notwithstanding the foregoing, the Company shall have no obligation
      to file a Registration Statement pursuant to this Section 2.3 if the SEC advises
      the Company, orally or in writing, that filing the Registration Statement
      pursuant to this Section 2.3 is not permitted by law or the rules and
      regulations of the SEC, provided that the Company shall have used, and shall
      continue to use, commercially reasonable efforts to overcome the SEC’s
      position.

     

    
      
        
        

      

      
        -
          4 -

        
          

        

      

      
        
        

      

    

    2.4 Piggyback
      Registration Rights.

     

    (a) If
      at any
      time or from time to time the Company shall determine to register any of its
      securities, either for its own account or the account of any stockholder, other
      than (i) a registration relating solely to employee benefit plans,
      (ii) a registration relating solely to a SEC Rule 145 transaction,
      (iii) the registration pursuant to Section 2.1 hereof or (iv) a demand
      registration by the Company’s stockholders pursuant to (A) that certain Investor
      Rights Agreement dated September 18, 2003 or (B) that certain Registration
      Rights Agreement dated May 25, 2005 or (C) that certain December 22, 2005
      Registration Rights Agreement (collectively, the “Registration Agreements”), the
      Company will:

     

    (i) promptly
      give to each Holder written notice thereof and of each such Holder’s rights
      under this Section 2.4; and

     

    (ii) use
      its
      commercially reasonable efforts to include in such registration (and any related
      qualification under blue sky laws or other compliance), and in any underwriting
      involved therein, all the Registrable Securities specified in a written request
      or requests, made within ten (10) days after receipt of such written notice
      from
      the Company, by any Holder, subject to Section 2.4(b) hereof.

     

    (b) If
      the
      registration of which the Company gives notice is for a registered public
      offering involving an underwriting, the Company shall so advise the Holders
      as a
      part of the written notice given pursuant to Section 2.4(a)(i). In such
      event the right of any Holder to registration pursuant to Section 2.4 shall
      be conditioned upon such Holder’s participation in such underwriting and the
      inclusion of Registrable Securities in the underwriting to the extent provided
      herein. All Holders proposing to distribute their securities through such
      underwriting shall (together with the Company) enter into an underwriting
      agreement in customary form with the managing underwriter selected for such
      underwriting by the Company. Notwithstanding any other provision of this
      Section 2.4, if the Company registration pursuant to this Section 2.4
      involves an underwritten offering and the managing underwriter advises the
      Company in writing that marketing factors require a limitation of the number
      of
      shares to be underwritten, the managing underwriter may limit the Registrable
      Securities and other securities to be distributed through such underwriting,
      provided, that the Company shall include in such registration
      (a) first,
      one
      hundred percent (100%) of the securities the Company proposes to sell, and
      (b) second,
      the
      amount of Registrable Securities which the Holders have requested to be included
      in such registration, such amount to be allocated pro rata among all requesting
      Holders on the basis of the relative amount of Registrable Securities then
      held
      by each such Holder together with other holders of rights similar to those
      granted in this Section 2.4 on a pari
      passu
      basis;
      provided, further, in the case of Clause (b), in no event shall the number
      of
      Registrable Securities to be included in such offering be less than twenty
      percent (20%) of the total number of securities to be included in such offering.
      The Company shall so advise all Holders distributing their securities through
      such underwriting of such limitation, and the number of shares of Registrable
      Securities that may be included in the registration and underwriting shall
      be
      allocated among all Holders in proportion, as nearly as practicable, to the
      respective amounts of Registrable Securities held by such Holders at the time
      of
      filing the registration statement or in such other manner as shall be agreed
      to
      by the Company and Holders of a majority in interest of the Registrable
      Securities proposed to be included in such registration. To facilitate the
      allocation of shares in accordance with the above provisions, the Company may
      round the number of shares allocated to any Holder or other selling stockholder
      to the nearest one hundred (100) shares. If any Holder disapproves of the terms
      of any such underwriting, such Holder or selling stockholder may elect to
      withdraw therefrom by written notice to the Company and the managing
      underwriter. Further, any Holder requesting to be included in such registration
      may elect, in writing prior to the effective date of the registration statement
      filed in connection with such registration to withdraw therefrom. In addition,
      the registrations provided for in this Section 2.4 are in addition to, and
      not in lieu of the registrations made on behalf of the Holders as described
      elsewhere in this Section 2.

     

    
      
        
        

      

      
        -
          5 -

        
          

        

      

      
        
        

      

    

    (c) The
      Company shall have the right to terminate or withdraw any registration initiated
      by it under this Section 2.4 prior to the effectiveness of such registration
      whether or not any Holder has elected to include securities in such
      registration. The Registration Expenses of such withdrawn registration shall
      be
      borne by the Company in accordance with Section 2.5 hereof. 

     

    (d) Notwithstanding
      the above, this Section 2.4 shall not apply to registrations of the Company’s
      securities which are not underwritten public offerings (x) when the Registrable
      Securities are covered by an effective Registration Statement or (y) where
      with
      respect to any Holder all of such Holder’s Registrable Securities (assuming
      cashless exercise of the Warrant Shares) may be sold without restriction under
      Rule 144(k) (or successor rule).

     

    2.5 Expenses
      of Registration.
      All
      Registration Expenses incurred in connection with registrations pursuant to
      this
      Agreement shall be borne by the Company. All Selling Expenses shall be borne
      by
      the Persons holding securities included in such registration pro rata on the
      basis of the number of shares so registered.

     

    2.6 Registration
      Procedures.
      In the
      case of each registration, qualification or compliance effected by the Company
      pursuant to this Section 2, the Company will keep each Holder advised in
      writing as to the initiation of each registration, qualification and compliance
      and as to the completion thereof. The Company will use its best efforts to:
      

     

    (a) Not
      less
      than three Trading Days prior to the filing of each Registration Statement
      and
      not less than 1 Trading Day prior to the filing of any related Prospectus or
      any
      amendment or supplement thereto (including any document that would be
      incorporated or deemed to be incorporated therein by reference), the Company
      shall, (i) furnish to each Holder copies of all such documents proposed to
      be
      filed, which documents (other than those incorporated or deemed to be
      incorporated by reference) will be subject to the review of such Holders, and
      (ii) cause its officers and directors, counsel and independent certified public
      accountants to respond to such inquiries as shall be necessary, in the
      reasonable opinion of respective counsel to each Holder to conduct a reasonable
      investigation within the meaning of the Securities Act. The Company shall not
      file a Registration Statement or any such Prospectus or any amendments or
      supplements thereto to which the Holders of a majority of the Registrable
      Securities shall reasonably object in good faith, provided that, the Company
      is
      notified of such objection in writing no later than 3 Trading Days after the
      Holders have been so furnished copies of a Registration Statement or 1 Trading
      Day after the Holders have been so furnished copies of any related Prospectus
      or
      amendment or supplement thereto and so long as the Filing Date or Effectiveness
      Date, as the case may be, shall be extended for the period of time that such
      Holders object to the Company’s filing of the applicable document, provided that
      the Company shall use commercially reasonable efforts to remedy the Purchasers’
objection and file the Registration Statement as soon as reasonably possible
      thereafter.

     

    
      
        
        

      

      
        -
          6 -

        
          

        

      

      
        
        

      

    

    (b) if
      the
      Company becomes eligible to file a Registration Statement on Form S-3 (the
      date on which the Company becomes so eligible, the “S-3 Eligibility Date”), then
      (A) cause each Registration Statement first filed after the S-3 Eligibility
      Date to be on Form S-3 and (B) with respect to each Registration
      Statement filed on Form SB-2 (or such other form as does not permit
      incorporation by reference, if applicable) prior to the S-3 Eligibility Date
      where the period of obligation to maintain the effectiveness of such
      Registration Statement would in the reasonable judgment of the Company exceed
      three (3) months, cause to be promptly (but in any event not more than 30 days
      after such date) filed a Registration Statement on Form S-3 to replace each
      such Registration Statement on Form SB-2 and cause such Registration
      Statement on Form S-3 to be declared effective by the SEC as soon as
      possible after filing, thereafter to cause to be filed a post-effective
      amendment to each Registration Statement on Form SB-2 to de-register unsold
      shares under such Registration Statement unless this provision 2.5(a) is waived
      in writing by the unanimous written consent of the Board of Directors;
provided,
      however,
      that no
      fewer than three (3) business days before filing a Registration Statement or
      related prospectus or any amendment or supplement thereto in accordance with
      Section 2 hereof, the Company shall furnish to counsel for the Holders
      copies of all documents proposed to be filed, which documents be subject to
      review by such counsel;

     

    (c) prepare
      and file with the SEC such amendments and supplements to such Registration
      Statement (including any Exchange Act documents incorporated by reference into
      such Registration Statement) and the prospectus used in connection with such
      Registration Statement as may be necessary to keep such Registration Statement
      continuously effective as required herein and to comply with the provisions
      of
      the Securities Act with respect to the disposition of all securities covered
      by
      such registration statement, including, but not limited to, with respect to
      each
      Registration Statement on Form SB-2 (or other such form that does not
      permit incorporation by reference, if applicable), cause a post-effective
      amendment (or prospectus supplement) to be filed as may be necessary with the
      SEC within twenty (20) days after each date on which the Company files its
      Annual Report on Form 10-KSB (or similar form), and in the case of a
      post-effective amendment, cause such post-effective amendment to be declared
      effective by the SEC as soon as possible after filing;

     

    
      
        
        

      

      
        -
          7 -

        
          

        

      

      
        
        

      

    

    (d) furnish
      to the Holders participating in such registration and to the underwriters of
      the
      securities being registered, if any, such reasonable number of copies of the
      registration statement, preliminary prospectus, final prospectus, in conformity
      with the requirements of the Securities Act, and such other documents they
      may
      reasonably request in order to facilitate the disposition of Registrable
      Securities by them;

     

    (e) prior
      to
      the Effectiveness Date, register and qualify the securities covered by such
      registration statement under such other securities or Blue Sky laws of such
      jurisdictions as shall be reasonably requested by the Holders and do any and
      all
      other acts and things which may be reasonably necessary or advisable to enable
      the Holders and each underwriter, if any, to consummate the disposition of
      the
      Registrable Securities in such states; 

     

    (f) in
      the
      event of any underwritten public offering, enter into and perform its
      obligations under an underwriting agreement, in usual and customary form, with
      the managing underwriter of such offering;

     

    (g) cause
      all
      Registrable Securities to be quoted on the Nasdaq Stock Market Over-the-Counter
      Bulletin Board (the “OTCBB”),
      or
      such other securities exchange on which similar securities issued by the Company
      are then listed, and comply with all requirements of the OTCBB or such other
      securities exchange, as applicable, with regards to the issuance of the shares
      and the listing thereof;

     

    (h) as
      promptly as possible, but in no event later than 1 Trading Day thereafter,
      give
      notice to each Holder and counsel for the Holders, (i) when any prospectus,
      prospectus supplement, Registration Statement or post-effective amendment to
      the
      Registration Statement has been filed with the SEC and, with respect to the
      Registration Statement or any post-effective amendment, when the same has been
      declared effective, (ii) of the receipt of any comments from the SEC,
      (iii) of any request by the SEC or any other federal or state governmental
      authority to amend or supplement the Registration Statement or amend or
      supplement the prospectus or for additional information; (iv) of the
      issuance by the SEC or any other federal or state governmental authority of
      any
      stop order suspending the effectiveness of the Registration Statement or the
      initiation or written threat of any proceedings for that purpose, (v) of the
      receipt by the Company of any notification with respect to the suspension of
      the
      qualification or exemption from qualification of any of the Registrable
      Securities for sale in any jurisdiction or the initiation or the written threat
      of any proceeding for such purpose or (vi) the necessity of any changes in
      the Registration Statement or prospectus, or any document incorporated or deemed
      to be incorporated therein by reference, so that, in the case of the
      Registration Statement, it will not contain any untrue statement of a material
      fact or any omission to state a material fact required to be stated therein
      or
      necessary to make the statements therein not misleading, and that in the case
      of
      the prospectus, it will not contain any untrue statement of a material fact
      or
      any omission to state a material fact required to be stated therein or necessary
      to make the statements therein, in the light of the circumstances under which
      they were made, not misleading which notice in the case of (iii) through (vi)
      above (each a “Required
      Notice”)
      may,
      at the discretion of the Company, state that it constitutes a Suspension Notice
      (as defined below) in which case the provisions of Section 2.7 shall
      apply;

     

    
      
        
        

      

      
        -
          8 -

        
          

        

      

      
        
        

      

    

    (i) if
      any
      Registration Statement required pursuant to this Section 2 ceases to be
      effective for any reason at any time (other than because all Registrable
      Securities registered thereunder shall have been resold pursuant thereto or
      shall have otherwise ceased to be Registrable Securities), use its best efforts
      to obtain the prompt withdrawal of any order suspending the effectiveness
      thereof, and in any event shall as promptly as reasonably practicable amend
      such
      Registration Statement in a manner reasonably expected to obtain the withdrawal
      of the order suspending the effectiveness thereof;

     

    (j) supplement
      and amend any Registration Statement required pursuant to this Section 2 if
      required by the rules, regulations or instructions applicable to the
      registration form used by the Company for such Registration Statement, if
      required by the Securities Act;

     

    (k) obtain
      the withdrawal of any order or the lifting of any suspension of the
      qualification (or exemption from qualification) of any of the Registrable
      Securities for sale in any jurisdiction in which they have been qualified for
      sale and provide reasonably prompt notice to each Holder and counsel for the
      Holders of the withdrawal of any such order;

     

    (l) incorporate
      in a prospectus supplement to the Registration Statement or post-effective
      amendment to the Registration Statement such information as the Holders of
      the
      majority in interest of the Registrable Securities (other than information
      specific to a Holder which shall be at the discretion of the Holder provided
      that the Holder and its Registrable Securities may be excluded if such
      information is not provided by the Holder provided further that upon receipt
      of
      such information by the Company, the Company shall use commercially reasonable
      efforts to include such Holders Registrable Securities on the Registration
      Statement, or, if not then possible, on any subsequent registration statements)
      and counsel for the Holders shall determine to be required to be included
      therein by applicable law and make any required filings of such prospectus
      supplement or post-effective amendment;

     

    
      
        
        

      

      
        -
          9 -

        
          

        

      

      
        
        

      

    

    (m) provide
      a
      transfer agent and registrar for all Registrable Securities registered pursuant
      hereunder and a CUSP number for all such Registrable Securities, in each case
      not later than the effective date of such registration;

     

    (n) cooperate
      with the Holders to facilitate the timely preparation and delivery of
      certificates representing Registrable Securities sold or to be sold pursuant
      to
      the Registration Statement, which certificates shall not bear any restrictive
      legends, and use reasonable efforts to cause such Registrable Securities to
      be
      in such denominations and registered in such names as the applicable Holder
      or
      Holders may request in writing at least one (1) trading day prior to any
      sale of such Registrable Securities;

     

    (o) upon
      request by a majority-in-interest of the Registrable Securities, make reasonably
      available for inspection during normal business hours by a representative for
      any Holder, and any broker-dealers, counsel for the Holders, accountants or
      underwriter, all relevant financial and other records and pertinent corporate
      documents and properties of the Company and its subsidiaries, and cause the
      appropriate officers, directors and employees of the Company and its
      subsidiaries to make reasonably available for inspection during normal business
      hours on reasonable notice all relevant information reasonably requested by
      such
      representative for a Holder, or any such broker-dealers, counsel for a Holder,
      accountants or underwriter in connection with such disposition, in each case
      as
      is customary for similar “due diligence” examinations; provided, however, that
      each Holder (and its respective agents and representatives) shall hold in
      confidence and shall not make any disclosure (except to another Holder) of
      any
      such information, unless (i) disclosure of such information is necessary to
      comply with federal or state securities laws, (ii) disclosure of such
      information is necessary to avoid or to correct a misstatement or omission
      in
      any Registration Statement, (iii) release of such information is ordered
      pursuant to a subpoena or other order from a court or government body of
      competent jurisdiction, (iv) such information has been made generally
      available to the public other than by disclosure in violation of this or any
      other agreement, or (v) the Company consents to any such disclosure.
      Nothing herein shall be deemed to limit the Holder’s ability to sell Registrable
      Securities in a manner which is otherwise consistent with applicable laws and
      regulations;

     

    (p) as
      promptly as possible notify each Holder covered by such registration statement
      at any time when a prospectus relating thereto is required to be delivered
      under
      the Securities Act of the happening of any event as a result of which the
      prospectus included in such registration statement, as then in effect, includes
      an untrue statement of a material fact or omits to state a material fact
      required to be stated therein or necessary to make the statements therein not
      misleading in the light of the circumstances then existing and at the request
      of
      any such Holder, prepare and furnish to such Holder a reasonable number copies
      of an amended or supplemental prospectus as may be necessary so that, as
      thereafter delivered to the purchasers of such Registrable Securities such
      prospectus shall not include an untrue statement of a material fact or omit
      to
      state a material fact required to be stated therein or necessary to make the
      statements therein not misleading in light of the circumstances then
      existing;

     

    
      
        
        

      

      
        -
          10 -

        
          

        

      

      
        
        

      

    

    (q) comply
      with all applicable rules and regulations of the SEC and make generally
      available to its securityholders earning statements (which need not be audited)
      satisfying the provisions of Section 1l(a) of the Securities Act and
      Rule 158 thereunder (or any similar rule promulgated under the Securities
      Act); and 

     

    (r) furnish,
      at the request of any Holder requesting registration of Registrable Securities
      pursuant to this Section 2, on the closing date of any such underwritten
      public offering, (i) an opinion, dated such date, of the counsel
      representing the Company for the purposes of such registration, in form and
      substance as is customarily given to underwriters in an underwritten public
      offering, addressed to the underwriters and to the Holders requesting
      registration of Registrable Securities and (ii) a letter dated such date,
      from the independent certified public accountants of the Company, in form and
      substance as is customarily given by independent certified public accountants
      to
      underwriters in an underwritten public offering, addressed to the underwriters,
      and to the Holders requesting registration of Registrable
      Securities.

     

    (s) If
      NASDR
      Rule 2710 requires any broker-dealer to make a filing prior to executing a
      sale
      by a Holder, the Company shall (i) make an Issuer Filing with the NASDR, Inc.
      Corporate Financing Department pursuant to proposed NASDR Rule
      2710(b)(10)(A)(i), (ii) use its best efforts to respond within five Trading
      Days
      to any comments received from NASDR in connection therewith, and (iii) pay
      the
      filing fee required in connection therewith.

     

    2.7 Deferral.
      The
      right of the Holders to use the Registration Statement (and the prospectus
      relating thereto) shall be suspended for a period or periods (the “Suspension
      Period”)
      of not
      more than thirty (30) days in any single instance and not more than sixty (60)
      days in the aggregate during any twelve (12) month period after delivery by
      the
      Company to the Holders of (i) a Required Notice; or (ii) a certificate
      signed by the President or Chief Executive Officer of the Company certifying
      that the Board has made the good-faith determination (A) that continued use
      by the Holders of the Registration Statement for purposes of effecting offers
      or
      sales of Registrable Shares pursuant thereto would require, under the Securities
      Act, premature disclosure in the Registration Statement or prospectus of
      material, nonpublic information concerning the Company, its business or
      prospects or any proposed material transaction involving the Company,
      (B) that such premature disclosure would be materially adverse to the
      Company, its business or prospects or any such proposed material transaction
      or
      would make the successful consummation by the Company of any such material
      transaction significantly less likely and (C) that it is therefore
      essential to suspend the use by the Holders of such Registration Statement
      and
      prospectus for purposes of effecting offers or sales of Registrable Shares
      pursuant thereto. A Required Notice and the certificate described in subsection
      (ii) above are each referred to herein as a “Suspension
      Notice.”
Upon
      receipt of a Suspension Notice, each Holder agrees not to sell any Registrable
      Securities pursuant to the Registration Statement until such Holder is advised
      in writing by the Company that the Registration Statement and related prospectus
      may be used, and has received copies of any additional or supplemental filings
      that are incorporated or deemed incorporated by reference in such Registration
      Statement and related prospectus (the “Advice”).
      Each
      Holder shall keep the fact of any Suspension Notice delivered by the Company
      and
      its contents confidential. The
      Company agrees and acknowledges that any periods during which the Holder is
      required to discontinue the disposition of the Registrable Securities hereunder
      beyond the Suspension Period shall be subject to the provisions of Section
      2.2.

     

    
      
        
        

      

      
        -
          11 -

        
          

        

      

      
        
        

      

    

    2.8 Indemnification.

     

    (a) The
      Company will indemnify each Holder, each of its officers, directors, members,
      partners, agents, brokers, investment advisors, employees and legal counsel
      (and
      any other Persons with a functionally equivalent role of a Person holding such
      titles, notwithstanding a lack of such title or any other title) and each Person
      controlling such Holder within the meaning of Section 15 of the Securities
      Act and the officers, directors, members, shareholders, partners, agents and
      employees (and any other Persons with a functionally equivalent role of a Person
      holding such titles, notwithstanding a lack of such title or any other title)
      of
      each such controlling Person (collectively, “Holder
      Party”),
      with
      respect to which registration, qualification or compliance has been effected
      pursuant to this Section 2, and each underwriter, if any, and each Person
      who controls any underwriter within the meaning of Section 15 of the
      Securities Act, against all expenses, claims, losses, damages or liabilities
      (or
      actions, proceedings or settlements in respect thereof), including any of the
      foregoing incurred in settlement of any litigation, commenced or threatened,
      arising out of or based on (i) any untrue statement (or alleged untrue
      statement) of a material fact contained in any registration statement,
      prospectus, offering circular or other document, or any amendment or supplement
      thereto, incident to any such registration, qualification or compliance, or
      based on any omission (or alleged omission) to state therein a material fact
      required to be stated therein or necessary to make the statements therein,
      in
      light of the circumstances in which they were made, not misleading, or (ii)
      any
      violation by the Company of the Securities Act or other applicable securities
      laws or any rule or regulation promulgated under the Securities Act or such
      other securities laws applicable to the Company in connection with any such
      registration, qualification or compliance, and the Company will reimburse each
      such Holder Party, each such underwriter and each Person who controls any such
      underwriter, for any legal and any other expenses reasonably incurred in
      connection with investigating, preparing, defending or settling any such claim,
      loss, damage, liability or action, provided that the Company will not be liable
      in any such case to the extent that any such claim, loss, damage, liability
      or
      expense arises out of or is based on any untrue statement or omission or alleged
      untrue statement or omission, made in reliance upon and in conformity with
      written information furnished to the Company by such Holder, controlling Person
      or underwriter and stated to be specifically for use therein.

     

    
      
        
        

      

      
        -
          12 -

        
          

        

      

      
        
        

      

    

    (b) Each
      Holder will, if Registrable Securities held by such Holder are included in
      the
      securities as to which such registration, qualification or compliance is being
      effected, severally (but not jointly) indemnify the Company, each of its
      directors, officers, and legal counsel, each underwriter, if any, of the
      Company’s securities covered by such a registration statement, each Person who
      controls the Company or such underwriter within the meaning of Section 15
      of the Securities Act, against all claims, losses, damages and liabilities
      (or
      actions in respect thereof), including reasonable attorneys fees, arising out
      of
      or based on (i) any untrue statement (or alleged untrue statement) of a material
      fact contained in any such registration statement, prospectus, offering circular
      or other document, or any omission (or alleged omission) to state therein a
      material fact required to be stated therein or necessary to make the statements
      therein not misleading (ii) such Holder’s failure to sell the Registrable
      Securities only pursuant to and in the manner contemplated by the Registration
      Statement, including the Plan of Distribution section contained therein, and
      otherwise in compliance with the prospectus delivery requirements of such Act
      or
      (iii) violations of the Securities Act arising solely from the Holder’s request
      to remove the legends from the Registrable Securities prior to a sale of the
      Registrable Securities pursuant to a Registration Statement, Rule 144 of the
      Securities Act, or any other exemption from registration under the Securities
      Act, and will reimburse the Company, such directors, officers, Persons,
      underwriters or control Persons for any legal or any other expenses reasonably
      incurred in connection with investigating or defending any such claim, loss,
      damage, liability or action, in each case to the extent, but only to the extent,
      that such untrue statement (or alleged untrue statement) or omission (or alleged
      omission) is made in such registration statement, prospectus, offering circular
      or other document in reliance upon and in conformity with written information
      furnished to the Company by such Holder and stated to be specifically for use
      therein; provided, however, that the obligations of such Holder hereunder shall
      not apply to amounts paid in settlement of any such claims, losses, damages,
      or
      liabilities (or actions in respect thereof) if such settlement is effected
      without the consent of such Holder (which consent shall not be unreasonably
      withheld); and provided that in no event shall the liability of any selling
      Holder hereunder be greater in amount than the dollar amount of the net proceeds
      received by such Holder upon the sale of the Registrable Securities giving
      rise
      to such indemnification obligation. Except for an underwritten public offering
      where the underwriters request specified indemnification of all participants,
      a
      Holder will not be required to enter into any agreement or undertaking in
      connection with any registration under this Section 2 providing for any
      indemnification or contribution on the part of such Holder greater than the
      Holder’s obligations under this Section 2.8(b).

     

    (c) Each
      party entitled to indemnification under this Section 2.8 (the “Indemnified
      Party”)
      shall
      give notice to the party required to provide indemnification (the “Indemnifying
      Party”)
      promptly after such Indemnified Party has actual knowledge of any claim as
      to
      which indemnity may be sought, and shall permit the Indemnifying Party to assume
      the defense of any such claim or any litigation resulting therefrom, provided
      that counsel for the Indemnifying Party, who shall conduct the defense of such
      claim or litigation, shall be approved by the Indemnified Party (whose approval
      shall not unreasonably be withheld), and the Indemnified Party may participate
      in such defense at such party’s expense, and provided further that the failure
      of any Indemnified Party to give notice as provided herein shall not relieve
      the
      Indemnifying Party of its obligations under this Section 2.8 unless the
      failure to give such notice is materially prejudicial to an Indemnifying Party’s
      ability to defend such action and provided further, that the Indemnifying Party
      shall not assume the defense for matters as to which there is a conflict of
      interest or separate and different defenses but shall bear the expense of such
      defense nevertheless. No Indemnifying Party, in the defense of any such claim
      or
      litigation, shall, except with the consent of each Indemnified Party, consent
      to
      entry of any judgment or enter into any settlement which does not include as
      an
      unconditional term thereof the giving by the claimant or plaintiff to such
      Indemnified Party of a release from all liability in respect to such claim
      or
      litigation.

     

    
      
        
        

      

      
        -
          13 -

        
          

        

      

      
        
        

      

    

    (d) If
      the
      indemnification provided for in this Section 2.8 is held by a court of
      competent jurisdiction to be unavailable to an Indemnified Party with respect
      to
      any loss, liability, claim, damage or expense referred to herein, then the
      Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder,
      shall contribute to the amount paid or payable by such Indemnified Party as
      a
      result of such loss, liability, claim, damage or expense in such proportion
      as
      is appropriate to reflect the relative fault of the indemnifying party on the
      one hand and of the Indemnified Party on the other in connection with the
      statements or omissions that resulted in such loss, liability, claim, damage
      or
      expense, as well as any other relevant equitable considerations. The relative
      fault of the Indemnifying Party and of the Indemnified Party shall be determined
      by reference to, among other things, whether the untrue or alleged untrue
      statement of a material fact or the omission to state a material fact relates
      to
      information supplied by the Indemnifying Party or by the Indemnified Party
      and
      the parties’ relative intent, knowledge, access to information, and opportunity
      to correct or prevent such statement or omission. Notwithstanding the provisions
      of this Section 2.8(d), no Holder shall be required to contribute, in the
      aggregate, any amount in excess of the amount by which the net proceeds actually
      received by such Holder from the sale of the Registrable Securities subject
      to
      the Proceeding exceeds the amount of any damages that such Holder has otherwise
      been required to pay by reason of such untrue or alleged untrue statement or
      omission or alleged omission.

     

    (e) Notwithstanding
      the foregoing, to the extent that the provisions on indemnification and
      contribution contained in the underwriting agreement as to any underwriters
      only
      and not the Holders entered into in connection with the underwritten public
      offering are in conflict with the foregoing provisions, the provisions in the
      underwriting agreement shall control.

     

    (f) The
      obligations of the Company and Holders under this Section 2.8 shall survive
      the completion of any offering of Registrable Securities in a registration
      statement under this Section 2, and otherwise.

     

    2.9 Rule 144
      Reporting.
      With a
      view to making available the benefits of certain rules and regulations of the
      SEC which may at any time permit the sale of the Shares and Warrant Shares
      to
      the public without registration, after such time as a public market exists
      for
      the Common Stock of the Company, the Company agrees to use its best efforts
      to:

     

    
      
        
        

      

      
        -
          14 -

        
          

        

      

      
        
        

      

    

    (a) Make
      and
      keep public information available, as those terms are understood and defined
      in
      Rule 144, at all times that the Company is subject to the reporting
      requirements of the Securities Act or the Securities Exchange Act of 1934,
      as
      amended;

     

    (b) File
      with
      the SEC in a timely manner all reports and other documents required of the
      Company under the Securities Act and the Securities Exchange Act of 1934, as
      amended (at any time after it has become subject to such reporting
      requirements); and

     

    (c) So
      long
      as a Holder owns any Shares or Warrant Shares to furnish to the Purchaser
      forthwith upon request a written statement by the Company as to its compliance
      with the reporting requirements of Rule 144 (at any time after ninety (90)
      days after the effective date of the first registration statement filed by
      the
      Company for an offering of its securities to the general public), and of the
      Securities Act and the Securities Exchange Act of 1934 (at any time after it
      has
      become subject to such reporting requirements), a copy of the most recent annual
      or quarterly report of the Company, and such other reports and documents of
      the
      Company and other information in the possession of or reasonably obtainable
      by
      the Company as a Purchaser may reasonably request in availing itself of any
      rule
      or regulation of the SEC allowing a Purchaser to sell any such securities
      without registration. The Company further covenants that it will take such
      further action as any holder of Securities may reasonably request, to the extent
      required from time to time to enable such Person to sell such Securities without
      registration under the Securities Act within the requirements of the exemption
      provided by Rule 144.

     

    2.10 Transfer
      of Registration Rights.
      None of
      the rights to cause the Company to register securities granted to Holders under
      this Agreement may be transferred or assigned by a Holder without the written
      consent of the Company (which consent may be withheld in its sole discretion)
      unless (i) the transferee is an Investor or an Affiliate of an Investor or
      (ii)
      such person is a Qualifying Holder (as defined below), and such person agrees
      to
      become a party to, and bound by, all of the terms and conditions of, this
      Agreement. For purposes of this Section 2.10, the term “Qualifying
      Holder”
shall
      mean, with respect to any Investor who has purchased no less than $250,000
      of
      Shares under the Purchase Agreement, (i) any partner or member thereof, (ii)
      any
      corporation, partnership or limited liability company controlling, controlled
      by, or under common control with, such Investor or any partner or member
      thereof, or (iii) any other direct transferee from such Investor of at least
      $250,000 of Registrable Securities (based on their original purchase price)
      or
      all Registrable Securities originally purchased by such Investor under the
      Purchase Agreement, whichever is less.

     

    2.11 No
      Inconsistent Agreements.
      The
      Company represents and warrants that it is not a party to, nor will it enter
      into, any agreements that (individually or in the aggregate) conflict with
      or
      limit or prohibit the exercise of the rights granted to the Holders in this
      Agreement.

    

    
      
        
        

      

      
        -
          15 -

        
          

        

      

      
        
        

      

    

    3. General
      Provisions.

    

    3.1 Amendment
      and Waiver.
      Any
      term of this Agreement may be amended or terminated and the observance of any
      term of this Agreement may be waived (either generally or in a particular
      instance and either retroactively or prospectively), only with the written
      consent of the Company and the Holders of a majority in interest of the
      Registrable Securities then outstanding, so long as such consenting Holders
      include each Holder that originally purchased no less than $2 million of Shares
      under the Purchase Agreement and at the time of such consent continues to hold
      no less than $250,000 of Shares originally purchased under the Purchase
      Agreement or exercisable under such Holder’s Warrant (or any combination
      thereof) (collectively, the “Holders
      Consent”).
      Notwithstanding the foregoing, a waiver or consent to depart from the provisions
      hereof with respect to a matter that relates exclusively to the rights of a
      Holder and that does not directly or indirectly affect the rights of other
      Holders may be given by such Holder to which such waiver or consent relates
      without the consent of the Holders of a majority in interest of the Registrable
      Securities and the Holders Consent; provided,
      however,
      that
      the provisions of this sentence may not be amended, modified, or supplemented
      except in accordance with the provisions of the immediately preceding
      sentence.

    

    3.2 Remedies.
      In the
      event of a breach by the Company or by a Holder, of any of their respective
      obligations under this Agreement, each Holder or the Company, as the case may
      be, in addition to being entitled to exercise all rights granted by law and
      under this Agreement, including recovery of damages, will be entitled to
      specific performance of its rights under this Agreement. The Company and each
      Holder agree that monetary damages would not provide adequate compensation
      for
      any losses incurred by reason of a breach by it of any of the provisions of
      this
      Agreement and hereby further agrees that, in the event of any action for
      specific performance in respect of such breach, it shall not assert or shall
      waive the defense that a remedy at law would be adequate.

     

    3.3 No
      Piggyback on Registrations.
      Except
      as set forth on Schedule
      3.3
      attached hereto, neither the Company nor any of its security holders (other
      than
      the Holders in such capacity pursuant hereto) may include securities of the
      Company in the initial Registration Statement other than the Registrable
      Securities. The Company shall not file any other registration statements until
      the initial Registration Statement required hereunder is declared effective
      by
      the Commission, provided that this Section 3.3 shall not prohibit the Company
      from filing amendments to registration statements already filed.

     

    3.4 No
      Inconsistent Agreements.
      The
      Company has not entered, as of the date hereof, nor shall the Company, on or
      after the date of this Agreement, enter into any agreement with respect to
      its
      securities, that would have the effect of impairing the rights granted to the
      Holders in this Agreement or otherwise conflicts with the provisions
      hereof.

     

    3.5 Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be determined in accordance with the provisions of
      the
      Purchase Agreement.

     

    3.6 Successors
      and Assigns.
      The
      provisions of this Agreement shall inure to the benefit of, and be binding
      upon,
      the successors, assigns, heirs, executors, and administrators of the parties.
      The Company may not assign its rights (except by merger) or obligations
      hereunder without the Holders Consent.

     

    
      
        
        

      

      
        -
          16 -

        
          

        

      

      
        
        

      

    

    3.7 Severability.
      Should
      any part or provision of this Agreement be held unenforceable or in conflict
      with the applicable laws or regulations of any jurisdiction, the invalid or
      unenforceable part or provisions shall be replaced with a provision which
      accomplishes, to the extent possible, the original business purpose of such
      part
      or provision in a valid and enforceable manner, and the remainder of this
      Agreement shall remain binding upon the parties hereto.

     

    3.8 Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be delivered as set forth in the Purchase
      Agreement.

     

    3.9 Counterparts.
      This
      Agreement may be executed in two or more counterparts, each of which shall
      be
      deemed an original and all of which together shall constitute one instrument;
      provided that a facsimile signature or by e-mail delivery of a “.pdf” format
      data file shall be considered due execution and shall be binding upon the
      signatory thereto with the same force and effect as if the signature were an
      original, not a facsimile signature.

     

    3.10 Titles
      and Subtitles.
      The
      titles and subtitles used in this Agreement are used for convenience only and
      are not to be considered in construing or interpreting this
      Agreement.

     

    3.11 Cumulative
      Remedies.
      The
      remedies provided herein are cumulative and not exclusive of any other remedies
      provided by law.

     

    3.12 Independent
      Nature of Holders’ Obligations and Rights.
      The
      obligations of each Holder hereunder are several and not joint with the
      obligations of any other Holder hereunder, and no Holder shall be responsible
      in
      any way for the performance of the obligations of any other Holder hereunder.
      Nothing contained herein or in any other agreement or document delivered at
      any
      closing, and no action taken by any Holder pursuant hereto or thereto, shall
      be
      deemed to constitute the Holders as a partnership, an association, a joint
      venture or any other kind of entity, or create a presumption that the Holders
      are in any way acting in concert with respect to such obligations or the
      transactions contemplated by this Agreement. Each Holder shall be entitled
      to
      protect and enforce its rights, including without limitation the rights arising
      out of this Agreement, and it shall not be necessary for any other Holder to
      be
      joined as an additional party in any proceeding for such purpose.

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK;

    SIGNATURE
      PAGE TO FOLLOW]

     

    
      
        
        

      

      
        -
          17 -

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, this Investor Rights Agreement has been executed as of the
      date
      first above written.

     

    COMPANY:

     

    PROTALEX,
      INC., a Delaware corporation

    145
      Union
      Square Drive

    New
      Hope,
      PA 18938

     

    
      
        	By:	_________________________________	
                 

              

      

    

    Steven
      H.
      Kane,

    President
      and Chief Executive Officer

    

    
      
        
        

      

      
        -
          1 -

        
          

        

      

      
        
        

      

    

    SCHEDULE A

     

    Investors

     

    
      
        
        

      

      
        -
          1
          -

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A

    Plan
      of Distribution

     

    Each
      Selling Stockholder (the “Selling
      Stockholders”)
      of the
      common stock and any of their pledgees, assignees and successors-in-interest
      may, from time to time, sell any or all of their shares of common stock on
      the
      [principal Trading Market] or any other stock exchange, market or trading
      facility on which the shares are traded or in private transactions. These sales
      may be at fixed or negotiated prices. A Selling Stockholder may use any one
      or
      more of the following methods when selling shares:

     

    
      	 	
              ·

            	
              ordinary
                brokerage transactions and transactions in which the broker-dealer
                solicits purchasers;

            

    

     

    
      	 	
              ·

            	
              block
                trades in which the broker-dealer will attempt to sell the shares
                as agent
                but may position and resell a portion of the block as principal to
                facilitate the transaction;

            

    

     

    
      	 	
              ·

            	
              purchases
                by a broker-dealer as principal and resale by the broker-dealer for
                its
                account;

            

    

     

    
      	 	
              ·

            	
              an
                exchange distribution in accordance with the rules of the applicable
                exchange;

            

    

     

    
      	 	
              ·

            	
              privately
                negotiated transactions;

            

    

     

    
      	 	
              ·

            	
              settlement
                of short sales entered into after the effective date of the registration
                statement of which this prospectus is a
                part;

            

    

     

    
      	 	
              ·

            	
              broker-dealers
                may agree with the Selling Stockholders to sell a specified number
                of such
                shares at a stipulated price per
                share;

            

    

     

    
      	 	
              ·

            	
              through
                the writing or settlement of options or other hedging transactions,
                whether through an options exchange or otherwise;
                

            

    

     

    
      	 	
              ·

            	
              a
                combination of any such methods of sale;
                or

            

    

     

    
      	 	
              ·

            	
              any
                other method permitted pursuant to applicable
                law.

            

    

     

    The
      Selling Stockholders may also sell shares under Rule 144 under the Securities
      Act of 1933, as amended (the “Securities
      Act”),
      if
      available, rather than under this prospectus.

     

    Broker-dealers
      engaged by the Selling Stockholders may arrange for other brokers-dealers to
      participate in sales. Broker-dealers may receive commissions or discounts from
      the Selling Stockholders (or, if any broker-dealer acts as agent for the
      purchaser of shares, from the purchaser) in amounts to be negotiated, but,
      except as set forth in a supplement to this Prospectus, in the case of an agency
      transaction not in excess of a customary brokerage commission in compliance
      with
      NASDR Rule 2440; and in the case of a principal transaction a markup or markdown
      in compliance with NASDR IM-2440. 

     

    
      
        
        

      

      
        -
          1 -

        
          

        

      

      
        
        

      

    

    In
      connection with the sale of the common stock or interests therein, the Selling
      Stockholders may enter into hedging transactions with broker-dealers or other
      financial institutions, which may in turn engage in short sales of the Common
      Stock in the course of hedging the positions they assume. The Selling
      Stockholders may also sell shares of the common stock short and deliver these
      securities to close out their short positions, or loan or pledge the common
      stock to broker-dealers that in turn may sell these securities. The Selling
      Stockholders may also enter into option or other transactions with
      broker-dealers or other financial institutions or the creation of one or more
      derivative securities which require the delivery to such broker-dealer or other
      financial institution of shares offered by this prospectus, which shares such
      broker-dealer or other financial institution may resell pursuant to this
      prospectus (as supplemented or amended to reflect such
      transaction).

     

    The
      Selling Stockholders and any broker-dealers or agents that are involved in
      selling the shares may be deemed to be “underwriters” within the meaning of the
      Securities Act in connection with such sales. In such event, any commissions
      received by such broker-dealers or agents and any profit on the resale of the
      shares purchased by them may be deemed to be underwriting commissions or
      discounts under the Securities Act. Each Selling Stockholder has informed the
      Company that it does not have any written or oral agreement or understanding,
      directly or indirectly, with any person to distribute the Common Stock. In
      no
      event shall any broker-dealer receive fees, commissions and markups which,
      in
      the aggregate, would exceed eight percent (8%).

     

    The
      Company is required to pay certain fees and expenses incurred by the Company
      incident to the registration of the shares. The Company has agreed to indemnify
      the Selling Stockholders against certain losses, claims, damages and
      liabilities, including liabilities under the Securities Act. 

     

    Because
      Selling Stockholders may be deemed to be “underwriters” within the meaning of
      the Securities Act, they will be subject to the prospectus delivery requirements
      of the Securities Act including Rule 172 thereunder. In addition, any securities
      covered by this prospectus which qualify for sale pursuant to Rule 144 under
      the
      Securities Act may be sold under Rule 144 rather than under this prospectus.
      There is no underwriter or coordinating broker acting in connection with the
      proposed sale of the resale shares by the Selling Stockholders.

     

    We
      agreed
      to keep this prospectus effective until the earlier of (i) the date on which
      the
      shares may be resold by the Selling Stockholders without registration and
      without regard to any volume limitations by reason of Rule 144(k) under the
      Securities Act or any other rule of similar effect (assuming cashless exercise
      of any Warrants issued the Selling Stockholders) or (ii) all of the shares
      have
      been sold pursuant to this prospectus or Rule 144 under the Securities Act
      or
      any other rule of similar effect. The resale shares will be sold only through
      registered or licensed brokers or dealers if required under applicable state
      securities laws. In addition, in certain states, the resale shares may not
      be
      sold unless they have been registered or qualified for sale in the applicable
      state or an exemption from the registration or qualification requirement is
      available and is complied with.

     

    
      
        
        

      

      
        -
          2 -

        
          

        

      

      
        
        

      

    

    Under
      applicable rules and regulations under the Exchange Act, any person engaged
      in
      the distribution of the resale shares may not simultaneously engage in market
      making activities with respect to the common stock for the applicable restricted
      period, as defined in Regulation M, prior to the commencement of the
      distribution. In addition, the Selling Stockholders will be subject to
      applicable provisions of the Exchange Act and the rules and regulations
      thereunder, including Regulation M, which may limit the timing of purchases
      and
      sales of shares of the common stock by the Selling Stockholders or any other
      person. We will make copies of this prospectus available to the Selling
      Stockholders and have informed them of the need to deliver a copy of this
      prospectus to each purchaser at or prior to the time of the sale.

     

    
      
        
        

      

      
        -
          3 -

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00106-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00106-of-00352.parquet"}]]