Document:

EXHIBIT 4(10) 

FIFTH AMENDED AND
RESTATED

NOTE AND WARRANT PURCHASE AGREEMENT

          This
Fifth Amended and Restated Note and Warrant Purchase Agreement (“Fifth Amended
Agreement”) amends and completely replaces the prior version of this Fifth
Amended Agreement. It remains effective as of the dates originally signed as to
each Purchaser (under previous versions of this Fifth Amended Agreement).

          This
Fifth Amended Agreement, dated effective as of the date noted by their
signature as to each Purchaser, by and among Integral Vision, Inc., a Michigan
corporation (the “Company”), those purchasers listed on Exhibit A (each
individually a “Purchaser “ and collectively, the “Purchasers”, which term
shall include Class 2 Purchasers and Class 3 Purchasers, as defined below,
successors and assigns and any permitted transferees of the Notes or the
Warrants) and J. M. Warren Law Offices, P.C., as Agent.

          NOW,
THEREFORE, in consideration of the mutual covenants and agreements set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

SECTION 1. SALE AND PURCHASE OF NOTES AND WARRANTS

	
 

	
 

	
 

	
 

	
(a)

	
The Company agrees to sell to the Purchasers and,
 subject to the terms and conditions hereof and in reliance upon the
 representations and warranties of the Company contained herein or made
 pursuant hereto, the Purchasers agree to purchase from the Company on the
 Closing Date specified in Section 2 hereof, (i) a Note or Notes in the
 aggregate principal amount set forth opposite such Purchaser’s name on
 Exhibit A hereto and (ii) upon the purchase of a Class 2 Note or Class 3
 Note, a Warrant or Warrants for the number of shares of the Company’s Common
 Stock set forth opposite such Purchaser’s name on Exhibit A. The number of
 Class 2 Warrants purchased by a Class 2 Purchaser will be determined based on
 the amount of its Class 2 Note and the length of time such Note is
 outstanding, as more fully explained in Section 1(d), below. In addition,
 Class 2 Purchasers may elect to take interest of 12% per annum on their Class
 2 Note instead of acquiring a Class 2 Warrant or Warrants. The aggregate
 purchase price to be paid to the Company by the Purchasers for such Notes and
 such Warrants is 100% of the principal amount of the Notes to be purchased by
 the Purchasers, which amount will be allocated in accordance with Section
 2(d) hereof.

	
 

	
 

	
 

	
 

	
(b)

	
As used herein, “Note” or “Notes” means either
 “Class 2 Notes” or “Class 3 Notes” in a total aggregate amount outstanding at
 any time not to exceed $6,000,000 (excluding accrued or unpaid interest due
 thereon), however such $6,000,000 shall be decreased by the principal amount
 of any Class 3 Notes converted into the Company’s common stock subsequent to
 August 8, 2007. 

-1-

	
 

	
 

	
 

	
(i) Class 1 Notes were issued by the Company pursuant to previous note
 and warrant purchase agreements (between March 2001 and September 2003). All
 such Class 1 Notes have been retired and no Class 1 Notes have been
 outstanding since April 2005. The Company will not issue Class 1 Notes under
 this Fifth Amended Agreement.

	
 

	
 

	
 

	
(ii) “Class 2 Notes” means the aggregate in
 principal amount of the Company’s 10% secured working capital notes due at
 the time the Accounts Receivable or the Letter of Credit proceeds on the
 orders specified in such Class 2 Note is received by the Company. Each Class
 2 Note will be substantially in the form of the Class 2 Note set forth as
 Exhibit B hereto. Interest on the Class 2 Notes shall accrue from the Closing
 Date at the rate of 10% (12% if elected and no Class 2 Warrant is received).
 Class 2 Notes will be issued to fund working capital needs to enable the
 Company to manufacture and ship specified orders and will be paid as the
 accounts receivable or the Letter of Credit proceeds on those specified
 orders are received. Payments will be applied first to accrued interest and
 then to principal. In the event the Class 2 Notes are not paid by the Company
 out of receivables or Letter of Credit Proceeds and the Company defaults on
 its obligations on the Class 2 Notes, the Class 2 Notes will have rights to payments
 under the Collateral Assignment (as defined below) and the right to payments
 under the WC Security Agreement and UCC financing statements (as defined
 below). At the time their Class 2 Note is issued or at any time their notes
 are outstanding, Class 2 Note holders will have the option to elect to cease
 accruing Class 2 Warrants, as defined below, and to instead begin receiving
 interest on their Class 2 Note at the rate of 12%.

	
 

	
 

	
 

	
(iii) “Class 3 Notes” means the aggregate in
 principal amount of the Company’s 8% secured convertible notes. Each Note
 will be substantially in the forms of the Notes set forth as Exhibit E and F
 hereto. Interest on the Class 3 Notes shall accrue from the Closing Date and
 shall be payable semi-annually on the first day of July and January of each
 year (the “Semi-Annual Payment Dates”), in the manner specified in the form
 of Class 3 Notes attached hereto as Exhibit E and F. Principal on the Class 3
 Notes shall be paid at maturity, unless sooner called by the Company or converted
 into common stock of the Company at the option of the Holder. The conversion
 rate for Class 3 Notes shall be set at the time of their issuance by the
 Company’s board of directors. As of March 1, 2008, the Company has $378,000
 principal amount on Class 3 Notes outstanding which were issued using the
 form of note on Exhibit E (“Old Class 3 Notes”). Class 3 Notes issued using
 the form of note on Exhibit F will be referred to herein as “New Class 3 Notes.” After the date hereof, the Company
 will only issue New Class 3 Notes. Old Class 3 Notes, New 

-2-

	
 

	
 

	
 

	
Class 3 Notes and
 Class 2 Notes will be on par with each other in their rights to receive
 payment under the Collateral Assignment, as defined below.

	
 

	
 

	
 

	
 

	
(c)

	
If all or a portion of (i) the principal amount of
 the Notes, (ii) the interest payable thereon or (iii) any fee or other amount
 payable hereunder or under any other Loan Document shall not be paid when due
 (whether at the stated maturity, by acceleration or otherwise), such overdue
 amount shall bear interest at a rate per annum equal to the Default Rate from
 the date of such nonpayment until paid in full (both before and after
 judgment).

	
 

	
 

	
 

	
 

	
(d)

	
As used herein, “Warrants” means “Class 2 Warrants.”
 “Class 2 Warrants” means the aggregate of Class 2 Common Stock purchase
 warrants evidenced by certificates substantially in the forms of Exhibit C
 and D hereto, together with Class 2 Warrants issued in exchange therefore or
 replacement thereof. Such Class 2 Warrants in the aggregate initially entitle
 the holders thereof to purchase one share of Common Stock of the Company, no
 par value, for each $1 in value of the Class 2 Notes issued to such Class 2
 Purchaser multiplied by a fraction, the numerator of which is the number of
 days such Class 2 Note is outstanding and the denominator of which is 365, at
 a specified purchase price per share which shall be as agreed by the parties
 as of the date of the issuance of the corresponding Class 2 Note or such
 other price as the Board of Directors shall determine is appropriate based on
 the circumstances at the time, as set forth on Exhibit A hereto as to each
 Class 2 Purchaser and updated with each new purchase, such number and such
 price being subject to adjustment as provided in the forms of Warrants
 attached hereto as Exhibit C and D. Class 2 Note holders may elect to receive
 accrued Class 2 warrants at the time said Class 2 Note holders amend their
 notes. In addition to electing to receive accrued Class 2 warrants at the
 time Class 2 Note holders amend their notes, Class 2 Note holders may also
 elect to receive accrued Class 2 warrants once each calendar quarter. After
 November 1, 2006, the Company has and will only issue Class 2 Warrants in the
 form of Exhibit D

	
 

	
 

	
 

	
 

	
(e)

	
Anti-Dilution Provision for Old Class 3 Notes and
 Class 2 Warrants Issued Pursuant to Class 2 Notes Issued between January 1,
 2004 and October 31, 2006. 

	
 

	
 

	
 

	
 

	
 

	
In the event the Company issues, after February 29,
 2004, any common stock, or any Preferred Stock, Warrant or Note convertible
 into common stock, which has a share price, or an exercise or conversion
 rate, lower than the exercise price for Class 2 Warrants issued pursuant to
 Class 2 Notes issued after January 1, 2004, or the conversion rate for Old
 Class 3 Notes, then the exercise price for such Class 2 Warrants issued
 pursuant to Class 2 Notes issued after January 1, 2004 and Old Class 3 Notes
 shall be reduced to such lower rate, but in no event will the exercise
 price/conversion rate be reduced to less than $0.25 per share (subject to adjustment for stock splits,
 stock dividends and similar events after February 29, 2004). This

-3-

	
 

	
 

	
 

	
 

	
 

	
provision will not be triggered by shares issued for
 existing stock options under the Company’s stock option plans (as of February
 29, 2004) or for the exercise of existing warrants (as of February 29, 2004).

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
(f)

	
Amendment of Class 2 Warrants. It
 is agreed that Section 2.2 of the Class 2 Warrants (issued in the forms as
 shown in Exhibits C and D) including issued and outstanding warrants, shall be
 amended by adding the following to said warrants:

	
 

	
 

	
 

	
 

	
 

	
(i)

	
In Section 2.2(a) After the phrase “but in no event
 will the exercise price be reduced to less than $0.25 per share” in said
 section shall be added the phrase as follows: “(subject to adjustment for stock splits,
 stock dividends and similar events after the Issue Date).”

	
 

	
 

	
 

	
 

	
 

	
(ii)

	
In Section 2.2(d) the phrase “without dilution”
 shall be deleted. 

	
 

	
 

	
 

	
 

	
 

	
(iii)

	
The following shall be added as section 2.2(e):

	
 

	
 

	
 

	
 

	
 

	
 

	
Exclusions from the Adjustment for Current Exercise
 Price. No adjustment of the current exercise price under
 Section 2.2 hereof shall be made as a result of or in connection with:

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

	
the issuance of Shares upon exercise of the Warrants
 or Class 3 Notes;

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

	
the issuance of Warrants or Notes pursuant to this
 Agreement; or

	
 

	
 

	
 

	
 

	
 

	
 

	
(iii)

	
the exercise of options to purchase shares of the
 Company’s Common Stock pursuant to options granted to certain employees or
 agents of the Company pursuant to the Company’s stock option plans.

	
 

	
 

	
 

	
 

	
(g)

	
Amendment of Class 2 Warrants. It
 is further agreed that Section 3 of the Class 2 Warrants (issued in the form
 as shown in Exhibit D) including issued and outstanding warrants shall be
 amended by replacing said section in its entirety with as follows: 

	
 

	
 

	
 

	
 

	
 

	
Section 3. Company’s Consolidation or Merger.
 If the Company shall at any time consolidate with or merge into another
 entity (where the Company is not the continuing corporation after such merger
 or consolidation), the holder of a Warrant shall thereafter (including,
 without limitation, the holder of a Warrant that is blocked from exercising
 said warrant pursuant to Section 1.1.(c) hereof [“Blocked Holder”]) be
 entitled to receive, upon the exercise thereof (including, without limitation,
 after allowing sufficient time for the Blocked Holder to unblock and exercise
 said blocked Warrant) in whole or in part, the securities or other property
 to which (and upon the same terms and with the same rights as) a holder of
 the number of Shares then deliverable upon the exercise thereof would have
 been entitled upon such consolidation or merger (subject to adjustments under
 Section 2.2 hereof), and the Company shall take such steps in connection with
 such consolidation or merger as may be necessary to assure such holder that
 the provisions of the Warrants and the Purchase Agreement shall thereafter be
 applicable in relation to any securities or property thereafter deliverable
 upon the exercise of this Warrant, including, 

-4-

	
 

	
 

	
 

	
 

	
 

	
but not limited to, obtaining a written
 acknowledgment from the continuing entity of its obligation to supply such
 securities or property upon such exercise and to be so bound by the Warrant
 and the Purchase Agreement. A sale, transfer or lease (in one, or a series of
 related, transactions) of all or substantially all of the assets of the
 Company to another person shall be deemed a consolidation or merger for the
 foregoing purposes. The
 provision in this section shall apply regardless of whether or not there
 would have been sufficient number of shares of Common Stock authorized and
 available upon the exercise of this Warrant as of the date of such
 consolidation or merger (due to a temporary waiver granted the Company by the
 holder of this Warrant).

	
 

	
 

	
 

SECTION 2. THE CLOSING

          (a)
Subject to the terms and conditions hereof, the closing (the “Closing”) of the
purchase and sale of the Notes and Warrants will take place at the offices of
J.M. Warren Law Offices, P.C. at such time and date as shall be mutually agreed
to by the Company and the Purchasers. Such times and dates are herein referred
to as the “Closing Dates” and individually as a “Closing Date.”

          (b)
Subject to the terms and conditions hereof, on each Closing Date (i) the
Company will deliver to each Purchaser a Note or Notes, substantially in the
form of Exhibit B for Class 2 Notes and Exhibit F for New Class 3 Notes,
payable to such Purchaser (or its nominee as notified to the Company), and
dated the Closing Date, in the aggregate principal amount set forth opposite
such Purchaser’s name on Exhibit A, and (ii) upon such Purchaser’s receipt
thereof, such Purchaser will deliver to the Company by wire transfer an amount
equal to the purchase price for such Notes (as specified in Section 1(a) hereof)
payable to the order of the Company in immediately available funds (the Company
is also allowed to exchange outstanding Notes for another class of Notes). 

          (c)
As an alternative to Section 2(b), upon receipt of a Purchaser’s signed copy of
this Agreement, the Company will sign the Agreement, the Note and the Warrants,
as applicable, and will instruct the Agent to communicate to the Purchaser that
such documents have been signed and the Agent has obtained a perfected interest
in the Collateral. Thereafter, upon the Company’s receipt by wire transfer of
the purchase price for the Note and Warrants, the Company will deliver the
signed Agreement, Note and Warrants, as applicable, to the Purchaser.

          (d)
The Purchasers acknowledge that the Notes and the Warrants constitute an
“investment unit” within the meaning of Section 1273(c)(2) of the Code and that
the Company will allocate the “issue price” (within the meaning of Section
1273(b) of the Code) of such investment unit, for all Income Tax purposes,
between the Notes and Warrants as required by applicable tax law. Each
Purchaser agrees to abide by Treasury Regulation § 1. 1273-2(h)(2) with respect
to such allocation of the issue price. For all Notes and Warrants issued under
this Agreement after December 31, 2001, the Company and its tax advisors have
determined that the limited marketability of the Company’s Common Stock does
not provide a reasonable basis for the Company and its advisors to determine a
value for the Warrants issued or the conversion

-5-

rights. Therefore, all warrants issued by the Company
pursuant to this Agreement, shall have only a minimal or negligible value
ascribed to them. It is understood, however, that in the event market
conditions change such that the warrants again have value, the Company and its
tax advisors will determine an appropriate value for warrants issued thereafter
with no need to amend this Agreement.

SECTION 3. DEFINITIONS

          (a)
For purposes of the Loan Documents, the following definitions shall apply (such
definitions to be equally applicable to both the singular and plural forms of
the terms defined):

          “Accountants”
means Rehmann Robson or another independent certified public accounting firm
selected by the Company and reasonably satisfactory to the Majority
Noteholders.

          “Affiliate”,
when used with respect to any Person, means (i) if such Person is a
corporation, any officer or director thereof (other than a director nominated
by one of the Purchasers) and any Person (other than one of the Purchasers)
which is, directly or indirectly, the beneficial owner of more than ten percent
(10%) of the Voting Stock thereof, and, if such beneficial owner is a
partnership, any partner thereof, or if such beneficial owner is a corporation,
any Person, directly or indirectly through one or more intermediaries,
controlling, controlled by or under common control with such beneficial owner,
or any officer or director of such beneficial owner or of any corporation
occupying any such control relationship, (ii) if such Person is a partnership,
any partner thereof, (iii) in all cases, any Person (other than one of the
Purchasers) which, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with such Person, and
(iv) in all cases, any Person 10% or more of whose Voting Stock is beneficially
owned, directly or indirectly through one or more intermediaries, by such
Person. For purposes of this definition, “control” (including the correlative terms
“controlling”, “controlled by” and “under common control with”), with respect
to any Person, shall mean possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.

          “Agent”
means J.M. Warren Law Offices, P.C. or any successor agent appointed pursuant
to Section 21.7 hereof

          “Agreement”
means this Fifth Amended Agreement (together with exhibits and schedules) as
from time to time assigned, supplemented or amended or as the terms hereof may
be waived.

          “Bankruptcy
Code” means the United States Bankruptcy Code and any successor thereto, and
the rules and regulations issued thereunder.

          “Board”
or “Board of Directors” means, with respect to any Person which is a 

-6-

corporation, a business trust or other entity, the
board of directors or other group, however designated, which is charged with
legal responsibility for the management of such Person, or any committee of
such board of directors or group, however designated, which is authorized to
exercise the power of such board or group in respect of the matter in question.

          “Business”
means the business conducted by the Company in the vision industry and all
other activities ancillary or related thereto.

          “Business
Day” means any day other than a Saturday, Sunday or other day on the New York
Stock Exchange is required to close.

          “Capital
Expenditures” means for any period, the amount of all payments made by the
Company during such period for the lease, purchase, improvement, construction
or use of any Property, the value or cost of which under GAAP is required to be
capitalized and appears on the Company’s balance sheet in the category of
property, plant or equipment, without regard to the manner in which such
payments or the instrument pursuant to which they are made is characterized by
the Company or any other Person, and shall include, without limitation, the
principal components of payments for the installment purchase of Property and
payments under Capitalized Leases.

          “Capitalized
Leases” means any lease to which the Company or any Subsidiary is party as
lessee, or by which it is bound, under which it leases any property (real,
personal or mixed) from any lessor other than the Company or any Subsidiary,
and which is required to be capitalized in accordance with GAAP, but also
including any such lease, whether or not so capitalized, where the Company or a
Subsidiary is treated as the owner of the leased property under the Code.

          “Claims”
has the meaning set forth in the definition of “Environmental Claim.”

          “Class
2 Note” has the meaning set forth in Section 1(b)(ii) hereof.

          “Class
3 Note” has the meaning set forth in Section 1(b)(iii) hereof.

          “Class
2 Purchaser” means a purchaser of Class 2 Notes and Class 2 Warrants, if
elected.

          “Class
3 Purchaser” means a purchaser of Class 3 Notes.

          “Class
2 Warrants” has the meaning set forth in Section 1(d) hereof.

          “Closing”
has the meaning set forth in Section 2(a) hereof.

          “Closing
Date” has the meaning set forth in Section 2(a) hereof.

-7-

          “Code”
means the Internal Revenue Code of 1986, as amended from time to time, and the
regulations and interpretations thereunder.

          “Collateral”
when used in the form of Class 2 Note attached hereto as Exhibit B is hereby
defined to mean both IP Collateral and WP Collateral (both terms defined
below). 

          “Collateral
Assignment” means the Collateral Assignment of Proprietary Rights and Security
Agreement dated March 29, 2001 by the Company and the Agent as amended March    ,
2008.

          “Commission”
means the Securities and Exchange Commission and any other similar or successor
agency of the federal government administering the Securities Act or the
Securities Exchange Act.

          “Common
Stock” means that class of stock or other equivalent evidences of ownership of
the Company, the holders of which are entitled to vote generally to elect the
Board of Directors.

          “Common
Stock Equivalents” means any securities of the Company or any Subsidiary
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
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

          “Company”
means Integral Vision, Inc., a Michigan corporation, its successors and
permitted assigns.

          “Company’s
Obligations” means all loans, debts, principal, interest (including any
interest that, but for the provisions of the Bankruptcy Code, would have
accrued), premiums, liabilities, obligations (including the performance of the
covenants of the Company contained herein or in the Loan Documents), fees,
lease payments, guaranties, covenants, and duties owing by the Company to the
Purchasers or the Agent of any kind and description (whether pursuant to or
evidenced by this Agreement, any of the other Loan Documents, or any other note
or other instrument, or by any other agreement between the Purchasers or the
Agent and the Company, and whether or not for the payment of money), whether
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, and including any debt, liability, or obligation owing
from the Company to others that the Purchasers or the Agent may have obtained
by assignment or otherwise, and further including all interest not paid when
due.

          “Consolidated,”
when used with reference to any financial term in this Agreement, means the
aggregate for the Company and any Subsidiary of the amounts signified by such
term for all such Persons, with intercompany items eliminated, and, with
respect to earnings, after eliminating the portion of earnings properly
attributable to minority interests, if any, in the capital of any such Person
(other than in the capital of the Company) and otherwise as determined in
accordance with GAAP.

-8-

          
“Consolidated Net Income” means, for any period for which the amount thereof is
to be determined, the net income (net of any losses or expenses) or loss of the
Company and any Subsidiary on a Consolidated basis, during such period (such
net income to be determined in accordance with GAAP) after Income Taxes
actually paid, but excluding: 

	
 

	
 

	
 

	
(i)

	
the earnings
  during such period of any Person to which the assets of the Company or any
  Subsidiary shall have been sold, transferred or disposed of, or into which
  the Company or such Subsidiary shall have merged, prior to the date of such
  transaction; 

	
 

	
 

	
 

	
(a)

	
any
  extraordinary gain or loss during such period arising from the sale, exchange
  or other disposition of capital assets (such term to include all fixed
  assets, whether tangible or intangible, and all inventory sold in conjunction
  with the disposition of fixed assets); 

	
 

	
 

	
 

	
 

	
(b)

	
any gain or
  loss during such period arising from the write-up or write-down of any asset;
  and 

	
 

	
 

	
 

	
 

	
(c)

	
any earnings
  or gains during such period resulting from the receipt of any proceeds of any
  life insurance policy. 

          
“Consolidated Assets” means, at any time, the total assets of the Company and
its Subsidiaries determined in accordance with GAAP. 

          
“Contingent Liabilities” of any person means, as of any date, all obligations
of such person or of others for which such person is contingently liable, as
obligor, guarantor, surety or in any other capacity, or in respect of which
obligations such person assures a creditor against loss or agrees to take any
action to prevent any such loss (other than endorsements of negotiable
instruments for collection in the ordinary course of business), including all
reimbursement obligations of such person in respect of any letters of credit,
surety bonds or similar obligations and all obligations of such person to
advance funds to, or to purchase assets, property or services from, any other
person in order to maintain the financial condition of such other person. 

          
“Default Rate” means a per annum rate equal to the interest rate on the Notes
plus four percent (4%). 

          
“Earnings Available for Dividends” means the excess of (A) the sum of (x) 50%
of aggregate Consolidated Net Income, if positive, for each fiscal year
commencing on or after January 1, 2001 less 100% of aggregate Consolidated Net
Income, if negative, for each fiscal year commencing on or after January 1,
2001 plus (y) net proceeds from the sale by the Company of Common Stock (other
than pursuant to the Warrants) minus (B) all Restricted Payments and Restricted
Investments made since the Closing Date. 

          
“Environment” means all air, surface water, groundwater, or land, including
land surface 

-9-

or subsurface,
including all fish, wildlife, biota and all other natural resources. 

          
“Environmental Claim” means any and all administrative or judicial actions,
suits, orders, claims, liens, notices, notices of violations, investigations,
complaints, requests for information, proceedings, or other communication
(written or oral), whether criminal or civil, (collectively, “Claims”) pursuant
to or relating to any applicable Environmental Law by any person (including but
not limited to any Governmental or Regulatory Authority, private person and
citizens’ group) based upon, alleging, asserting, or claiming any actual or
potential (i) violation of or liability under any Environmental Law, (ii)
violation of any Environmental Permit, or (iii) liability for investigatory
costs, cleanup costs, removal costs, remedial costs, response costs, natural
resource damages, property damage, personal injury, fines, or penalties arising
out of, based on, resulting from, or related to the presence, or Release into
the Environment, of any Hazardous Materials at any location, including but not
limited to any off-site location to which Hazardous Materials or materials
containing Hazardous Materials were sent forth for handling, storage, treatment
or disposal. 

          
“Environmental Law” means any and all current and future, federal, state,
local, provincial and foreign, civil and criminal laws, statutes, ordinances,
orders, codes, rules, regulations, Environmental Permits, policies, guidance
documents, judgments, decrees, injunctions, or agreements with any Governmental
or Regulatory Authority, relating to the protection of health and the
Environment, worker health and safety, and/or governing the handling, use,
generation, treatment, storage, transportation, disposal, manufacture,
distribution, formulation, packaging, labeling, or Release of Hazardous
Materials, whether now existing or subsequently amended or enacted, including
but not limited to: the Clean Air Act, 42 U.S.C. § 7401 et seq.; the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(“CERCLA”), 42 U.S.C. § 9601 et seq.; the Federal Water Pollution Control Act,
33 U.S.C. § 1251 et seq; the Hazardous Material Transportation Act 49 U.S.C. §
1801 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act 7 U.S.C. §
136 et seq.; the Resource Conservation and Recovery Act of 1976 (“RCRA”), 42
U.S.C. § 6901 et seq.; the Toxic Substances Control Act, 15 U.S.C. § 2601 et
seq.; the Occupational Safety & Health Act of 1970, 29 U.S.C. § 651 et
seq.; the Oil Pollution Act of 1990, 33 U.S.C. § 2701 et seq.; and the state
analogies thereto, all as amended or superseded from time to time; and any
common law doctrine, including but not limited to, negligence, nuisance,
trespass, personal injury, or property damage related to or arising out of the
presence, Release, or exposure to a Hazardous Material. 

          
“Environmental Permit” means any federal, state, local, provincial, or foreign
permits, licenses, approvals, consents or authorizations required by any
Governmental or Regulatory Authority under or in connection with any
Environmental Law and includes any and all orders, consent orders or binding
agreements issued or entered into by a Governmental or Regulatory Authority
under any applicable Environmental Law. 

          
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute. 

-10-

          
“ERISA Affiliate” means each “person” (as defined in Section 3(9) of ERISA)
which is under “common control” with the Company or any of its Subsidiaries
(within the meaning of Section 414(b), (c), (m) or (o) of the Code). 

          
“Event of Default” has the meaning set forth in Section 14 hereof. 

          
“Fair Market Value” of any property means the fair market sale value which a
willing buyer at retail would pay a willing seller, each under no compulsion to
buy or sell and in full possession of all relevant facts. 

          
“GAAP” means generally accepted accounting principles, as in effect from time
to time, which shall include the official interpretations thereof by the
Financial Accounting Standards Board or any successor thereto, consistently
applied. 

          
“Governmental Regulations” means any and all laws, statutes, ordinances, rules,
regulations, judgments, writs, injunctions, decrees, orders, awards and
standards, or any similar requirement, of the government of the United States
or any foreign government or any state, province, municipality or other
political subdivision thereof or therein or any court, agency, instrumentality,
regulatory authority or commission of any of the foregoing. 

          
“Governmental or Regulatory Authority” means any court, tribunal, arbitrator,
authority, agency, commission, official or other instrumentality of the United
States, any foreign country or any domestic or foreign state, county, city or
other political subdivision. 

          
“Hazardous Materials” means petroleum, petroleum hydrocarbons or petroleum
products, petroleum by-products, radioactive materials, underground storage
tanks, asbestos or asbestos-containing materials, gasoline, diesel fuel,
pesticides, radon, urea formaldehyde, lead or lead-containing materials,
polychlorinated biphenyls, ionizing and non-ionizing radiation including radon
and electromagnetic frequency radiation; and any other chemicals, materials,
substances or wastes in any amount or concentration which are now or hereafter
become defined as or included in the definition of “hazardous substances,”
“hazardous materials,” “hazardous wastes,” “extremely hazardous waste,”
“restricted hazardous wastes,” “toxic substances,” “toxic pollutants
“pollutants”“regulated
substances,” “solid wastes,” or “contaminants” or words of similar import,
under any Environmental Law. 

          
“Income Taxes” means all federal, state, local or foreign income, taxes,
assessments, duties, fees, levies or other governmental charges, whether
disputed or not, together with any interest, penalties, additions to tax or
additional amounts with respect thereto. 

          
“Indebtedness” means all liabilities, obligations and reserves, contingent or
otherwise, which in accordance with GAAP, would be reflected as a liability on
a balance sheet or would be required to be disclosed in a financial statement,
including, without duplication: (i) all Indebtedness for Borrowed Money, (ii)
all obligations secured by any Lien upon Property owned by the Company,
irrespective of whether such obligation or liability is assumed; (iii) any 

-11-

obligation of
the Company guaranteeing or intended to guarantee (whether guaranteed,
endorsed, co-made, discounted, or sold with recourse to the Company, but
exclusive of obligations arising as the result of the endorsement by the
Company of checks or other negotiable instruments in the ordinary course of the
Company’s business for purposes of depositing such items) any indebtedness,
lease, dividend, letter of credit, or other obligation of any other Person; and
(iv) liabilities in respect of unfunded vested benefits under any Single
Employer Plan or in respect of withdrawal liabilities incurred under ERISA by
the Company or any ERISA Affiliate to any Multiemployer Plan. 

          
“Indebtedness for Borrowed Money” means without duplication, all Indebtedness
(i) in respect of money borrowed, (ii) evidenced by a note, debenture or other
like written obligation to pay money (including, without limitation, all of the
Company’s Obligations and the Permitted Senior Indebtedness, and all
reimbursement or other obligations of the Company in respect of letters of credit
(except for commercial letters of credit up to $500,000), letter of credit
guaranties, bankers acceptances, interest rate swaps, controlled disbursement
accounts, or other financial products (except hedging transactions); (iii) in
respect of Capitalized Leases or for the deferred purchase price of Property
(other than trade payables arising in the ordinary course of business that are
not represented by promissory notes or by other written evidence other than
invoices); or (iv) in respect of obligations under conditional sales or other
title retention agreements, and
all guaranties of any or all of the foregoing. 

          
“Indemnified Persons” has the meaning set forth in Section 18.1 hereof. 

          
“Investment” means, with respect to any Person: 

	
 

	
 

	
 

	
 

	
(i)

	
the amount
  paid or committed to be paid, or the value of property (excluding stock of
  the Company) or services contributed or committed to be contributed, by the
  Company for or in connection with the acquisition by the Company of any
  stock, bonds, notes, debentures, partnership or other ownership interests or
  other securities of such Person; and 

	
 

	
 

	
 

	
 

	
(ii)

	
the amount
  of any advance, loan or extension of credit to, or guaranty or other similar
  obligation with respect to any Indebtedness of such Person by the Company and
  (without duplication) any amount committed to be advanced, loaned, or
  extended to, or the payment of which is committed to be assured by a guaranty
  or similar obligation for the benefit of, such Person by the Company. 

          
“Issue Date” means the date on which Notes or Warrants are issued pursuant to
the Fifth Amended Agreement (or under previous versions of this Agreement). 

          “IP
Collateral” means the Property upon which the Agent is granted the IP Security
Interests, pursuant to the terms of the Collateral Assignment. 

          “IP
Security Interest” means the Liens granted to the Agent for the benefit of the 

-12-

Noteholders
pursuant to this Agreement and the Loan Documents. 

          
“Joint Venture” means a corporation, limited partnership or other limited
liability business entity, formed in the ordinary course of business by the
Company or any Subsidiary with Persons other than Affiliates. 

          
“Lien” means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security interest of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement and any
financing lease or Capitalized Lease having substantially the same effect as
any of the foregoing and any assignment or other conveyance of any right to
receive income). 

          
“Loan Documents” mean, collectively, the 

	
 

	
 

	
 

	
 

	
(i)

	
Agreement; 

	
 

	
 

	
 

	
 

	
(ii)

	
Notes; 

	
 

	
 

	
 

	
 

	
(iii)

	
Warrants; 

	
 

	
 

	
 

	
 

	
(iv)

	
Collateral
  Assignment;

	
 

	
 

	
 

	
 

	
(v)

	
WC Security
  Agreement; 

	
 

	
 

	
 

	
 

	
(vi)

	
UCC
  financing statements; and 

	
 

	
 

	
 

	
 

	
(vii)

	
such other
  instruments and documents as Noteholders may require to evidence and perfect
  the IP Security Interests, WC Security Interests and the Notes, 

          and
individually any one of them. 

          As
to each of the foregoing, together with all alterations, amendments, changes,
extensions, modifications, refinancings, refundings, renewals, replacements,
restatements or supplements thereto. 

          
“Losses” have the meaning set forth in Section 18.1 hereof. 

          
“Majority Noteholders” means the holders of Notes evidencing more than 50% of
the principal amount of all Notes then outstanding. 

          
“Market Price” per share of the Company’s Common Stock means the average of the
daily closing prices for the period specified. The closing price for each day
shall be the last reported sale price or, in case no such sale takes place on
such day, the average of the closing bid 

-13-

and asked
prices, in either case on the principal national United States securities
exchange on which the Company’s Common Stock is listed or admitted to trading,
or if the Company’s Common Stock is not listed or admitted to trading on any
such national securities exchange, the average of the highest reported bid and
lowest reported asked prices as furnished by the National Association of
Securities Dealers Inc., Automated Quotation System Level I, the
Over-the-Counter Bulletin Board or comparable system. If the closing price
cannot be so determined, the Market Price shall be determined: 

	
 

	
 

	
 

	
(a) by the
  written agreement of the Company and the holders of the affected Class 3
  Notes or Warrants representing a majority of the Shares then obtainable from
  the conversion of such Class 3 Notes or the exercise of such outstanding
  Warrants (the “Majority Holders”); or 

	
 

	
 

	
 

	
(b) in the
  event that no such agreement is reached within fifteen (15) days after the
  event giving rise to the need to determine the Market Price, by a nationally
  recognized U.S. investment banking firm, selected by the Company (“Company
  Appraiser”) not more than 5 Business Days after the end of such 15 day
  period. Any appraiser appointed pursuant to this paragraph shall be
  instructed to make its determination as promptly as possible and in any event
  within 30 days of appointment. If no such selection is made within such
  period, then the Majority Holders shall as promptly as possible select such a
  firm whose determination shall be final and binding. If such selection is
  timely made by the Company, and the Majority Holders do not object to the
  Market Price as determined by the Company Appraiser within 10 days of receipt
  of notice thereof by all holders of Warrants, then the Market Price as
  determined by the Company Appraiser shall be the Market Price. If the
  Majority Holders do so object to the Company Appraiser’s determination of
  Market Price, then the Majority Holders can select a nationally recognized
  U.S. investment banking firm (“Alternate Appraiser”) to review the
  Company Appraiser’s report and other relevant information. Within 10 days
  after receipt by the Alternate Appraiser of such report and such other
  information as is reasonably requested by the Alternate Appraiser, the
  Company Appraiser and Alternate Appraiser shall communicate and/or meet to
  resolve any questions or differences with respect to the Market Price. If
  such appraisers agree on a Market Price, such Market Price shall be the
  Market Price. If no agreement is reached then the Company Appraiser and
  Alternate Appraiser shall select a third nationally recognized firm (“Third
  Appraiser”). If the Company Appraiser and the Alternate Appraiser cannot
  agree on a Third Appraiser within 20 days of the end of such 10 day period,
  either may apply to the American Arbitration Association to appoint the Third
  Appraiser. The Third Appraiser shall, within 30 days of its hire, issue a
  report with its determination of Market Price which shall be conclusive and
  binding. All expenses of the Company Appraiser shall be borne by the Company.
  All expenses of the Alternate Appraiser shall be borne by the holders of the
  Warrants. All expenses of the Third Appraiser shall be borne equally by the
  Company and the holders of the Warrants. 

-14-

	
 

	
 

	
 

	
Market Price
  shall be determined on the basis of the Fair Market Value of the Company as
  if it were sold as a going concern on the date of valuation and without
  regard to the lack of any trading market for, or the lack of liquidity in,
  the Common Stock of the Company. 

	
 

	
 

	
 

	
The Company
  shall cooperate, and shall provide all necessary information and assistance,
  to permit any determination under the preceding clause (a) or (b). 

	
 

	
 

	
 

	
Each
  Appraiser shall be instructed to use its best efforts to give the Company and
  all holders reasonable advance notice of the Market Price and the contents of
  its report (by delivering a draft report) before the report is delivered in
  final form. Any communications or reports by an Appraiser to either the Company
  or any of the holders regarding Market Price shall be given simultaneously to
  both the Company and all of the holders. 

          
“Material Adverse Effect” means (i) a material adverse effect on the assets,
properties, liabilities, business, affairs, results of operations, condition
(financial or otherwise) or prospects of the Company and any Subsidiary on a
Consolidated basis, (ii) an effect which is prejudicial in any material respect
to the holders of the Notes or the Warrants or (iii) an effect on the ability
of the Company or any Subsidiary to perform its obligations under this
Agreement, any Loan Document, the Notes or the Warrants. 

          
“Multiemployer Plan” shall mean any multiemployer plan (within the meaning of
section 3(37) of ERISA) to which either the Company, the Subsidiary, or any
ERISA Affiliate has an obligation to contribute. 

          
“Note” or “Notes” has the meaning set forth in Section l(b) hereof. 

          
“Noteholder” or “Noteholders” shall mean the holder of an outstanding Note or
Notes or holders of outstanding Notes. 

          
“Note and Warrant Purchase Agreement” as used in the Exhibits attached hereto,
in the Collateral Assignment, and in the Agreement of Appointment of
Representative appointing The Klonoff Company, Inc. as Representative of the
Class 2 Purchasers is defined to mean this Agreement. 

          
“Outstanding” or “outstanding” means, when used with reference to the Notes or
Warrants as of a particular time, all Notes or Warrants, as the case may be, theretofore
duly issued except (i) Notes or Warrants theretofore reported as lost, stolen,
mutilated or destroyed or surrendered for transfer, exchange or replacement, in
respect of which new or replacement Notes or Warrants have been issued by the
Company, (ii) Notes theretofore paid in full, (iii) Warrants theretofore fully
exercised and (iv) Notes theretofore canceled by the Company, whether upon
exercise of a Warrant in whole or in part or otherwise; except that for 

-15-

	
 

	
 

	
 

	
the purpose
 of determining whether holders of the requisite principal amount of Notes or
 Warrants have made or concurred in any declaration, waiver, consent,
 approval, notice, annulment of acceleration or other communication under this
 Agreement or under any Notes or Warrants, Notes or Warrants registered in the
 name of, as well as Notes or Warrants owned beneficially by, the Company, the
 Subsidiary or any of their Affiliates (other than one of the Purchasers)
 shall not be deemed to be outstanding.

	
 

	
 

	
 

	
 

	
“PBGC” means
 the Pension Benefit Guaranty Corporation.

	
 

	
 

	
 

	
 

	
“Permits”
 has the meaning set forth in Section 4.10 hereof

	
 

	
 

	
 

	
 

	
“Permitted
 Liens” means any of the following Liens:

	
 

	
 

	
 

	
 

	
(i)

	
the IP
 Security Interests and the WC Security Interests;

	
 

	
 

	
 

	
 

	
(ii)

	
Liens for
 taxes not delinquent or for taxes being contested in good faith by
 appropriate proceedings and as to which adequate financial reserves have been
 established on its books and records;

	
 

	
 

	
 

	
 

	
(iii)

	
Liens (other
 than any Lien imposed by ERISA) created and maintained in the ordinary course
 of business which are not material in the aggregate, and which would not
 constitute or result in a Material Adverse Effect, and which constitute (A)
 pledges or deposits under worker’s compensation laws, unemployment insurance
 laws or similar legislation, (B) good faith deposits in connection with bids,
 tenders, contracts or leases to which the Company or a Subsidiary is a party
 for a purpose other than borrowing money or obtaining credit, including rent
 security deposits, (C) Liens imposed by law, such as those of carriers,
 warehousemen and mechanics, if payment of the obligation secured thereby is
 not yet due or if such Liens are discharged within sixty (60) days of the
 date they are imposed, (D) Liens securing taxes, assessments or other
 governmental charges or levies not yet subject to penalties for nonpayment,
 and (E) pledges or deposits to secure public or statutory obligations of a
 Company or a Subsidiary, or surety, customs or appeal bonds to which the
 Company or a Subsidiary is a party;

	
 

	
 

	
 

	
 

	
(iv)

	
Liens
 affecting real property which constitute minor survey exceptions or defects
 or irregularities in title, minor encumbrances, easements or reservations of,
 or rights of others for, rights of way, sewers, electric lines, telegraph and
 telephone lines and other similar purposes, or zoning or other restrictions
 as to the use of such real property; provided, however, that all of the
 foregoing, in the aggregate, do not at any time materially detract from the
 value of said properties or materially impair their use in the operation of
 the businesses of the Company or any Subsidiary, as the case may be; and

	
 

	
 

	
 

	
 

	
(v)

	
Purchase
 Money Liens securing purchase money Indebtedness; provided,

-16-

	
 

	
 

	
 

	
 

	
 

	
however,
 that the aggregate outstanding amount of Indebtedness and secured by all such
 Purchase Money Liens for the Company and all Subsidiaries shall not exceed,
 on an aggregate basis, $500,000 at any time.

          “Permitted
Senior Indebtedness” means the interests of the lessor under any Capitalized
Leases permitted to exist hereunder.

          “Person”
means an individual, corporation, partnership, firm, limited liability company,
association, trust, unincorporated organization, government, governmental body
or political subdivision thereof.

          “Plan”
shall mean any employee benefit plan (within the meaning of section 3(3) of
ERISA) maintained or contributed to by the Company, any Subsidiary, or any
ERISA Affiliate, other than a Multiemployer Plan.

          “Potential
Default” means a condition or event which, with notice or lapse of time or
both, would constitute an Event of Default.

          “Principal
Market” means the principal securities exchange or market on which the Common
Stock is listed or traded.

          “Prohibited
Transaction” means any transaction involving any Plan which is proscribed by
Section 406 of ERISA or Section 4975 of the Code.

          “Property”
means all types of real, personal or mixed property and all types of tangible
or intangible property.

          “Purchase
Agreement” when used in any of the Exhibits attached hereto and in the
Collateral Assignment and WC Security Agreement shall have the same meaning as
Agreement herein.

          “Purchase
Money Liens” means Liens securing purchase money Indebtedness incurred in
connection with the acquisition of capital assets by the Company in the
ordinary course of business; provided that (a) such Liens do not extend to or
cover assets or properties other than those purchased in connection with the purchase
in which such Indebtedness was incurred and (b) the obligation secured by any
such Lien so created shall not exceed 100% of the cost of the property
including transportation and installation costs, covered thereby.

          “Purchaser(s)”
has the meaning set forth in the second paragraph hereof.

          “Real
Estate” means all real estate and improvements located thereon owned by the
Company.

          “Registration
Demand” has the meaning set forth in Section 17 hereof.

-17-

          “Release”
means any spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping, or disposing of a Hazardous Material
into the Environment.

          “Representative”
means The Klonoff Company, Inc. or any successor Representative in its capacity
as agent for the Class 2 Purchasers as Secured Party under the Security
Agreement.

          “Reportable
Event” shall mean, with respect to any Single Employer Plan, an event described
in section 4043(b) of ERISA, other than an event as to which the notice
requirement is waived under applicable PBGC regulations.

          “Restricted
Investment” means any Investment other than (1) obligations of the United
States government due within one year, (2) certificates of deposit and bankers
acceptances due within one year of a United States domiciled commercial bank
having capital funds of at least $100 million and whose long-term unsecured
debt obligations have been given a rating of at least A by Standard &
Poor’s or A2 by Moody’s, (3) commercial paper rated P-1 by Moody’s or A-1 by
Standard & Poor’s and maturing not more than 270 days from the date of
creation thereof, (4) debt of any state or political subdivision that is rated
AA or better by Moody’s or Aa2 or better by Standard and Poor’s and maturing in
less than one year, (5) investments in, and loans and advances to, Subsidiaries
or entities that will, concurrently with such investment become Subsidiaries,
(6) trade credit extended in the ordinary course of the Company’s business, (7)
loans and advances made in the ordinary course of business to officers and
employees of Company for relocation expenses, travel advances and similar
expenses relating to their employment, (8) endorsements of instruments or items
of payment for deposit to the Company’s bank accounts, and (9) additional
Investments not to exceed $500,000 in the aggregate.

          “Restricted
Payment” means (i) every direct or indirect dividend or other distribution
paid, made or declared by the Company on or in respect of any class of its
capital stock or in respect of any partnership or Joint Venture, in all cases
whether now or hereafter outstanding, interests and any payment under or with
respect to anti-dilution provisions of any capital stock of the Company, (ii)
every payment in connection with the redemption, purchase, retirement or other
acquisition, direct or indirect, by or on behalf of the Company of any shares
of the Company’s capital stock, whether or not owned by the Company or any
partnership or Joint Venture interests of the Company, or any warrants, rights
or options to acquire such stock or partnership interests, (iii) every payment
by or on behalf of the Company (whether as repayment or prepayment of principal
or as interest or otherwise) on or with respect to any obligation to any
Person, of any Affiliate of the Company or of any other holder of shares of the
Company’s Common Stock, which obligation is assumed or guaranteed by the
Company; provided, however, (a) that the restrictions of the foregoing clauses
(i) and (ii) shall not apply to any dividend, distribution, or other payment to
the extent payable in shares of the Common Stock of the Company or in options,
warrants or other rights to purchase such Common Stock, (b) that none of the
foregoing clauses shall apply to any payments from a Subsidiary to the Company,
(c) that none of the foregoing clauses shall apply to any purchases by the
Company from a Wholly-

-18-

Owned
Subsidiary of additional capital stock of such Subsidiary and (d) that none of
the foregoing clauses shall apply to any payments, distributions or other
transfers or actions on or with respect to the Notes or Warrants. For purposes
of this definition, “capital stock” shall also include warrants (other than the
Warrants) and other rights and options to acquire shares of capital stock.

          “Securities
Act” means the Securities Act of 1933, as amended, and the rules, regulations
and interpretations thereunder.

          “Securities
Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules, regulations and interpretations thereunder.

          “Share”
or “Shares” means shares of the Company’s Common Stock, or other securities,
which can be obtained or have been obtained by an exercise in whole or in part
of any Warrant or Class 3 Note or the exchange of a Warrant or Class 3 Note for
shares of the Company’s Common Stock pursuant to the terms of the Warrants,
including, without limitation, shares of the Company’s Common Stock received by
the exercise of Class 1 Warrants in 2004 and 2005 under previous versions of
this note and warrant purchase agreement. In the event that any Shares are sold
either in a public offering pursuant to an effective registration statement
under Section 6 of the Securities Act or pursuant to Rule 144 (but if sold
under Rule 144, only if sold in “brokers’ transactions” within the meaning of
Rule 144), then the transferees of such Shares shall not be entitled to any
benefits under this Agreement with respect to such Shares and such Shares shall
no longer be considered to be “Shares” for purposes of this Agreement.

          “Single
Employer Plan” shall mean any Plan that is subject to Title IV of ERISA.

          “Subordinated
Debt” means debt of the Company issued in a capital raising transaction which
meets each of the following requirements: (a) such debt is wholly
unsecured; (b) such debt is contractually fully subordinated (including,
without limitation, interest payments due thereon), as to payment and
liquidation, to the payment in full of the Notes on terms, and pursuant to
written agreements in form and substance, that restrict the subordinated
creditor from pre-paying any amounts in respect of the principal of such debt
(upon acceleration or otherwise) or commencing any judicial or other collection
efforts or exercising any other remedies in respect of the principal of such
debt prior to the date that is ninety-one (91) days following the payment in
full of the Notes outstanding at the time of the issuance of said Subordinated
Debt; and (c) such debt does not mature prior to the date that is ninety one
(91) days following the latest maturity date (as defined in the Notes) of the
Notes outstanding at the time of the issuance of said Subordinated Debt.
Interest payments payable on Subordinated Debt cannot be required to be paid
until after April 1, 2009. 

          “Subsidiary”
means any corporation in which at least a majority of the shares (other than
any directors’ qualifying shares required by law) of each class of the capital
stock (other than preferred stock), at the time as of which any determination
is being made, is owned, beneficially and of record, directly or indirectly, by
the Company or its Subsidiary, or both.

-19-

          “Trading
Day” means any day on which the Common
Stock is purchased and sold on the Principal Market.

          “UCC”
means the Uniform Commercial Code as in effect on the date hereof in the State
of Michigan, as amended, or as in effect in any jurisdiction in which IP
Collateral or WC Collateral is located.

          “Voting
Stock” means capital stock or a partnership or membership of any class or
classes of a corporation, partnership or other limited liability entity,
respectively, the holders of which are ordinarily entitled to elect the
directors, or persons performing similar functions, of such corporation,
partnership or entity.

          “Warrant”
or “Warrants” has the meaning set forth in Section l(d) hereof.

          “WC
Collateral” means all of the following assets and rights of the Company,
wherever located, whether now owned or hereafter acquired or arising: Accounts;
Letters of Credit; Letter-of-credit rights; Inventory, including Work in
Progress; Supporting obligations; and all Cash Proceeds and products of the
foregoing [said terms having the respective meanings given such terms in
Article 9 of the Uniform Commercial Code (“UCC”) (or absent definition in
Article 9 of the UCC, as defined in any other article of the UCC) as enacted in
the State of Michigan as of the date of this Agreement, and as amended
thereafter].

          “WC
Security Agreement” means the Security Agreement dated May 1, 2002 between the
Representative and the Company as amended March   , 2008.

          “WC
Security Interest” means Liens granted to the Representative of the Purchasers
pursuant to this Agreement and the Loan Documents.

          “Wholly-Owned
Subsidiary” means any Subsidiary, all of the equity securities of which (other
than directors’ qualifying shares) are owned by the Company or one or more
other Wholly-Owned Subsidiary of the Company.

          (e)
For all purposes of the Loan Documents, except as otherwise expressly provided
or unless the context otherwise requires:

	
 

	
 

	
 

	
(i) the words
 “herein”, “hereof” and “hereunder” and other words of similar import refer to
 the particular Loan Document as a whole and not to any particular Section or
 other subdivision thereof,

	
 

	
 

	
 

	
(ii) all
 accounting terms not otherwise defined herein have the meanings assigned to
 them in accordance with GAAP;

	
 

	
 

	
 

	
(iii) all
 computations provided for herein, if any, shall be made in accordance with

-20-

	
 

	
 

	
 

	
GAAP, unless
 another method of computation is herein specified;

	
 

	
 

	
 

	
(iv) any
 uses of the masculine, feminine or neuter gender shall also be deemed to
 include any other gender, as appropriate; and

	
 

	
 

	
 

	
(v) the
 exhibits and schedules to this Agreement shall be deemed a part of this
 Agreement and any Exhibit, Annex or Schedule to any other Loan Document shall
 be deemed a part of such other Loan Document, as the case may be.

SECTION 4.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

          The
Company represents and warrants as follows as of the date hereof and as of the
Closing Date:

          4.1. Corporate Existence and Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and is duly qualified to do business, and is
in good standing, in all additional jurisdictions where such qualification is
necessary under applicable law. The Company has all requisite corporate power
to own or lease the properties used in its business and to carry on its
business as now being conducted and as proposed to be conducted, and to execute
and deliver this Agreement and the other Loan Documents to be executed and to
engage in the transactions contemplated hereby and thereby.

          4.2.
Corporate Authority. The execution, delivery and performance by the
Company of this Agreement and the other Loan Documents have been duly
authorized by all necessary corporate action and are not in contravention of
any applicable Governmental Regulation, or of the terms of the Company’s
charter or by-laws, or of any contract or undertaking to which the Company is a
party or by which the Company or its property may be bound or affected and do
not result in the imposition of any Lien, except for Permitted Liens.

          4.3.
Binding Effect. This Agreement is, and each of the Loan Documents to
which the Company is a party when delivered hereunder will be, legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms.

          4.4.
Subsidiaries. The Company has no active Subsidiaries.

          4.5.
Financial Condition. The financial statements included in the documents
delivered pursuant to Section 10.6, copies of which have been furnished to the
Purchasers, fairly present, and the financial statements delivered pursuant to
Section 7.4 will fairly present, the financial position of the Company and any
Subsidiary as at the respective dates thereof, and the results of operations of
the Company and any Subsidiary for the respective periods indicated, all on a
Consolidated basis in accordance with GAAP (subject, in the case of interim
statements, to normal, immaterial year-end audit adjustments). There is no
material Contingent Liability of the Company or any Subsidiary that is not
reflected in such Consolidated statements or in the notes thereto.

-21-

          4.6.
Use of Loans. The Company will use the proceeds of the sale of the Notes
and the Warrants for working capital and other general corporate purposes. The
Company does not extend or maintain, in the ordinary course of business, credit
for the purpose, whether immediate, incidental, or ultimate, of buying or carrying
margin stock (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System), and no part of the proceeds of any Note will be
used for the purpose, whether immediate, incidental, or ultimate, of buying or
carrying any such margin stock or maintaining or extending credit to others for
such purpose.

          4.7.
Consents, Etc. Except for such consents, approvals, authorizations,
declarations, registrations or filings delivered by the Company at or prior to
the Closing pursuant to Section 10.4, if any, each of which is in full force
and effect, no consent, approval or authorization of or declaration,
registration or filing with any governmental authority or any nongovernmental
person, including any creditor, lessor or shareholder of the Company or any
Subsidiary, is required on the part of the Company or any Subsidiary in
connection with the execution, delivery and performance of this Agreement and
the other Loan Documents or the transactions contemplated hereby or thereby or
as a condition to the legality, validity or enforceability of this Agreement
and the other Loan Documents.

          4.8.
Taxes. Each of the Company and any Subsidiary has filed all tax returns
(federal, state and local) required to be filed and have paid all taxes shown
thereon to be due, including interest and penalties, or has established
adequate financial reserves on its books and records for payment thereof. The
Company does not know of any actual or proposed tax assessment or any basis
therefor, and no extension of time for the assessment of deficiencies in any
federal or state tax has been granted to the Company.

          4.9.
Title to Properties. Except as otherwise disclosed in the latest
Consolidated balance sheet delivered pursuant to Section 4.5, the Company and
any Subsidiary have a valid and indefeasible ownership interest in all of the
properties and assets reflected in the Consolidated balance sheet of the
Company and any Subsidiary or subsequently acquired by the Company or any
Subsidiary. All of such properties and assets are free and clear of any Lien,
except for Permitted Liens.

          4.10.
Compliance with Governmental Relations. To the best of the Company’s
knowledge, the Company and any Subsidiary is in compliance in all material
respects with all Governmental Regulations (including Environmental Laws)
applicable to such person or its business or properties. Without limiting the
generality of the foregoing, all licenses, permits, orders or approvals which
are required under any Governmental Regulation in connection with any of the
businesses or properties of the Company or any Subsidiary (“Permits”) are in
full force and effect, no notice of any violation has been received in respect
of any such Permits and no proceeding is pending or, to the knowledge of the
Company, threatened to terminate, revoke or limit any such Permits.

          4.11.
ERISA. To the best of the Company’s knowledge, the Company and its Plans
are in 

-22-

compliance in
all material respects with those provisions of ERISA and of the Code which are
applicable with respect to any Plan. No Prohibited Transaction and no
Reportable Event has occurred with respect to any such Plan. The Company is not
an employer with respect to any Multiemployer Plan. The Company has met the
minimum funding requirements under ERISA and the Code with respect to its
Plans, if any, and has not incurred any liability to the PBGC or any Plan.
There is no material unfunded benefit liability, determined in accordance with
Section 400 1 (a)(1 8) of ERISA, with respect to any Plan of the Company.

          4.12.
Environmental Matters.Without limiting the generality of Section 4.10:

	
 

	
 

	
 

	
 

	
(a)

	
No written
 demand, claim, notice, suit, suit in equity, action, administrative action,
 investigation or inquiry whether brought by any governmental authority,
 private person or otherwise, arising under, relating to or in connection with
 any Environmental Laws is pending or, to the best of the Company’s knowledge,
 threatened against Company, the Subsidiary any Property or any past or
 present operation of the Company or any Subsidiary which could result in a
 Material Adverse Effect.

	
 

	
 

	
 

	
 

	
(b)

	
The Company
 does not have any knowledge that any other person has ever received any
 notice, claim or allegation of any violation, and the Company is not aware of
 any existing violation, of Environmental Laws at or about any Property, and
 the Company does not have any knowledge of any actions commenced or
 threatened by any party for or related to or arising out of non-compliance
 with Environmental Laws which apply to any Property, activities at any
 Property or Hazardous Materials at, from or affecting any Property.

	
 

	
 

	
 

	
 

	
(c)

	
None of the
 Property appears on the National Priority List (as defined under federal law)
 or any state listing which identifies sites for remedial clean-up or
 investigatory actions. To the best of the Company’s knowledge, none of the
 Property has been contaminated with substances which give rise to a clean-up
 obligation under any Environmental Law or common law.

          4.13.
Investment Company Act. Neither Company nor any Subsidiary is an
“investment company” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as amended.

          4.14.
Disclosure. No report or other information furnished in writing by or on
behalf of the Company to any Purchaser in connection with the negotiation or
administration of this Agreement contains any material misstatement of fact or
omits to state any material fact or any fact necessary to make the statements
contained therein not misleading. Neither this Agreement, the other Loan
Documents, nor any other document, certificate, or report or statement or other
information furnished to any Purchaser by or on behalf of the Company in
connection with the 

-23-

transactions
contemplated hereby contains any untrue statement of a material fact or omits
to state a material fact in order to make the statements contained herein and
therein not misleading. There is no fact known to the Company which materially
and adversely affects, or which in the future may (so far as the Company can
now foresee) materially and adversely affect, the business, properties,
operations, condition, financial or otherwise, or prospects of the Company or
any Subsidiary, which has not been set forth in this Agreement or in the other
documents, certificates, statements, reports or other information furnished in
writing to any Purchaser by or on behalf of the Company in connection with the
transactions contemplated hereby.

          4.15.
Stock Ownership. The authorized capital stock of the Company consists of
(i) 50,000,000 shares of Common Stock, without par value, of which 29,566,409
shares are outstanding, and (ii) 400,000 shares of Preferred Stock (though
7,000 shares of preferred stock are retired), without par value, none of which
are outstanding. Such outstanding shares of Common Stock are duly authorized,
validly issued and outstanding and fully paid and nonassessable. Except for the
Warrants, the warrants to purchase 3.5 million shares of the Company issued to
investors who purchased 7 million shares of the Company in April 2005 [“PIPE
Investors”] (said warrants include provisions requiring the Company to issue
additional warrants to purchase shares of the Company to said warrant holders
when the Company issues any equity securities below said warrants’ initial
exercise price of $1.60 per share) the Class 3 Notes and options to purchase
shares of Common Stock granted to employees, directors or agents of the Company
pursuant to the Company’s stock option plans.

          4.16.
No Defaults or Conflicts.

          (a)
No Event of Default or Potential Default has occurred and is continuing.

          (b)
The execution, delivery and performance by the Company of this Agreement and of
the Loan Documents to which it is a party and any of the transactions
contemplated hereby or thereby (including, without limitation, the issuance of
the Notes, the Warrants and the Shares as contemplated herein or therein) do
not and will not (i) violate or conflict with, with or without the giving of
notice or the passage of time or both, any provision of (A) the Articles of
Incorporation or By-Laws of the Company or (B) any law, rule, regulation,
order, judgment, writ, injunction, decree, agreement, indenture or other
instrument applicable to the Company or any Subsidiary or any of their
respective properties (or to which the Company of the Subsidiary is a party or
by which any of their respective properties may be bound), (ii) other than
pursuant to this Agreement or the Loan Documents, result in the creation of any
Lien upon any of the Company’s or any Subsidiary’s Properties, (iii) require
the consent, waiver, approval, order or authorization of, or declaration,
registration, qualification or filing with, any Person (whether or not a
governmental authority and including, without limitation any shareholder
approval) other than (A) the consent of the Senior Lender (B) any registration,
qualification or filing with the Securities and Exchange Commission or any
state securities commission necessary in connection with the Company’s
obligations under Section 17 hereof and (C) the Company’s routine filing
obligations under the Securities Exchange Act or (iv) cause anti-dilution clauses
of any outstanding securities to become operative or give rise to any
preemptive rights. No such

-24-

provision
referred to in the preceding clause (i) will have a Material Adverse Effect.

          4.17.
Offering of Notes. Neither the Company nor any agent nor any other
Person acting on their behalf, directly or indirectly, (i) offered any of the
Notes, Warrants or any similar security of the Company (A) by any form of
general solicitation or general advertising (within the meaning of Regulation D
under the Securities Act) or (B) for sale to or solicited offer to buy any
thereof from, or otherwise approached or negotiated with respect thereto with,
any Person other than the Purchasers and additional potential investors who,
either alone or with their Purchaser Representatives(s) (as defined in
Regulation D under the Securities Act) have such knowledge and experience in
financial and business matters that they are capable of evaluation the merits
and risks of the prospective investment and who are able to bear the economic
risks of the investment or (ii) has done, or caused to be done (or has omitted
to do or to cause to be done) any act which act (or which omission) would
result in bringing the issuance or sale of the Notes, Warrants or Shares within
the provisions of Section 5 of the Securities Act.

          4.18.
Outstanding Securities. All securities (as defined in the Securities
Act) of the Company have been offered, issued, sold and delivered in compliance
with, or pursuant to exemptions from, all applicable federal and state laws,
and the rules and regulations of federal and state regulatory bodies governing
the offering, issuance, sale and delivery of securities. The Company’s common
stock is currently traded on the the OTC Bulletin Board®.

                    4.19.
Intellectual Property.

                    (a)
The Company owns, free and clear of claims or rights of any other Person,
except as provided under this Agreement, with full right to use, sell, license,
sublicense, dispose of, and bring actions for infringement of, or, to the
knowledge of the Company, has acquired licenses or other rights to use, all
Intellectual Property necessary for the conduct of its business as presently
conducted (other than with respect to software which is generally commercially
available and not used or incorporated into the Company’s products and open
source software which may be subject to one or more “general public” licenses).
All works that are used or incorporated into the Company’s services, products
or services or products actively under development and which is proprietary to
the Company was developed by or for the Company by the current or former
employees, consultants or independent contractors of the Company or purchased
or licensed by the Company. 

                    (b)
The business of the Company as presently conducted and the production,
marketing, licensing, use and servicing of any products or services of the Company
do not, to the knowledge of the Company, infringe or conflict with any patent,
trademark, copyright, or trade secret rights of any third parties or any other
Intellectual Property of any third parties in any material respect. The Company
has not received written notice from any third party asserting that any
Intellectual Property owned or licensed by the Company, or which the Company
otherwise has the right to use, is invalid or unenforceable by the Company and,
to the Company’s knowledge, there is no valid basis for any such claim (whether
or not pending or threatened).

-25-

                    (c)
No claim is pending or, to the Company’s knowledge, threatened against the
Company nor has the Company received any written notice or other written claim
from any Person asserting that the Company’s present or contemplated activities
infringe or may infringe in any material respect any Intellectual Property of
such Person. 

                    (d)
All licenses or other agreements under which the Company is granted
Intellectual Property (excluding licenses to use software utilized in the Company’s
internal operations and which is generally commercially available) are in full
force and effect and, to the Company’s knowledge, there is no material default
by any party thereto. The Company has no reason to believe that the licensors
under such licenses and other agreements do not have and did not have all
requisite power and authority to grant the rights to the Intellectual Property
purported to be granted thereby.

                    (e)
All licenses or other agreements under which the Company has granted rights to
Intellectual Property to others (including all end-user agreements) are in full
force and effect, there has been no material default by the Company or any
Company Subsidiary thereunder and, to the Company’s knowledge, there is no
material default of any provision thereof relating to Intellectual Property by
any other party thereto.

                    (f)
The Company has taken all steps required in accordance with commercially
reasonable business practice to establish and preserve their ownership in its
owned Intellectual Property and to keep confidential all material technical
information developed by or belonging to the Company which has not been
patented or copyrighted. To the Company’s knowledge, the Company is not making
any unlawful use of any Intellectual Property of any other Person, including,
without limitation, any former employer of any past or present employees of the
Company. To the Company’s knowledge, neither the Company nor any of its
employees has any agreements or arrangements with former employers of such
employees relating to any Intellectual Property of such employers, which
materially interfere or conflict with the performance of such employee’s duties
for the Company or result in any former employers of such employees having any
rights in, or claims on, the Company’s Intellectual Property. Each current
employee of the Company has executed agreements regarding confidentiality,
proprietary information and assignment of inventions and copyrights to the
Company, as the case may be, each independent contractor or consultant of the
Company has executed agreements regarding confidentiality and proprietary
information, and the Company has not received written notice that any employee,
consultant or independent contractor is in violation of any agreement or in
breach of any agreement or arrangement with former or present employers
relating to proprietary information or assignment of inventions. Without
limiting the foregoing: (i) the Company has taken reasonable security measures
to guard against unauthorized disclosure or use of any of its Intellectual
Property that is confidential or proprietary; and (ii) the Company has no
reason to believe that any Person (including, without limitation, any former
employee or consultant of the Company) has unauthorized possession of any of
its Intellectual Property, or any part thereof, or that any Person has obtained
unauthorized access to any of its Intellectual Property. The Company has
complied in all material respects with its respective obligations pursuant to
all agreements relating to Intellectual Property rights that are the subject of
licenses granted by third parties, except for any non-

-26-

compliance that has not had or would not reasonably be expected to have
a Material.

          4.20.
Chief Executive Office. The chief executive office of the Company and
its records with respect to the IP Collateral and WC Collateral are located at
Wixom, Michigan.

SECTION 5.
REPRESENTATIONS OF THE PURCHASERS

          Each
Purchaser severally represents and warrants, but only as to itself, to the
Company that:

          5.1. Power and Authority. Such Purchaser has all requisite power,
authority and legal right to execute, deliver, enter into, consummate and
perform this Agreement and the Loan Documents to which it is a party. The
execution, delivery and performance of this Agreement and the Loan Documents to
which it is a party by such Purchaser have been duly authorized by all required
corporate and other actions. Such Purchaser has duly executed and delivered
this Agreement and the Loan Documents to which it is a party, and this
Agreement and the Loan Documents to which it is a party constitute the legal,
valid and binding obligation of such Purchaser enforceable against such
Purchaser in accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to the
rights of creditors generally and subject to the availability of equitable
remedies and the application of equitable principles.

          5.2.
Purchase for Investment. Such Purchaser is capable of evaluating the
risk of its investment in the Notes and Warrants being purchased by it and is
able to bear the economic risk of such investment. Such Purchaser is purchasing
the Notes and Warrants to be purchased by it for its own account, and the Notes
and Warrants are being purchased by it for investment and not with a present
view to any distribution thereof.

          It
is understood that the disposition of such Purchaser’s property shall, subject
to the terms of this Agreement, at all times be within such Purchaser’s
control. If such Purchaser should in the future decide to dispose of any of its
Notes, Warrants or Shares, it is understood that it may do so only in
compliance with the Securities Act and this Agreement.

SECTION 6.
PREPAYMENTS

          
6.1. Optional Prepayments of Class 2 Notes.

          Class
2 Notes must be paid at such times as the Company receives payment on the
specified order(s) associated with such Notes, with payment being applied first
to accrued interest and then to principal. In addition, the Company may make
prepayment in full or part on the Class 2 Notes at any time.

          6.2.
Optional Prepayments of Class 3 Notes.

-27-

          (a)
The Company may at its option (subject to the other provisions of this Section
6.2) prepay all or part of the principal amount of Class 3 Notes, at a price
equal to the aggregate principal amount of the Notes to be prepaid plus accrued
interest thereon to the date of prepayment.

          (b)
The aggregate amount of each prepayment of the principal amount of affected
Class 3 Notes pursuant to this Section 6.2 shall be allocated among all
affected Class 3 Notes, in proportion, as nearly as practicable, to the respective
unpaid principal amounts of such Class 3 Notes. 

          (c)
The right of the Company to prepay Class 3 Notes pursuant to this Section 6.2
shall be conditioned upon its giving notice of prepayment, signed by an
officer, to the holders of Class 3 Notes not less than thirty (30) days and not
more than sixty (60) days prior to the date upon which the prepayment is to be
made specifying (i) the registered holder of each Class 3 Note to be prepaid,
(ii) the aggregate principal amount being prepaid, (iii) the date of such
prepayment (which must be a Business Day), (iv) the accrued and unpaid interest
(to but not including the date upon which the prepayment is to be made) and (v)
that the prepayment of Class 3 Notes is being made pursuant to this Section 6.2.
Notice of prepayment having been so given, the aggregate principal amount of
the Class 3 Notes so specified in such notice, and all accrued and unpaid
interest thereon, shall become due and payable on the specified prepayment
date, but the right to convert any or all of the Class 3 Notes to Common Stock
shall continue to, but not including, the date of such prepayment.

          (d)
The right of the Company to prepay Old Class 3 Notes pursuant to this Section
6.2 shall be further conditioned upon either of the following being met:

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

	
fourteen
 months shall have elapsed from the Closing Date for each Class 3 Note
 affected, the Common Stock of the Company shall have been trading at an
 average Market Price of the greater of $1 per share or 125% of the conversion
 price for the Class 3 Notes being called for the four months prior to the
 specified prepayment date and the Common Stock receivable by the Class 3
 Purchasers upon conversion of their Class 3 Notes having been eligible for
 public market sale, whether through registration or an exemption therefrom,
 for at least four months prior to the specified prepayment date; or

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

	
the common
 stock of the Company shall have been trading at an average Market Price of
 the greater of $1 per share or 200% of the conversion price for the Class 3
 Notes being called for the four month prior to the specified prepayment date
 and the Common Stock receivable by the Class 3 Purchasers upon conversion of
 their Class 3 Notes having been eligible for public market sale, through
 registration, for at least four months prior to the specified prepayment
 date.

	
 

	
 

	
 

	
 

	
 

	
The
 provisions of this section 6.2(d) shall not be applicable if the prepayment
 by the Company is pursuant to the sale by the Company of substantially all of
 its assets. 

-28-

          (e)
Notwithstanding any of the other provisions in this Agreement (including,
without limitation, other provision in this Section 6.2), the Company shall
have the right to prepay $100,000 of Old Class 3 Notes prior to April 1, 2008
without being required to prepay any New Class 3 Notes. 

          (f)
The right of the Company to prepay New Class 3 Notes pursuant to this Section
6.2 shall be further conditioned upon the satisfaction of the following
conditions: 

	
 

	
 

	
 

	
 

	
  i.

	
Twelve (12)
 months have elapsed from the Issue Date,

	
 

	
 

	
 

	
 

	
 ii.

	
The Market
 Price for the Common Stock shall have averaged at least $0.50 per share
 during any period of twenty (20) consecutive Trading Days prior to the date
 the Company gives notice to prepay said notes, and

	
 

	
 

	
 

	
 

	
iii.

	
During such
 twenty consecutive Trading Days (referred to in ii above), the resale of
 issuable shares underlying said notes shall have been covered by an effective
 registration statement or such issuable shares shall have been eligible for
 sale to the public pursuant to Rule 144 without limitation as to the number
 of shares to be sold. Notwithstanding other provisions in this Agreement that
 require the Company to treat all New Class 3 Notes without partiality, the
 Company may prepay notes under this provision [6.2.(f) iii] where the resale
 of issuable shares underlying said notes shall only have been eligible for
 sale to the public pursuant to Rule 144 without limitation as to the number
 of shares to be sold provided that the Company also offers to prepay a
 proportional share of the balance of New Class 3 Notes then outstanding.

	
 

	
 

	
 

	
 

	
The
 provisions of this section 6.2(f) shall not be applicable if the prepayment
 by the Company is pursuant to the sale by the Company of substantially all of
 its assets. 

          (g)
The right of the Company to prepay Class 3 Notes (other than notes specified in
6.2.(e) above) pursuant to the terms in 6.2 (d) and (f) shall be further
conditioned that the Company has no Class 2 Notes outstanding at the prepayment
date. 

          (h)
The right of the Company to prepay New Class 3 Notes outstanding that are
“blocked” from being converted pursuant to Section 2 of said notes shall be
subject to additional terms and conditions in this section as follows:

	
 

	
 

	
 

	
If such
 “blocked” holder of a New Class 3 Note is directly or indirectly, the
 beneficial owner of ten percent (10%) of shares of the Company (pursuant to
 Section 16 of the Securities Exchange Act) [“Blocked Insider”] and said
 Blocked Insider has sold any shares of the Company within the 6 month period
 prior to date of such planned prepayment date as specified in the notice of
 prepayment given pursuant to Section 6.2.(c) above, the Company must extend
 the prepayment date for such Blocked Insider to10 Business Days after six
 months have elapse from said Blocked Insider’s latest sale or disposition of
 shares of the Company prior to said Blocked Insider being given notice of such planned prepayment (this limitation shall
 not apply to sales of shares by the 

-29-

	
 

	
 

	
 

	
Blocked Insider after being given notice
 of such planned prepayment). Said Blocked Insider may waive the extra
 prepayment notice time and accept the prepayment. If the Blocked Insider has
 not waived the extra prepayment notice time, delaying prepayment to the
 Blocked Insider pursuant to this section shall not be considered a violation
 of requirements in this Agreement that the Company treat all Class 3 Note
 holders without partiality.

          6.3.
Obligations Unconditional. The Company hereby agrees and confirms that
its obligations under the Notes shall be deemed to constitute for all purposes
obligations for the payment of Indebtedness for Borrowed Money and shall
accordingly be absolute and unconditional in accordance with the terms of the
Notes and this Agreement and shall not be affected by (and the Company agrees
not to assert) any right the Company may now or at any time hereafter have,
including any right to terminate, cancel, quit or surrender this Agreement or
any Note except in accordance with the express terms thereof.

SECTION 7.
AFFIRMATIVE COVENANTS

          The
Company covenants and agrees that, until payment in full of the principal of
and accrued interest on the Notes and the payment or performance of all other
obligations under the Loan Documents, the Company shall:

          7.1. Preservation of Corporate Existence; Etc. Do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its legal
existence and its qualification as a foreign corporation in good standing in
each jurisdiction in which such qualification is necessary under applicable
law, and the rights, licenses, permits (including those required under
Environmental Laws), franchises, patents, copyrights, trademarks and trade
names material to the conduct of its businesses; and defend all of the
foregoing against all claims, actions, demands, suits or proceedings at law or
in equity or by or before any governmental instrumentality or other agency or
regulatory authority.

          7.2.
Maintenance of Properties; Insurance. Maintain, preserve and protect all
property that is material to the conduct of its business and keep such property
in good repair, working order and condition and from time to time make, or
cause to be made, all needful and proper repairs, renewals, additions,
improvements and replacements thereto necessary in order that the business
carried on in connection therewith may be properly conducted at all times in
accordance with customary and prudent business practices for similar
businesses; and maintain in full force and effect insurance with responsible
and reputable insurance companies or associations in such amounts, on such
terms and covering such risks, including fire and other risks insured against
by extended coverage, as is usually carried by companies engaged in similar
businesses and owning similar properties similarly situated and maintain in
full force and effect public liability insurance, business interruption
insurance, insurance against claims for personal injury or death or property
damage occurring in connection with any of its activities or any properties
owned, occupied or controlled by it, in such amounts as it shall reasonably
deem necessary, and maintain such other insurance as may be required by
Governmental Regulations or as may be reasonably

-30-

requested by
the Majority Noteholders. Upon request, the Company shall deliver to each
Purchaser copies of all or any of such insurance policies or the related
certificates of insurance. 

	
 

	
 

	
 

	
7.3. Reporting
  Requirements. Furnish to each Purchaser the following:

	
 

	
 

	
 

	
(a) promptly
  and in any event within five (5) calendar days after becoming aware of the
  occurrence of (A) any Potential Default or Event of Default, (B) the
  commencement of any material litigation against, by or affecting the Company
  or any Subsidiary, and any material developments therein, or (C) any
  development in the business or affairs of the Company which has resulted in
  or which is likely, in the reasonable judgment of the Company, to result in a
  Material Adverse Effect, a statement of an officer of the Company setting
  forth details of such Potential Default or Event of Default or such
  litigation or such event or condition and the action which the affected
  person has taken and proposes to take with respect thereto;

	
 

	
 

	
 

	
(b) as soon
  as available and in any event within 45 days after the end of each fiscal
  quarter of the Company, the Consolidated balance sheet of the Company as of
  the end of each such quarter and Consolidated income statement of the Company
  for each such quarter and for the period commencing at the end of the
  previous fiscal year and ending with the end of such quarter, setting forth
  in each case in comparative form the corresponding figures for the
  corresponding date or period of the preceding fiscal year;

	
 

	
 

	
 

	
(c) as soon
  as available and in any event within 90 days after the end of each fiscal
  year of the Company, a copy of the annual audited Consolidated financial
  statements of the Company for such fiscal year;

	
 

	
 

	
 

	
(d) promptly
  after receipt thereof by the Company, copies of any audit or management
  reports submitted to it by independent Accountants in connection with any
  audit, interim audit or other report submitted to the board of directors of
  the Company;

	
 

	
 

	
 

	
(e) promptly
  after the same are available, copies of each annual report, proxy or
  financial statement or other communication sent to the Company’s stockholders
  and copies of all annual, regular, periodic and special reports and
  registration statements which the Company may file or be required to file
  with the Securities and Exchange Commission or with any securities exchange
  or the National Association of Securities Dealers, Inc.; and

	
 

	
 

	
 

	
(f)
  promptly, such other information respecting the business, properties,
  operations or condition, financial or otherwise, of the Company as any
  Purchaser may from time to time reasonably request upon reasonable notice.

          The
requirement that information under Sections 7.3.(b), (c), (d), and (e) be
furnished to each Purchaser shall be met by the Company filing such documents with
the Commission. Additionally, the Company will also provide copies of such
documents to any Purchaser upon 

-31-

written
request of such Purchaser. 

          Each
holder of Notes and Warrants hereby acknowledges that it is aware of the
restrictions imposed by federal and state securities laws on a person
possessing material nonpublic information about a company. In this regard, each
such holder hereby agrees that (i) while it is in possession of material
nonpublic information with respect to the Company and its Subsidiaries, such
holder will not purchase or sell any securities of the Company, or communicate
such information to any third party, in violation of any such laws and (ii) it
will keep all such nonpublic information confidential. 

          7.4.
Accounting; Access to Records, Books; Etc. Maintain a system of
accounting established and administered in accordance with sound business
practices to permit preparation of financial statements in accordance with GAAP
and to comply with the requirements of this Agreement and, at any reasonable
time and from time to time, (i) permit the Agent to examine and make copies of
and abstracts from the records and books of account of, and visit the
properties of, such person and to discuss the affairs, finances and accounts of
such person with their respective directors, officers, employees and
independent auditors, and by this provision the Company does hereby authorize
the same, and (ii) permit the Agent to conduct a comprehensive field audit of
its books, records, properties and assets, if there is no Event of Default or
Potential Default continuing, at the Purchasers’ expense, otherwise at the
Company’s expense. 

          7.5.
Further Assurances. Execute and deliver promptly after request therefor
by any Purchaser, all further instruments and documents and take all further
action that may be necessary or desirable, or that any Purchaser may request,
in order to give effect to, and to aid in the exercise and enforcement of the
rights and remedies of any Purchaser under, this Agreement and the other Loan
Documents. 

          7.6.
Use of Proceeds. The Company will use the net proceeds realized from the
sale of the Notes for working capital and other general corporate purposes and
to repay up to $100,000 of Old Class 3 Notes. No portion of such proceeds will
be used for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying, within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System, as amended from time to time, any
“margin stock” as defined in said Regulation U, or any “margin stock” as
defined in Regulation G of the Board of Governors of the Federal Reserve
System, as amended from time to time, or for the purpose of purchasing,
carrying or trading in securities within the meaning of Regulation T of the
Board of Governors of the Federal Reserve System, as amended from time to time,
or for the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase any such margin stock or other securities. 

          7.7.
Office for Payment, Exchange and Registration. So long as any of the
Notes or Warrants are outstanding, the Company will maintain an office or
agency where Notes or Warrants may be presented for payment, exchange, exercise
or registration of transfer as provided in this Agreement or in the Warrants.
Such office or agency initially shall be the office of the Company set forth in
Section 22 hereof, which place may from time to time be changed by 

-32-

 notice to the holders of all Notes and
Warrants then outstanding. 

          7.8.
Notices. The Company will give notice to each holder of a Note or
Warrant promptly after it learns (other than by notice from all of such
holders) of the existence of any default under any Permitted Senior
Indebtedness or any material default under any other evidence of Indebtedness
or under any indenture, mortgage or other agreement relating to any evidence of
Indebtedness in respect of which the Company or any Subsidiary is liable. 

          7.9.
Fiscal Year. The fiscal year of the Company for tax, accounting and any
other purposes shall end on December 31 of each calendar year. 

          7.10.
Communication with Accountants. The Company hereby authorizes the Agent
or Representative (on behalf of the Purchasers) to communicate directly with
the independent certified public Accountants for the Company and authorizes
such Accountants to disclose to the Agent any and all financial statements and
any other information of any kind that they may have with respect to the
assets, Properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or prospects of the Company; provided, that
the Company be informed of any such disclosures and participate in any conversations
between such Accountants and the Agent (and the Company agrees that it will not
fail to cooperate in arranging or unreasonably delay any such conversations);
and further provided that the Agent or Representative shall not incur charges
from such Accountants in exercise of such rights for more than ten (10) hours
per calendar year without the Company’s prior written consent. The Company
shall deliver a letter addressed to such Accountants instructing them to comply
with the provisions of this Section 7.10. 

          7.11.
Environmental Matters. The Company agrees to indemnify, defend, protect
and hold harmless Purchasers, their officers, directors, shareholders,
employees, and agents from and against any and all liability, loss, damage,
cost and expense, including, but not limited to, attorneys’ and consultants
fees and disbursements arising from any breach of representations and
warranties set forth in Section 4.12 or covenants set forth in Section 7.2
herein, the Release or presence of Hazardous Materials on, under, about,
adjacent to, from or at any properties or facilities currently or previously
owned, operated or leased by the Company or any Subsidiary, any predecessors of
the Company or any Subsidiary or any entities previously owned by the Company or
any Subsidiary, or at any off-site location to which Hazardous Materials
generated by the Company or any Subsidiary, any predecessors of the Company or
any Subsidiary or any entities previously owned by the Company or any
Subsidiary were sent for handling, treatment, storage, or disposal or any
violation of any Environmental Law or Environmental Permit by the Company or
any Subsidiary or any entity previously owned by the Company or any Subsidiary.
The obligations of the Company under this Section shall survive the Closing
indefinitely. 

          7.12.
Taxes. All payments to a holder of Notes or to a partner of a holder (or
to a partner of such a partner) (any of the foregoing referred to herein as a
“recipient”) of principal of, and interest on, the Notes and all other amounts
payable under this Agreement and any other Loan Document shall be made free and
clear of, and without deduction for, any present or future 

-33-

income, stamp
or other taxes, fees, duties, withholding or other charges of any nature
whatsoever imposed by any taxing authority, other than taxes imposed on or
measured by the net income of such recipient (such non-excluded items being
herein called “Taxes”). In the event that any withholding or deduction from any
payment to be made hereunder is required in respect of any Taxes pursuant to
any applicable law, rule or regulation, then the Company will: 

	
 

	
 

	
 

	
(a) pay to
  the relevant authority the full amount required to be so withheld or
  deducted; and

	
 

	
 

	
 

	
(b) promptly
  forward to such recipient an official receipt or other documentation
  satisfactory to such recipient evidencing such payment to such authority.

          7.13.
Delivery of Information for Rule 144A Transactions. If a holder of Notes
proposes to transfer any such Notes pursuant to Rule 144A under the Securities
Act (as in effect from time to time), the Company agrees to provide (upon the
request of such holder or the prospective transferee) to such holder and (if
requested) to the prospective transferee any financial or other information
concerning the Company which is required to be delivered by such holder to any
transferee of such Notes pursuant to such Rule 144A. 

          7.14.
Amending Articles of Incorporation to increase authorized shares outstanding.
The Company agrees to request that shareholders amend its Articles of
Incorporation to increase its authorized shares outstanding to Seventy (70)
million shares at the next regularly scheduled annual meeting of shareholders.
If the Company does not obtain approval of the shareholders for this
increase in authorized shares outstanding at said annual meeting, the Company
shall call a meeting every fiscal quarter thereafter to seek approval of the
shareholders until such approval is obtained. 

SECTION 8.
NEGATIVE COVENANTS 

          The
Company further covenants and agrees that it will not and will not permit any
Subsidiary to: 

           8.1. Liens.
Create, incur, assume or suffer to exist any Lien upon any of its Property,
whether now owned or hereafter acquired, except Permitted Liens. 

          8.2.
Contingent Liabilities. Assume, guarantee, endorse, contingently agree
to purchase, become liable in respect of any letter of credit, or otherwise
become liable upon the obligation of any Person, except (i) liabilities arising
from the endorsement of letters of credit, notes, drafts, instruments or
documents for deposit or collection or similar transactions in the ordinary
course of business and (ii) other Contingent Liabilities not in excess of
$500,000 in the aggregate. 

          8.3.
Restricted Payments. Make any Restricted Payment or Restricted
Investment, except from Earnings Available for Dividends. 

-34-

          8.4.
Sale or Transfer of Assets. Sell, lease, assign, transfer or otherwise
dispose of any IP Collateral except in the ordinary course of business or
except upon payment to the Noteholders and holders of notes issued pursuant to
Other Note Purchase Agreements (as defined in Section 23 below) of 90% of the
net proceeds received by the Company from the sale of such IP Collateral, up to
the full amount of the Company’s Obligations to the Noteholders and holders of
notes issued pursuant to Other Note Purchase Agreements, except that Class 3
Note holders and holders of notes issued pursuant to Other Note Purchase Agreements
would have the option instead to convert the portion of their Class 3 Notes or
notes issued pursuant to Other Note Purchase Agreements which is proposed to be
repaid into the common stock of the Company with the Company retaining that
portion of the proposed payment. It is agreed that the Company may place source
code for software in escrow at the request of purchasers of its products
without violating this Agreement. 

          8.5.
Amendment of Charter. Amend, modify or waive any term or provision of
its corporate charter, unless required by law, except as provided herein. 

          8.6.
Corporate Offices; Corporate Name; Corporate Records. Transfer its
executive offices or change its corporate name or maintain records (including
computer printouts and programs) with respect to the IP Collateral or WC
Collateral at any locations other than those at which the same are presently
kept or maintained, except upon giving notice to the Noteholders and the Agent 

          8.7.
Private Placement Status. Neither the Company nor any agent nor any
other Person acting on the Company’s behalf will do or cause to be done (or
will omit to do or to cause to be done) any act which act (or which omission)
would result in bringing the issuance or sale of the Notes, Warrants or Shares
within the provisions of Section 5 of the Securities Act (other than in
accordance with a registration and qualification of Shares under Section 17
hereof). 

          8.8.
Transactions with Affiliates. Enter into, or permit or suffer to exist,
any transaction or arrangement with any Affiliate, except on terms which are no
less favorable to the Company than could be obtained from persons who are not
Affiliates. 

          8.9.
Limitations of dilution rights on future securities issued.
From March 1, 2008 until such time as Purchasers in the aggregate hold less
than one million of the Shares and No Purchaser holds any of the Notes, enter
into an agreement to effect any “Subsequent Financing” involving a “Dilutive
Transaction” or an “MFN Transaction” (each as defined below). The term
“Subsequent Financing” shall mean any capital raising financing by the Company
or any Subsidiary using Common Stock or Common Stock Equivalents. The term
“Dilutive Transaction” shall mean (A) a transaction in which the Company
or any Subsidiary issues or sells any note or other security, including without
limitation preferred shares, convertible into Common Stock (“Convertible
Securities”) which calls for the conversion price at which such Convertible
Securities may be converted into Common Stock to be reduced from the conversion
price specified at the time of the issuance of such Convertible Securities
below $0.25 per share 

-35-

(subject to
adjustment for stock splits, stock dividends and similar events after February
25, 2008), or (B) a transaction in which the Company or any Subsidiary issues
or sells any warrant or other security exercisable or exchangeable into Common
Stock (“Other Exercisable Securities”) which calls for the Company to issue or
commit to issue more shares of its Common Stock than was specified at the time
of the issuance of said Other Exercisable Securities caused by the future
issuance by the Company or any Subsidiary of Common Stock, Convertible
Securities, or Other Exercisable Securities convertible, exchangeable, or
exercisable into Common Stock below $0.25 per share (subject to adjustment for
stock splits, stock dividends and similar events after March 1, 2008). The term
“MFN Transaction” shall mean a transaction in which the Company or any
Subsidiay issues or sells any securities in a capital raising transaction or
series of related transactions which grants to an investor the right to receive
additional shares based upon future transactions of the Company on terms more
favorable than those granted to such investor in such offering. 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. The limitations in this section shall not apply to the warrants issued
to the PIPE Investors (as defined in Section 4.15 above), including, without
limitation, additional warrants issued to said PIPE investors pursuant to the
terms or waiver of terms in said PIPE Investors’ warrants.  

          8.10.
Limitations of future Common Stock issuances. Issue any security which
commits it to issue or potentially to issue Common Stock in excess of the limit
of authorized shares outstanding at the time of the issuance of any such
security. This limitation shall only apply to authorized shares outstanding
above Seventy (70) million shares. 

          8.11.
Limitations on equity securities which may be issued under employee
compensation plans. Issue restricted stock bonuses, new stock options, or
link other bonus plans to the change in the price of its Common Stock to its
current employees, officers, or directors (current employees, officers, or
directors being defined as any individuals that were engaged in such capacities
at any time from January 1, 2007 to the date at which this Agreement is
effective) in the aggregate amount exceeding Two Million Eight Hundred Twenty
Eight Thousand (2,828,000) issued or issuable shares of its Common Stock until
all Class 2 Notes are repaid (said 2,828,000 issued or issuable share
limitation shall be reduced by any such share issuances that were not made
pursuant to an existing employee stock option plan since January 1, 2008 and
shall also be reduced by any of the options to purchase 128,000 shares of the
Company’s Common Stock at $1.065 per share that have been granted to employees
pursuant to the Company’s 1995 stock option plan that are outstanding at
February 8, 2008 and that are not cancelled by May 5, 2008). (This limitation
does not preclude the Company from seeking shareholder approval for employee
compensation plans which allow the company to issue over 2,828,000 shares,
options, or issuable shares of its Common Stock prior to repaying all of its
Class 2 Notes.) 

          8.12.
Limitations of subordinated debt issuances. Except as otherwise provided
in this Agreement and until there are no Notes outstanding, issue any debt
securities in a capital raising transaction which do not meet the definition of
Subordinated Debt herein. 

-36-

SECTION 9. 

          Intentionally
Omitted 

SECTION 10.
CONDITIONS TO PURCHASERS’OBLIGATIONS 

          The
Purchasers’ obligations to purchase a Note or Notes and a Warrant or Warrants
hereunder is subject to satisfaction of the following conditions at the Closing
(any of which may be waived by the Purchasers): 

          10.1. Accuracy of Representations and Warranties. The representations and
warranties of the Company in this Agreement and in the Loan Documents or in any
certificate or document delivered pursuant hereto or thereto shall be correct
and complete on and as of the Closing Date with the same effect as though made
on and as of the Closing Date (after giving effect to the transactions
contemplated by this Agreement). 

          10.2.
Compliance with Agreements; No Defaults. Except as disclosed on Exhibit
G, the Company performed and complied in all material respects with all
agreements, covenants and conditions contained in this Agreement or the Loan
Documents and any other document contemplated hereby or thereby which are
required to be performed or complied with by the Company on or before the
Closing Date. On the Closing Date (after giving effect to the transactions
contemplated hereby), there shall be no Event of Default or Potential Default. 

          10.3.
Proceedings. All corporate and other proceedings in connection with the
transactions contemplated by the Loan Documents, and all documents incident
thereto, shall be in form and substance satisfactory to the Purchasers and
their counsel, and the Purchasers shall have received all such originals or
certified or other copies of such documents as the Purchasers or their counsel
may reasonably request. 

          10.4.
Legality; Governmental and Other Authorization. The purchase of and
payment for the Notes and Warrants shall not be prohibited by any law or
governmental order, rule, ruling, regulation, release, interpretation or
opinion applicable to the Purchasers and shall not subject the Purchasers to
any penalty, tax (excepting income tax obligations of Purchasers), liability or
other onerous condition. Any necessary consents, approvals, licenses, permits,
orders and authorizations of, and registrations or qualifications with, any
governmental or administrative agency, or other Person, with respect to the
transactions contemplated by the Loan Documents shall have been obtained or
made and shall be in full force and effect. The Company shall have delivered to
the Purchasers, upon their reasonable request setting forth what is required,
factual certificates or other evidence, in form and substance satisfactory to
the Purchasers and their counsel, to enable the Purchasers to establish
compliance with this condition. 

          10.5.
No Change in Law, etc. No legislation, order, rule, ruling or regulation
shall have been proposed, enacted or made by or on behalf of any governmental
body, department or 

-37-

 agency, and no legislation shall have been
introduced in either House of Congress, and no investigation by any
governmental authority or administrative body shall have been commenced or
threatened, and no action, suit or proceeding shall have been commenced before,
and no decision shall have been rendered by, any court, other governmental body
or arbitrator, which, in any such case, in the Purchasers’ reasonable judgment
could adversely affect, restrain, prevent or change the transactions
contemplated by this Agreement and the Loan Documents (including without
limitation the issuance of the Notes and the Warrants hereunder or the issuance
of Shares upon exercise of the Warrants) or materially and adversely affect the
business, affairs, assets, properties, liabilities, results of operations,
condition (financial or otherwise) or prospects of the Company on a
consolidated basis. 

          10.6.
Delivery of Additional Disclosure Documents. The Company shall have
delivered a copy of its most recent Form 10-K and any interim reports,
including financial statements, as filed with the Commission. 

          10.7
Related Agreements. The Company shall have delivered to the Purchasers
executed copies of the Collateral Assignment, and the WC Security Agreement. 

          10.8
Security Interests. All filings of UCC financing statements and all
other filings and actions necessary to perfect the IP Security Interests and
the WC Security Interests as valid and perfected Liens in the Property covered
thereby, subject only to Permitted Liens in effect on the date hereof, shall
have been filed or taken and confirmation thereof shall have been received by
the Agent. All filings of UCC financing statements and all other filings and
actions necessary to perfect the security interests of the Class 2 Purchasers
in the WC Collateral as valid and perfected Liens in the Property covered
thereby, subject only to Permitted Liens in effect on the date hereof, shall
have been filed or taken and confirmation thereof shall have been received by
the Representative. 

          10.9
Searches. The results of tax lien, litigation, UCC, bankruptcy, and
judgment searches with respect to the Company obtained by the Purchasers shall
be acceptable. 

          10.10.
Material Agreements. Review and approval by the Purchasers, at their
option and expense, of all material agreements to which the Company is a party,
including without limitation, all such documents in respect of the borrowing of
money, all joint venture agreements, supply agreements or requirements
contracts, royalty agreements, license agreements, employment/management
incentive agreements, and product warranties. 

          10.11
Insurance. The Purchasers shall have received such evidence satisfactory
to them as they have requested that the Company and any Subsidiary have in
effect such casualty, hazard, public liability, product liability and other
insurance policies required by the Purchasers, written by insurers and in
amounts and forms satisfactory to the Purchasers. 

          10.12
Other Documents and Opinions. The Purchasers shall have received such
other certificates, documents and opinions, in form and substance satisfactory
to the Purchasers and 

-38-

 their counsel, relating to matters incident
to the transactions contemplated hereby as the Purchasers may reasonably
request. 

SECTION 11.
AMENDMENT AND WAIVER 

          11.1.
Amendments and Waivers. This Agreement and any Loan Document may be amended
(or any provision hereof or thereof waived) only with the written consent of
(i) the Majority Noteholders, and (ii) the holder or holders of Warrants or
Shares representing at least a majority of the sum of the Shares then
outstanding and the Shares then obtainable upon the exercise of all Warrants
and conversion of Class 3 Notes then outstanding, if any; provided, however,
that no such amendment or waiver shall (i) change the fixed maturity of any
Note, the rate or the time of payment of interest thereon, the principal amount
thereof, the premium thereon, the currency in which the Notes are payable, the
prepayment provisions of Section 6 hereof, the current exercise price of a
Warrant, the current conversion price of a Class 3 Note, or the registration
rights under Section 17 hereof, without the consent of the holder of each Note,
Warrant or Share so affected or (ii) reduce the aforesaid percentage of Notes,
or reduce the aforesaid percentage of Warrants or Shares, the holders of which
are required to consent to any such amendment or waiver, without the consent of
the holders of all the Notes, or, as the case may be, the holders of all
Warrants and Shares, then outstanding or (iii) exchange the definition of
“Majority Noteholders” without the consent of the holders of all the Notes then
outstanding or (iv) increase the percentage of the amount of the Notes, the
holders of which may declare the Notes to be due and payable under Section 14
hereof, without the consent of the holders of all the Notes then outstanding
without the consent of the holder of each Note so affected, or (v) amend any
term in this Agreement and any Loan Documents (or any provision hereof or
thereof waived) that does not treat all Class 2 Notes, Class 3 Notes, Warrants,
or Shares then outstanding or issuable at the time of such amendment or waiver
pursuant to this Agreement or previous versions of this agreement without
partiality, with respect to each such class of securities respectively [for
example, all such Class 2 Note amendments or waivers must be without partiality
for all Class 2 Notes then outstanding or all such Class 3 Note amendments or
waivers must be without partiality for all Class 3 Notes then outstanding],
without the consent of the holder of each Note, Warrant or Share so affected,
or (vi) amend any term in this Agreement and any Loan Documents (or any
provision hereof or thereof waived) that does not treat all Notes then
outstanding without partiality with respect to any applicable provision in the
Collateral Assignment and/or WC Security Agreement for Notes subject to such
Collateral Assignment (including, without limitation notes issued pursuant to
Section 23 below) or for Notes subject to the WC Security Agreement
respectively without the consent of the Noteholder so affected. Notwithstanding
the above, prior to April 30, 2008, the Company is allowed to amend or waive
the terms in Old Class 3 Notes in the principal amount of $100,000 without
offering or granting such terms or waivers to the balance of the Old Class 3
Note holders or offering such terms to New Class 3 Note holders. 

          11.2.
Notice of Proposed Amendments and Waivers. The Company agrees that all
holders of Notes, Warrants or Shares shall be notified by the Company in
advance of any proposed amendment or waiver of any Loan Document, but failure
to give such notice shall not 

-39-

 in any way affect the validity of any such
amendment or waiver. In addition, promptly after obtaining the written consent
of the holders herein provided, the Company shall transmit a copy of any
amendment or waiver which has been adopted to all holders of Notes, Warrants or
Shares then outstanding, but failure to transmit copies shall not in any way
affect the validity of any such Amendment or waiver. 

          11.3.
All Holders Bound by Amendments and Waivers. The Company and each holder
of a Note, Warrant or Share then or thereafter outstanding shall be bound by
any amendment or waiver effected in accordance with the provisions of this
Section 11, whether or not such Note, Warrant or Share shall have been marked
to indicate such modification, but any Note, Warrant or Share issued thereafter
shall bear a notation as to any such modification (but the failure to bear any
such notation shall not affect the validity of any such subsequently issued
Note, Warrant or Share, which shall be enforceable in accordance with its terms
subject to any such modification). 

SECTION 12.
EXCHANGE OF NOTES AND WARRANTS; CANCELLATION OF SURRENDERED NOTES 

          12.1.
Exchange of Notes. Subject to Section 16 hereof, at any time at the
request of any holder of one or more of the Notes to the Company at its office
provided under Section 7.7 hereof, the Company at its expense (except for any
transfer tax or any other tax arising out of the exchange) will issue and
deliver to or upon the order of the holder in exchange therefore new Notes, in
such denomination or denominations as such holder may request (which must be in
denominations of no less than $ 10,000 plus one Note in a lesser denomination,
if required), in aggregate principal amount equal to the unpaid principal
amount of the Note or Notes surrendered and substantially in the form thereof,
dated as of the date to which interest has been paid on the Note or Notes
surrendered (or, if no interest has yet been so paid thereon, then dated the
date of the Note or Notes so surrendered) and payable to such Person or Persons
or order as may be designated by such holder. Any such new Note shall bear any
notation required by Section 11 hereof. 

          12.2.
Exchange of Warrants. Subject to Section 16 hereof, at any time at the
request of any holder of one or more of the Warrants to the Company at its
office provided under Section 7.7 hereof, the Company at its expense (except
for any transfer tax or any other tax arising out of the exchange) will issue
and deliver to or upon the order of the holder in exchange therefore a new
Warrant certificate or certificates of like tenor, in such amount or amounts as
such holder may request and calling in the aggregate on the face or faces
thereof for the number of Shares which are called for on the face or faces of
the Warrant certificate or certificates so surrendered, and in the name of such
holder or as such holder may direct. Any such new Warrant certificate shall
bear any notation required this Agreement, including Exhibits herein. 

          12.3.
Percent of Interest on Surrendered Notes. In the event that any Note is
surrendered to the Company upon the exercise of all or a portion of any Warrant
using the principal amount of, or accrued and unpaid interest on, the Notes in
accordance with the terms of the Warrants, or upon a prepayment under Section 6
hereof, the Company shall pay all accrued and unpaid 

-40-

 interest on such Note or such portion thereof
and interest shall cease to accrue upon that portion of the principal amount of
such Note used for such exercise or which was prepaid, and the right to
receive, and any right or obligation to make, any prepayment on such portion of
the principal amount pursuant to Section 6 hereof shall terminate all upon the
date of such exercise or prepayment and upon presentation and surrender of such
Note to the Company. 

          12.4.
Surrender of Note in Exercise of Warrants. Upon the exercise in whole or
in part of any Warrant using the principal amount of, or accrued and unpaid
interest on, the Notes in accordance with the terms of the Warrants or upon any
prepayment under Section 6 hereof, if only a portion of the principal amount of
a Note is used in such exercise or prepayment, then such Note shall be
surrendered to the Company and the Company shall simultaneously execute and
deliver to or on the order of the holder thereof, at the expense of the
Company, a new Note or Notes in principal amount equal to the unused portion of
such Note. 

          12.5.
Cancellation of Surrendered Notes. All Notes or portions thereof which
have been used to exercise all or a portion of a Warrant, or which have been
prepaid under Section 6 hereof, shall be canceled by the Company and no Notes
shall be issued in lieu of the principal amount so used for such exercise or
prepayment. 

SECTION 13.
REGISTRATION; REPLACEMENT OF NOTES AND WARRANTS 

          13.1. Registration of Transfers. The Company shall keep a register in which
provisions shall be made for the registration of the Notes and Warrants and the
registration of transfers of the Notes and Warrants. The register shall be kept
at the office of the Company provided under Section 7.7 hereof. Upon surrender
for registration of transfer of any Note or Warrant at the office of the
Company, the Company shall execute and deliver, in the name of the designated
transferee or transferees, one or more new Notes or Warrants, as the case may
be, of a like aggregate principal amount of Notes or number of Shares. Each new
Note issued upon transfer shall be in a principal amount of at least $10,000
and in integral multiples of $10,000 and dated the date or dates to which
interest on the Notes or Warrants surrendered shall have been paid. Each new
Warrant issued upon transfer shall be for at least 25% of the total Warrants
held by such holder and dated the date of the original Warrant. All Notes or
Warrants issued upon any registration of transfer of Notes or Warrants, as the
case may be, shall be the valid obligations of the Company evidencing the same
respective obligations, and entitled to the same security and benefits under
this Agreement and the other Loan Documents, as the Notes or Warrants
surrendered upon such registration of transfer. The Company shall make a
notation on each new Note of the amount of all payments of principal previously
made on the old Notes with respect to which such new Note is issued and the
date to which interest accrued on such old Note has been paid. 

          13.2.
Replacement of Notes and Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
any Note or Warrant and, in the case of any such loss, theft or destruction,
upon delivery of an indemnity agreement or bond reasonably satisfactory to the
Company, or in the case of any such mutilation, upon 

-41-

 surrender of such Note or Warrant (which
surrendered Note or Warrant shall be canceled by the Company), the Company
will, without further charge, issue a new Note or Warrant, as the case may be,
of like tenor in lieu of such lost, stolen, destroyed or mutilated Note or
Warrant as if the lost, stolen, destroyed or mutilated Note or Warrant were
then surrendered for exchange. 

SECTION 14.
DEFAULTS 

          14.1.
Events of Default. Any of the following shall constitute an “Event of
Default” (whether any such event shall be voluntary or involuntary or come
about or be effected by operation of law or pursuant to or in compliance with
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body): 

          (a)
the Company defaults in the payment of (A) any part of the principal of any
Note or any note issued under Other Note Purchase Agreements (as defined in
Section 23 below), when the same shall become due and payable, whether at
maturity or at a date fixed for prepayment or by acceleration or otherwise, or
(B) the interest on any Note or any note issued under Other Note Purchase
Agreements (as defined in Section 23 below), when the same shall become due and
payable, and such default in the payment of interest shall have continued for
ten (10) days or (C) the Company fails to pay any other amount due hereunder or
under any Loan Document and such default shall have continued for ten (10)
Business Days after notice thereof; from the Agent; 

          (b)
Any representation or warranty made by Borrower in this Agreement or in any
Loan Document or in any certificate, report, financial statement other document
furnished by or on behalf of the Company in connection with this Agreement,
shall prove to have been incorrect in any material respect when made or deemed
made; 

          (c)
Any term, covenant or agreement contained in Section 8 shall be breached; 

          (d)
Any term, covenant or agreement contained in this Agreement or any other Loan
Document (other than with regard to payments) shall be breached, and such
breach shall remain unremedied for thirty (30) calendar days after receipt by
the Company of written notice thereof; 

          (e)
One or more judgments or orders for the payment of money in an aggregate amount
of $250,000 or more shall be rendered against any of the Company, or any other
judgment or order (whether or not for the payment of money) shall be rendered
against or shall affect Company which causes or could cause a Material Adverse
Effect or which does or could have an adverse effect on the legality, validity
or enforceability of this Agreement or any other Loan Document and either (i)
such judgment or order shall have remained unsatisfied and the Company shall
not have taken action necessary to stay enforcement thereof by reason of
pending appeal or otherwise, prior to the expiration of the applicable period
of limitations for taking such action or, if such action shall have been taken,
a final order denying such stay shall have been rendered, or (ii) enforcement
proceedings shall have been commenced by any creditor upon any such judgment or
order; provided that no final judgment shall be included in the calculation
under this 

-42-

 subsection to the extent that the claim
underlying such judgment is covered by insurance and defense of such claim has
been tendered to and accepted by the insurer without reservation. 

          (f)
The occurrence of a Reportable Event that results in or could result in
liability of the Company or its ERISA Affiliates to the PBGC or to any Plan in
excess of $50,000 and such Reportable Event is not corrected within thirty (30)
days after the occurrence thereof, or the occurrence of any Reportable Event
which could constitute grounds for termination of any Plan of the Company or
its ERISA Affiliates by the PBGC or for the appointment by the appropriate
United States District Court of a trustee to administer any such Plan and such
Reportable Event is not corrected within thirty (30) days after the occurrence
thereof, or the filing by the Company, or any of its ERISA Affiliates of a
notice of intent to terminate a Plan or the institution of other proceedings to
terminate a Plan; or the Company or any of its ERISA Affiliates shall fail to
pay when due any liability to the PBGC or to a Plan in excess of $50,000; or
the PBGC shall have instituted proceedings to terminate, or to cause a trustee
to be appointed to administer, any Plan of the Company or its ERISA Affiliates;
or any person engages in a Prohibited Transaction with respect to any Plan
which results in or could result in liability of the Company, any of its ERISA
Affiliates, any Plan of the Company, or its ERISA Affiliates or any fiduciary
of any such Plan in excess of $50,000; or failure by the Company, or any of its
ERISA Affiliates to make a required installment or other payment to any Plan
within the meaning of Section 302(o) of ERISA or Section 412(n) of the Code
that results in or could result in liability of the Company or any of its ERISA
Affiliates to the PBGC or any Plan in excess of $50,000; or the withdrawal of
the Company or any of its ERISA Affiliates from a Plan during a plan year in which
it was a “substantial employer” as defined in Section 4001 (a)(2) of ERISA; or
the Company or any of its ERISA Affiliates becomes an employer with respect to
any Multiemployer Plan without the prior written consent of the Purchasers. 

          (g)
The Company shall be dissolved or liquidated (or any judgment, order or decree
therefor shall be entered); or shall make a general assignment for the benefit
of creditors; or shall institute, or there shall be instituted against the
Company any proceeding or case seeking to adjudicate it a bankrupt or insolvent
or seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief or protection of debtors or
seeking the entry of an order for relief, or the appointment of a receiver,
trustee, custodian or other similar official for it or for any substantial part
of its assets, rights, revenues or property, and, if such proceeding is
instituted against the Company and is being contested by the Company in good
faith by appropriate proceedings, such proceeding shall remain undismissed or
unstayed for a period of 60 days; or shall take any action (corporate or other)
to authorize or further any of the actions described above in this subsection. 

           (h)
This Agreement or any of the other Loan Documents shall, at any time after
their respective execution and delivery, and for any reason, cease to be in
full force and effect or shall be declared null and void, or be revoked or
terminated, or the validity or enforceability thereof or hereof shall be
contested by the Company or any stockholder of the Company not a party to this
Agreement, or the Company shall deny that it has any further liability or
obligation thereunder or 

-43-

 hereunder, as the case may be. 

          14.2.
Acceleration of Notes. If an Event of Default occurs, then and in each
such event the Majority Noteholders may at any time (unless all such Events of
Default shall theretofore have been waived or remedied) at its or their option,
by written notice or notices to the Company, declare all the Notes to be due
and payable in full. Upon any such declaration or upon the occurrence of an
Event of Default pursuant to clause (h) of Section 14.1 hereof (in which case
no declaration is required), all Notes shall forthwith immediately mature and
become due and payable, together with interest accrued thereon, without
presentment, demand, protest or notice, all of which are hereby waived.
However, if, at any time after the principal of the Notes shall so become due
and payable and prior to the date of maturity stated in the Notes, all arrears
(without giving effect to any such acceleration) of principal and interest on
the Notes (with interest at the rate specified in the Notes on any overdue
principal and, to the extent legally enforceable, on any overdue interest)
shall be paid by or for the account of the Company, then the Majority
Noteholders, by written notice or notices to the Company, may rescind or annul
such declaration. If any holder of a Note shall give any notice or take any
other action with respect to a claimed default, the Company, forthwith upon
receipt of such notice or obtaining knowledge of such other action, will give
written notice thereof to all other holders of the Notes then outstanding,
describing such notice or other action and the nature of the claimed default. 

SECTION 15.
REMEDIES 

          15.1. Enforcement of Rights; Exercise of Remedies. In case any one or more
Events of Default shall occur and be continuing, the holder of a Note or
Warrant then outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in
any Loan Document, or for an injunction against a violation of any of the terms
hereof or thereof, or in aid of the exercise of any power granted hereby or
thereby or by law or for any other remedy (including, without limitation,
damages). [Remedies for Events of Default pursuant to the WC Security Agreement
are in said WC Security Agreement and are in addition to the remedies in this
Section 15.] In addition, the Agent may: 

          (a)
without notice to or demand upon the Company, make such payments and do such
acts as the Agent considers necessary or reasonable to protect interest in the
IP Collateral. The Company agrees to assemble the IP Collateral if the Agent so
requires, and to make the IP Collateral available to the Agent as the Agent may
designate. The Company authorizes the Agent to enter the premises where the IP
Collateral is located, to take and maintain possession of the IP Collateral, or
any part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or Lien that in the Agent’s determination appears to be prior or
superior to its security interest and to pay all expenses incurred in
connection therewith. With respect to any of the Company’s owned premises, the
Company hereby grants the Agent a license to enter into possession of such
premises and to occupy the same, without charge, for up to one hundred twenty
(120) days, limited by the rights of the owner of such premises, in order to
exercise any of the Agent’s rights or remedies provided herein, at law, in
equity, or otherwise; 

-44-

          (b)
ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,
advertise for sale, and sell (in the manner provided for herein) the IP
Collateral. The Agent is hereby granted a license or other right to use,
without charge, the Company’s labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks, service marks, and advertising
matter, and the goodwill associated with any of the foregoing, or any property
of a similar nature, as it pertains to the IP Collateral, in completing
production of, advertising for sale, and selling any IP Collateral and the
Company’s rights under all licenses and all franchise agreements shall inure to
the Agent’s benefit; 

          (c)
sell the IP Collateral at either a public or private sale, or both, by way of
one or more contracts or transactions, for cash or on terms, in such manner and
at such places (including the Company’s premises) as the Agent determines is
commercially reasonable. It is not necessary that the IP Collateral be present
at any such sale; 

          (d)
give notice of the disposition of the IP Collateral (if allowed by law) as
follows: 

	
 

	
 

	
 

	
(i) the
 Agent shall give the Company and each holder of a security interest in the IP
 Collateral who has filed with the Agent a written request for notice, a
 notice in writing of the time and place of public sale, or, if the sale is a
 private sale or some other disposition other than a public sale is to be made
 of the IP Collateral, then the time on or after which the private sale or
 other disposition is to be made; 

	
 

	
 

	
 

	
(ii) the
 notice shall be personally delivered or mailed, postage prepaid, to the
 Company as provided in Section 22, at least ten (10) calendar days before the
 date fixed for the sale, or at least ten (10) calendar days before the date
 on or after which the private sale or other disposition is to be made, unless
 the IP Collateral is perishable or threatens to decline speedily in value.
 Notice to persons other than the Company claiming an interest in the IP
 Collateral shall be sent to such addresses as they have furnished to the
 Agent; 

	
 

	
 

	
 

	
(iii) if the
 sale is to be a public sale, the Agent also shall give notice of the time and
 place by publishing a notice one time at least ten (10) calendar days before
 the date of the sale in a newspaper of general circulation in the county in
 which the sale is to be held; 

          (e)
the Agent or any Noteholder may bid and purchase at any public or private sale
and can offset the Company’s obligations against the purchase price; and 

          (f)
any deficiency that exists after disposition of the IP Collateral as provided
above will be paid immediately by the Company. Any excess after the payment of
all expenses will be returned, without interest and subject to the rights of
third parties, by the Agent to the Company. 

          15.2.
Payment of Expenses of Enforcement and Collection. In case of a default
in the, 

-45-

payment of any
principal of or interest on any Note, or default in the payment of amounts owing
under this Agreement or any Loan Document, or default in the observance of any
other agreement or covenant of the Company contained in this Agreement or any
Loan Document, the Company will pay to the holder thereof or party thereto, in
addition to any interest or premium otherwise required, such further amount as
shall be sufficient to cover any and all costs and expenses of enforcement and
collection, including, without limitation, reasonable attorneys’ fees and
expenses. 

          15.3.
Delay Not a Waiver. No course of dealing and no delay on the part of the
Agent, any holder of any Note or Warrant or any party to this Agreement or any
Loan Document in exercising any rights or remedies shall operate as a waiver
thereof or otherwise prejudice such holder’s or party’s rights. No right or
remedy conferred hereby or by any Loan Document shall be exclusive of any other
right or remedy referred to herein or therein or available at law, in equity,
by statute or otherwise. To the extent permitted under any applicable law, the
Company hereby irrevocably waives and relinquishes the benefit of any
valuation, stay, appraisal, extension or redemption laws, whether such laws
presently exist or may exist in the future, which laws might, but for this
Section 15.3, be applicable to any sale of any or all of the assets of the
Company (including without limitation the IP Collateral) made pursuant to any
judgment, order or decree of any court, or otherwise based on any claim
relating to or arising out of this Agreement or of any of the Loan Documents. 

          15.4.
Specific Enforcement. The Noteholders shall, in addition to other
remedies provided by law, have the right and remedy to have the provisions of
this Agreement and any Loan Document specifically enforced by any court having
equity jurisdiction, it being acknowledged and agreed that any breach or
threatened breach of the provisions of this Agreement or any Loan Document will
cause irreparable injury to the Noteholders and that money damages will not
provide an adequate remedy. Nothing contained herein shall be construed as
prohibiting the Purchasers from pursuing any other remedies available to the
Purchasers for such breach or threatened breach, including, without limitation,
the recovery of damages from the Company. 

          15.5.
Certain Waivers. Except as may be otherwise specifically provided herein
or in any other agreement between the Purchasers and the Company which may be
applicable, the Company waives any right, to the extent applicable law permits,
to receive prior notice of or a judicial or other hearing with respect to (i)
any action or prejudgment remedy or proceeding by the Agent to take possession,
exercise control over, or dispose of any item of the IP Collateral in any
instance (regardless of where the same may be located) where such action is
permitted under the terms of this Agreement, any other Loan Document or by
applicable law, and (ii) of the time, place or terms of sale in connection with
the exercise of the Agent’s rights hereunder. The Company also waives, to the
extent permitted by law, any bonds, security or sureties required by any
statute, rule or otherwise by law as an incident to any taking of possession by
the Agent of Property subject to the Agent’s Lien. The Company also waives any
damages (direct, indirect, consequential or otherwise) occasioned by the
enforcement of the Agent’s rights under this Agreement including the taking of
possession of any IP Collateral or the giving of notice to any 

-46-

account
debtor, all to the extent that such waiver is permitted by law. The Company
also consents that the Agent may enter upon any premises owned by or leased to
the Company (limited by the rights of the owner of such premises if said owner
is not the Company) without obligation to pay rent or other compensation or for
use and occupancy, through self help, without judicial process and without
having first given notice to the Company or obtained an order of any court.
These waivers and all other waivers provided for in this Agreement, the other
Loan Documents and any other agreements or instruments executed in connection
herewith have been negotiated by the parties and the Company acknowledges that
it has been represented by counsel of its own choice and has consulted such
counsel with respect to its rights hereunder. 

SECTION 16.
RESTRICTIONS ON TRANSFER 

          Each
holder of a Note or Warrant by acceptance thereof agrees that it will not sell
or otherwise dispose of any Notes, Warrants or Shares unless such Notes,
Warrants or Shares have been registered under, or have been sold pursuant to an
exemption from registration under, the Securities Act. As a condition to the
Company’s obligation to issue a new Note or Warrant to a transferee thereof
which (x) is not a holder of a Note or Warrant, the transferor must certify to
the Company the facts on which the transferor is relying for such exemption and
(y) is a holder of a Note or Warrant, the transferor must represent to the
Company in writing that the transfer is so exempt, and in either case the
transferor must provide an opinion from an attorney reasonably satisfactory to
the Company that the requirements for the exemption have been met. 

SECTION 17.
REGISTRATION RIGHTS 

          17.1.
Piggyback Rights. Pursuant to Piggyback Rights in previous versions of
this note and warrant purchase agreement, the Company filed a registration
statement under the Securities Act for all Shares issued by the Company prior
to April 30, 2005 and Shares issuable by the Company pursuant to securities
held by Purchasers prior to April 30, 2005 (collectively here-in-after referred
to as “Registered Shares”). The Company shall use its best efforts to keep such
registration statement continuously effective under the Securities Act until
the date when all Registered Shares covered by such registration statement have
been sold or may be sold without volume restrictions pursuant to Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion letter
to such effect, addressed and acceptable to the Company’s transfer agent and
the affected Shareholders. 

          If
permitted by law and if the Company shall at any time propose to file a
registration statement under the Securities Act for any sales of shares of the
Company’s Common Stock (or any warrants, units, convertibles, rights or other
securities related or linked to any shares of the Company’s Common Stock) on
behalf of the Company or otherwise (that are not the Registered Shares pursuant
to the above paragraph), the Company shall give written notice of such
registration no later than 60 days before its filing with the Commission to all
holders of Warrants, Class 3 Notes, or Shares; provided that registrations
relating solely to securities to be issued by the Company in connection with any
employee stock option or employee stock purchase or savings plan on Form S-8
(or successor forms) under the Securities Act shall not be 

-47-

subject to
this Section 17.1. If holders of Warrants, Class 3 Notes or Shares so request
within thirty (30) days of receipt of such notice, the Company shall include in
any such registration the Shares held or to be held after exercise of Warrants
or Class 3 Notes by such holders and requested to be included in such
registration (“Subsequent Registered Shares”). 

          If
the Securities and Exchange Commission requires that the number of Subsequent
Registered Shares of Common Stock included in a registration statement be
reduced, such reduction shall be effected on a pro
rata basis taking into account the number of shares of Common Stock
included in such registration statement by each selling shareholder in relation
to the aggregate number of shares of Common Stock included in such registration
statement by all selling shareholders (including, without limitation, for such
purpose shares that have been included in such registration statement pursuant
to registration rights granted to the PIPE Investors); provided, however, that selling
shareholders who are Affiliates of the Company shall have priority over all
other selling shareholders in determining which shares are to be removed from
such registration statement. For example, holders of shares or issuable shares
that are eligible to be included in such registration statement that are
eligible to sell shares or issuable shares pursuant to an exemption under
securities laws (“Exempt Shares”) shall have such Exempt Shares removed from
such registration statement so that Affiliates of the Company shall have more
of their shares or issuable shares eligible to be sold pursuant to such
registration statement. If there is any conflict with the provision in this
paragraph with other provisions in Sections 17.2 through 17.9, the provisions
in this paragraph shall take precedence and govern. 

          17.2.
Expenses. Subject to the limitations contained in this Section 17.2 and
except as otherwise specifically provided in this Section 17, the entire costs
and expenses of any registration and qualification pursuant to Section 17.1
hereof shall be borne by the Company. Such costs and expenses shall include,
without limitation, the fees and expenses of counsel for the Company and of its
Accountants, all other costs, fees and expenses of the Company incident to the
preparation, printing and filing under the Securities Act of the registration
statement and all amendments and supplements thereto, the reasonable fees and
expenses of one counsel to the holders of Warrants, Class 3 Notes or Shares
relating to such registration and qualification, the cost of furnishing copies
of each preliminary prospectus, each final prospectus and each amendment or
supplement thereto to underwriters (if any), dealers and other purchasers of
the Shares and the costs and expenses (including fees and disbursements of
counsel) incurred in connection with the qualification of the Shares under the
securities laws of various jurisdictions. The Company shall not, however, pay
underwriting fees or commissions to the extent related to the sale of Shares
sold in any registration and qualification, and such fees or commissions shall
be paid by the selling holders of Shares. 

          17.3.
Procedures. 

          (a)
In the case of each registration or qualification pursuant to Section 17.1, the
Company will keep all holders of Warrants, Class 3 Notes, or Shares advised in
writing as to the initiation of proceedings for such registration and
qualification and as to the completion thereof, and will advise any such
holder, upon request, of the progress of such proceedings. 

-48-

          (b)
At the Company’s expense, the Company shall use its best efforts to keep each
registration statement or statements registering such Subsequent Registered
Shares continuously effective under the Securities Act until the date when all
Subsequent Registered Shares covered by such registration statement or
statements have been sold or may be sold without volume restrictions pursuant
to Rule 144(k) as determined by the counsel to the Company pursuant to a
written opinion letter to such effect, addressed and acceptable to the
Company’s transfer agent and the affected Share holders. 

          (c)
The Company will immediately notify each holder on whose behalf Shares have
been registered pursuant to this Section 17 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 any material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing. 

          (d)
If any registration under this Section 17 is in connection with an underwritten
offering, the Company will furnish to each holder on whose behalf Shares have
been registered pursuant to this Section 17 a signed counterpart, addressed to
such holder, of (i) an opinion of counsel for the Company, dated the effective
date of such registration statement, and (ii) a so called “cold comfort” letter
signed by the independent public Accountants who have certified the Company’s
financial statements included in such registration statement, and such opinion
of counsel and Accountants’ letter shall cover substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such Accountants’ letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer’s counsel and in Accountants’ letters delivered to
underwriters in connection with underwritten public offerings of securities. 

          (e)
Without limiting any other provision hereof, in connection with any
registration of Shares under this Section 17, the Company will comply with the
Securities Act, the Securities Exchange Act and all applicable rules and
regulations of the Commission, and will make generally available to its
securities holders, as soon as reasonably practicable, an earnings statement
covering a period of at least twelve (12) months, beginning with the first
month of the first fiscal quarter after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act. 

          (f)
In connection with any registration of Shares under this Section 17, the
Company will provide a transfer agent and registrar for the Shares not later
than the effective date of such registration statement. 

          (g)
In connection with any underwritten registration of Shares under this Section
17, the Company will, if requested by the underwriters for any Shares included
in such registration, enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such representations
and warranties by the Company and such other terms and provisions 

-49-

as are
customarily contained in underwriting agreements with respect to secondary
distributions, including, without limitation, provisions relating to
indemnification and contribution. The holders on whose behalf Shares are to be
distributed by such underwriters shall be parties to any such underwriting
agreement, and the representations and warranties by, and the other agreements
on the part of, the Company to and for the benefit of such underwriters shall
also be made to and for the benefit of such holders of Warrants, Class 3 Notes,
or Shares and the conditions precedent to the obligations of such underwriters
under such underwriting agreement shall be conditions precedent to the
obligations of such holders of Warrants, Class 3 Notes, or Shares. The Company
shall cooperate with such holders of Warrants, Class 3 Notes, or Shares in
order to limit any representations or warranties to, or agreements with, the
Company or such underwriters to be made by such holders only to those
representations, warranties or agreements regarding such holder, such holder’s
Shares and such holder’s intended method of distribution and any other
representation required by law. Such underwriting agreement shall comply with
Section 17.4 hereof. 

          (h)
Upon request by any holder of Warrants, Class 3 Notes, or Shares who has
requested that their shares be included in a registration, the Company will
give such holder and their underwriters, if any, and their respective counsel
and Accountants, (i) such information regarding the preparation of such
registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, as such holder
may specify, and (ii) opportunities to discuss the business of the Company with
its officers, its counsel and the independent public Accountants who have
certified its financial statements, as shall be necessary, in the opinion of
such holders or such underwriters or their respective counsel, in order to
conduct a reasonable and diligent investigation within the meaning of the
Securities Act. Without limiting the foregoing, each registration statement,
prospectus, amendment, supplement or any other document filed with respect to a
registration under this Section 17 shall be subject to review and reasonable
approval by the holders registering Shares in such registration and by their
counsel. 

          (i)
The Company will cause all of the Shares registered pursuant to this Section 17
to be accepted for quotation to the same extent as similar securities issued by
the Company. 

          17.4.
Provision of Documents. The Company will, at the expense of the Company,
furnish to each holder of Warrants, Class 3 Notes, or Shares with respect to
which registration has been effected, such number of registration statements,
prospectuses, offering circulars and other documents incident to any
registration or qualification referred to in Section 17.1 as such holder from
time to time may reasonably request. 

          17.5.
Indemnification. The Company will indemnify and hold harmless, to the
extent permitted by law, each holder of Warrants, Class 3 Notes, or Shares and
any underwriter (as defined in the Securities Act) for such holder and each
person, if any, who controls the holder or underwriter within the meaning of
the Securities Act or the Exchange Act and each of their respective directors,
officers, general partners and members against any losses, claims, damages or
liabilities, joint or several, and expenses (including reasonable attorneys’
fees and expenses 

-50-

and reasonable
costs of investigation) to which the holder or underwriter or such controlling
person may be subject, under the Securities Act or otherwise, insofar as any
thereof arise out of or are based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in (A) any registration statement
under which such Shares were registered under the Securities Act pursuant to
Section 17.1 hereof (including all documents incorporated therein by
reference), any prospectus or preliminary prospectus contained therein, or any
amendment or supplement thereto, or (B) any other document incident to the
registration of the Shares under the Securities Act or the qualification of the
Shares under any state securities laws, or (ii) the omission or alleged
omission to state in any item referred to in the preceding clause a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or (iii) any violation or alleged violation by the Company of
the Securities Act, the Securities Exchange Act or any other federal or state
securities law, rule or regulation applicable to the Company and relating to
action or inaction by the Company in connection with any such registration or
qualification, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or alleged untrue
statement or omission or alleged omission based upon information furnished to
the Company in writing by a selling holder of Shares or by any underwriter for
such holder expressly for use therein (with respect to which information such
holder or underwriter shall so indemnify and hold harmless the Company, any
underwriter for the Company and each person, if any, who controls the Company
or such underwriter within the meaning of the Securities Act or the Exchange
Act and each of their respective directors, officers, general partners and
members). The Company will enter into an underwriting agreement and other
agreements with the underwriter or underwriters for any offering registered
under the Securities Act pursuant to Section 17.1 hereof and with the holders
of Securities selling Shares pursuant to such offering, and such underwriting
agreement and other agreements shall contain customary provisions with respect
to indemnification and contribution which shall, at a minimum, provide the
indemnification set forth above. 

          17.6.
Periodic Payments. The indemnification provided for in Section 17.5
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred, upon the presentation by the indemnified party
to the indemnifying party of a statement showing the amount of expense, loss,
damage or liability for which payment is then requested. 

          17.7.
Indemnification Procedure. Promptly after receipt by an indemnified
party hereunder of written notice of the commencement of any action or
proceeding involving a claim referred to in Section 17.5, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action;
provided that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under
Section 17.5 except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified, to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its 

-51-

election so to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal fees and expenses subsequently incurred by the
latter in connection with the defense thereof, unless in such indemnified
party’s reasonable judgment an actual or potential conflict of interest between
such indemnified and indemnifying parties may exist in respect of such claim.
The indemnifying party will not, without the prior written consent of each
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding in respect of
which indemnification may be sought hereunder (whether or not such indemnified
party or any Person who controls such indemnified party is a party to such
claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of such indemnified party from all
liability arising out of such claim, action, suit or proceeding.
Notwithstanding anything to the contrary set forth herein, and without limiting
any of the rights set forth above, in any event any party will have the right
to retain, at its own expense, counsel with respect to the defense of a claim. 

          17.8.
Contribution. If the indemnification provided for in Section 17.5 is
unavailable (for any reason other than a determination of its inapplicability
by a court of competent jurisdiction) to hold harmless an indemnified party
under such Section, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of the losses, claims,
damages, liabilities or expenses referred to in Section 17.5 in such proportion
as is appropriate to reflect the relative fault of the indemnifying party on
the one hand, and the indemnified party on the other, in connection with
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations, including without limitation the relative benefits received by
each party from the offering of the securities covered by such registration
statement, the parties’ relative knowledge and access to information concerning
the matter with respect to which the claim was asserted and the opportunity to
correct and prevent any statement or omission. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the indemnifying party
or the indemnified party and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statements or
omission. The parties hereto agree that it would not be just and equitable if
contributions pursuant to this Section 17.8 were to be determined by pro rata
or per capita allocation (even if the underwriters, if any, were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the first and
second sentences of this Section 17.8. The Company and each holder of Warrants,
Class 3 Notes, or Shares agrees with each other and any underwriters of the
Shares, if requested by such underwriters, that (i) the underwriters’ portion
of such contribution shall not exceed the underwriting discount and (ii) that
the amount of such contribution shall not exceed an amount equal to the net
proceeds actually received by such indemnifying party from the sale of
securities in the offering to which the losses, liabilities, claims, damages or
expenses of the indemnified parties relate. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. 

-52-

          17.9.
Certain Limitations in Connection with Future Grants of Registration Rights.

          (a)
From and after the date of this Agreement, the Company shall not enter into any
agreement with any holder or prospective holder of any of its Common Stock
providing for the granting to such holder of demand registration rights unless
such agreement includes provisions to the effect that (i) the Company will give
the holders of Warrants, Class 3 Notes, and Shares notice at least thirty (30)
days prior to the filing of a registration statement pursuant to the exercise
of such rights and (ii) notwithstanding Section 17.1 hereof, if a holder of Warrants,
Class 3 Notes, or Shares requests inclusion of Shares (whether such Shares are
held directly or through the right to obtain such Shares upon the conversion of
Warrants or Class 3 Notes held by such holder) and requests priority for such
Shares in such registration statement within thirty (30) days after receipt of
such notice, then such holder’s Shares requested to be so included will be
given priority over the securities sought to be registered by the holders of
such demand registration rights if marketing factors require a limitation on
the number of securities to be included in such registration statement If a
holder of Warrants, Class 3 Notes or Shares requests inclusion of its Shares
(whether such Shares are held directly or through the right to obtain such
Shares upon conversion of Warrants or Class 3 Notes held by such holder), but
does not request such priority for such Shares in such registration, then such
Shares shall be included in such registration statement in the manner described
in Section 17.1 hereof. 

          (b)
From and after the date of this Agreement, the Company shall not enter into any
agreement with any holder or prospective holder of any of its Common Stock
providing for the granting to such holder of incidental or “piggyback” registration
rights unless such agreement includes provisions to the effect that, in the
case of a registered underwritten public offering of the Company’s Common Stock
to which Section 17.1 hereof applies, such agreement gives the following
priority to holders of Warrants, Class 3 Notes, or Shares if marketing factors
require a limitation on the number of shares of Common Stock to be included in
such offering the holders of Warrants, Class 3 Notes, or Shares and other
holders of securities of the Company having piggyback registration rights shall
have an equal right to include securities in such registration (beyond the
amount to be included on behalf of the Company) in proportion to their relative
holdings of shares of Common Stock of the Company (whether held directly or
obtainable upon conversion or the exercise of warrants, convertible notes, or
other rights). 

          17.10.
Registration Rights under previous versions of the Agreement. Any
holders of Shares or Notes that were acquired under previous versions of this
Agreement who do not accept this Agreement (“Prior Share or Note Holders”)
shall retain the registration rights given such Prior Share or Note Holders
under the previous version of this Agreement that such Prior Share or Note
Holders received their Shares or Notes. 

SECTION 18.
INDEMNIFICATION; EXPENSES; 

          18.1.
Indemnification. Whether or not the transactions contemplated by this
Agreement are consummated, the Company hereby agrees to indemnify and hold each
Purchaser and each 

-53-

holder of a
Note or Warrant or Share harmless (including any of such Purchaser’s or
holder’s affiliated companies) and any of such Purchaser’s or holder’s
directors, officers, employees, or agents and any person controlling (within
the meaning of Section 20(a) of the Securities Exchange Act) such Purchaser or
holder or any of its affiliated companies (collectively, the “Indemnified
Persons”) from and against any and all losses, claims, damages, liabilities,
securities law penalties, and expenses whatsoever (including, but not limited
to, any and all reasonable fees and expenses whatsoever incurred by an
Indemnified Person and its attorneys in investigating, preparing for, defending
against, acting as a witness, providing evidence, producing documents, or
taking any other action in respect of any litigation or proceeding, commenced
or threatened, or any claim whatsoever), (collectively, the “Losses”) arising
out of or in connection with this Agreement or any Loan Document, other than to
the extent Losses result from the negligence or misconduct of the Indemnified
Person. The foregoing indemnity shall be in addition to any other rights which
the Indemnified Persons may have against the Company otherwise than under this
paragraph. If a court shall hold for any reason that the preceding
indemnification is unavailable to any Indemnified Person as to any matter for
which it would be available if enforceable in accordance with its terms, the
Company on the one hand and the Indemnified Person on the other agree to contribute
to such loss in such proportion as is appropriate to reflect the relative
benefits and the relative fault of the Company on the one hand and of the
Indemnified Person on the other in connection with the statements, actions, or
omissions which results in such Loss, as well as any other relevant equitable
considerations. 

          18.2.
Indemnification Procedures. If any Indemnified Party is entitled to
indemnification hereunder, such Indemnified Party shall give prompt notice to
the Company of any claim or of the commencement of any proceeding with respect
to which such Indemnified Party seeks indemnification pursuant hereto and of
which such Indemnified Party knew or reasonably should have known; provided,
however, that the failure so to notify the Company shall not relieve the
Company from any obligation or liability except to the extent that the amount
owed by the Company has been increased by such failure. The Company shall have
the right, exercisable by giving written notice to an Indemnified Person within
20 Business Days after receipt of written notice from such Indemnified Person
of such claim or proceeding, to assume, at its expense, the defense of any such
claim or proceeding; provided, however, that an Indemnified Person shall have
the right to employ separate counsel in any such claim or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Person unless: (1) the Company
agrees to pay such fees and expenses; or (2) the Company fails promptly to
assume, or to diligently pursue, the defense of such claim or proceeding (in
which case if such Indemnified Person notifies the Company in writing that it
elects to employ separate counsel at the expense of the Company, the Company
shall not have the right to assume the defense thereof, it being understood,
however, that the Company shall not, in connection with any one such claim or
proceeding or separate but substantially similar or related claims or
proceedings in the same jurisdiction, arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (together with appropriate local counsel) at any
time for such Indemnified Person). Whether or not such defense is assumed by
the Company, such Indemnified Person will not be subject to any liability for
any settlement made without its consent (but such consent will not be
unreasonably 

-54-

withheld or
delayed). 

          18.3.
Expenses. The Company will pay the estimated expenses incurred and
anticipated to be incurred (with a limit of $30,000) by the Representative (of
the Class 2 Purchasers) for due diligence out-of-pocket expenses and legal and
consulting fees and expenses. 

SECTION 19.
DIRECT PAYMENTS 

          As
long as the Purchaser or any payee named in the Notes delivered to the
Purchaser on the Closing Date, or any institutional holder which is a direct or
indirect transferee from the Purchaser or such payee, shall be the holder of
any Note, the Company will make payments (whether at maturity, upon mandatory
or optional prepayment, upon repurchase or otherwise) of principal, interest
and premium, if any, (i) by check payable to the order of the holder of any
such Note duly mailed or delivered to such address as the Purchaser or such
other holder may designate in writing or (ii) if requested by the Purchaser or
such other holder, by wire transfer to the Purchaser’s or such other holder’s
(or its nominee’s) account at any bank or trust company in the United States of
America, notwithstanding any contrary provision herein or in any Note with
respect to the place of payment. IF THE PURCHASER HAS PROVIDED AN ADDRESS ON
EXHIBIT A HERETO FOR PAYMENTS BY WIRE TRANSFER, THEN THE PURCHASER SHALL BE
DEEMED TO HAVE REQUESTED WIRE TRANSFER PAYMENTS UNDER THE PRECEDING CLAUSE
(ii). All such payments shall be made in federal or other immediately available
funds and shall be transmitted by 2:00 p.m. local time at the place of payment
on the day when due. 

SECTION 20.
SECURITY INTEREST 

          20.1.
Grant of Security Interest. The Company shall grant to the Agent for the
benefit of the Purchasers and Noteholders a security interest in the IP
Collateral pursuant to the Collateral Assignment. 

          20.2
In addition, the Company shall grant to the Class 2 Purchasers a security
interest in the WC Collateral pursuant to the WC Security Agreement. 

SECTION 21.
THE AGENT 

          21.1.
Appointment. Each Noteholder hereby irrevocably designates and appoints
the Agent as the agent of such Noteholder under this Agreement and the
Collateral Assignment, and each such Noteholder irrevocably authorizes the
Agent, as the agent for such Noteholder, to take such action on its behalf
under the provisions of this Agreement and the Collateral Assignment and to
exercise such powers and perform such duties as are expressly delegated to the
Agent by the terms of this Agreement and the Collateral Assignment, together
with such other powers as are reasonably incidental thereto. 

          21.2.
Fees of Agent. The Agent shall be entitled to reasonable fees for the
performance 

-55-

of its duties
pursuant to this Agreement, which fees shall be paid by the Company or as
provided by Section 21.3 hereunder. 

          21.3.
Application of Proceeds of the IP Collateral. All IP Collateral shall be
held or administered by the Agent for the ratable benefit of the Noteholders.
Any proceeds received by the Agent from the foreclosure, sale, lease or other
disposition of any of the IP Collateral and any other proceeds received
pursuant to the terms of the Loan Documents shall be applied, first, to the
cost of any such foreclosure, sale, lease or other disposition including the
reasonable fees of the Agent and, second, to the payment in full of the
remaining Company’s Obligations pro rata in proportion to the amount of the
Company’s Obligations owed to each Noteholder. 

          21.4.
Delegation of Duties. The Agent may execute any of its duties under this
Agreement by or through agents or attorneys-in-fact and shall be entitled to
advice of counsel concerning all matters pertaining to such duties. 

          21.5.
Reliance by Agent. The Agent may deem and treat the registered owner of
any Note as the owner thereof for all purposes. The Agent shall be fully
justified in failing or refusing to take any action under this Agreement unless
it shall first receive such advice or concurrence of the Majority Noteholders
as it deems appropriate. The Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement, the Notes or any
Loan Document in accordance with a request of the Majority Noteholders, and
such request and any action taken or failure to act pursuant thereto shall be
binding upon all the Noteholders and all future Noteholders. 

          21.6.
Notice of Default. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Potential Default or Event of Default hereunder
unless the Agent has received notice from the Company or the Majority
Noteholders referring to this Agreement, describing such Potential Default or
Event of Default and stating that such notice is a “notice of default”. The
Agent may (but shall not be obligated to) take, or refrain from taking, such
action with respect to such Potential Default or Event of Default as it shall
deem advisable and in the best interests of the Noteholders. 

          21.7.
Agent in Its Individual Capacity. The Agent and its Affiliates may make
loans to and generally engage in any kind of business with the Company as
though the Agent were not the Agent hereunder. With respect to any Note issued
to it, the Agent shall have the same rights and powers under this Agreement as
any Purchaser and may exercise the same as though it were not the Agent, and
the terms “Noteholder” and “Noteholders” shall include the Agent in its
individual capacity. 

          21.8
Conflict of Interest. Noteholders hereby acknowledge that Warren Cameron
Asciutto & Blackmer, P.C. operating under its new name, J.M. Warren Law
Offices, P.C. (the “Initial Agent”) serves as general counsel to the Company
and that certain duties of the Initial Agent could present a conflict between
the interest of the Company and the interests of the Noteholders. The Initial
Agent has agreed to serve as Agent as an accommodation. In the event 

-56-

of any dispute
between the Company and the Noteholders, it is agreed that the Initial Agent
will resign its position as Agent and that no objection will be raised
regarding the Initial Agent’s representation of the Company. A Default pursuant
to this Agreement shall not be deemed to be a dispute pursuant to this section
unless the Company or the Majority Noteholders give notice to the Initial Agent
that they deem said Default to be a dispute between the Company and the
Noteholders. Notwithstanding the foregoing, the Initial Agent may elect to deem
a Default as a dispute between the Company and the Noteholders in its sole
discretion 

          21.9.
Successor Agent. The Agent may resign as Agent upon 10 days notice to
the Noteholders. If the Agent resigns as Agent under this Agreement and the
other Loan Documents, then the Majority Noteholders on whose behalf such Agent
is acting shall appoint a successor agent for the Noteholders, whereupon such
successor agent shall succeed to the rights, powers and duties of the Agent,
and the term “Agent” shall mean such successor agent effective upon its
appointment, and the former Agent’s rights, powers and duties as Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent or any of the parties to this Agreement or any Loan Document or any
holders of the Notes. After any retiring Agent’s resignation hereunder as
Agent, the provisions of this Section 21 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement and the other Loan Documents. The Agent shall use its best efforts to
notify the Company and any pre-designated Successor Agent of any such resignation;
provided, however, neither the Agent nor the Purchasers shall be held liable in
any respect for the failure to provide such notice; and further provided,
however, that until the Company receives notice of the Agent’s resignation and
of the appointment of a successor agent, the Company shall be entitled to rely
upon the Agent as the Agent hereunder. 

          The
Majority Noteholders may also elect to remove the Agent by giving the Company,
the Agent, and any pre-designated Successor Agent notice of such election which
shall be effective upon 10 days notice to either the Company or the Agent. If
there is no pre-designated Successor Agent, the notice from the Majority
Noteholders to remove the Agent must designate a Successor Agent to be
effective. 

          The
Majority Noteholders hereby designate The Klonoff Company, Inc., a California
Corporation, to be the Successor Agent under this Agreement if, and when, the
Initial Agent resigns or is removed. The Klonoff Company, Inc.’s contact
information is as follows: 

	
 

	
 

	
 

	
P. Robert
 Klonoff, President 

 The Klonoff Company, Inc.

 1631 North 201st Street

 Shoreline, WA 98133 

	
 

	
 

	
 

	
Phone:
 206.533.1174          Fax:
 206.533.1916 

          The
Majority Noteholders may also elect to remove Successor Agent by giving the
Company and Successor Agent notice of such election which shall be effective
upon 10 days 

-57-

notice to
either the Company or the Successor Agent. Said notice from the Majority
Noteholders to remove the Successor Agent must designate a new Successor Agent
to be effective. 

SECTION 22.
NOTICES 

          Unless
otherwise expressly permitted by the terms hereof, all notices, requests,
demands, consents and other communications hereunder or under the Loan
Documents shall be in writing and shall be delivered by hand or shall be sent
by telex or telecopy (confirmed by registered, certified or overnight mail or
courier, postage and delivery charges prepaid or shall be sent by overnight
mail or courier (postage and delivery charges prepaid), to the following
addresses: 

          (a)
if to the Purchaser, at the Purchaser’s address as set forth in Exhibit A
hereto, or at such other address as may have been furnished to the Company by
the Purchaser in writing; or 

          (b)
if to any other holder of a Note or Warrant, at such address as the payee or
registered holder thereof shall have designated to the Company in writing; or 

          (c)
if to the Company, at 49113 Wixom Tech Dr., Wixom MI 48393, Attention: Charles
J. Drake, telephone: 248-668-9230, fax: 248-668-9384 or at such other address
as may have been furnished in writing by the Company to the Agent, the
Purchasers and the other holders of Notes or Warrants; or 

          (d)
if to the Agent, at 2150 Heritage Ave., Okemos, MI 48864, Attention: J. Michael
Warren, telephone: 517-349-8600, fax: 517-349-3311 or at such other address as
may have been furnished in writing by the Agent to the Company, the Purchasers
and the other holders of Notes or Warrants. 

          Whenever
any notice is required to be given hereunder, such notice shall be deemed given
and such requirement satisfied only when such notice is delivered or, if sent
by telex or telecopier, when received, unless otherwise expressly specified or
permitted by the terms hereof 

SECTION 23.
ADDITIONAL SECURED NOTES 

          The
Company intends and is explicitly authorized to issue additional notes
convertible into the Common Shares of the Company which the Company intends
will be granted a security interest in the IP Collateral pursuant to the
Collateral Assignment to secure said notes issued under other note purchase
agreements (“Other Note Purchase Agreements”). Any notes issued pursuant to
Other Note Purchase Agreements can only be issued upon the payment to the
Company of immediately available funds in U. S. Dollars. Any notes issued under
Other Note Purchase Agreements will be secured without partiality with the
Notes issued by the Company pursuant to this Fifth Amendment Agreement. 

          The
aggregate amounts of notes issued under Other Note Purchase Agreements and
Notes 

-58-

issued under
this Agreement shall not at any time exceed Six Million Dollars [$6,000,000]
(excluding accrued or unpaid interest due thereon) however such $6,000,000
shall be decreased by the principal amount of any Class 3 Notes converted into
the Company’s common stock subsequent to August 8, 2007 and shall also be
decreased by the principal amount of any note issued under Other Note Purchase
Agreements converted into the Company’s common stock. 

          No
notes issued under Other Note Purchase Agreements (including amendments to such
notes) shall have a maturity date or require partial principal repayments prior
to the latest maturity date of any Class 3 Note outstanding at the date of
issuance of said notes under Other Note Purchase Agreements. 

          If
any notes are issued under Other Note Purchase Agreements pursuant to this
section, then such noteholders shall be required to accept the Agent appointed
by the Noteholders under the Agreement and be required to accept the terms
relating governing said Agent’s obligations, duties, conflicts, etc. in
substantially the same form as in Section 21 of this Agreement. 

SECTION 24.
MISCELLANEOUS 

          24.1.
Entire Agreement. This Agreement and the Loan Documents, together with
any further agreements entered into by the Purchaser and the Company at the
Closing, contain the entire agreement between the Purchaser and the Company,
and supersede any prior oral or written agreements, commitments, terms or understandings,
regarding the subject matter hereof. 

          24.2.
Survival. All agreements, representations and warranties contained
herein in an; Loan Document or any document or certificate delivered pursuant
hereto or thereto shall survive, and shall continue in effect following, the
execution and delivery of this Agreement and of such Loan Documents, the
closings hereunder and thereunder, any investigation at any time made by the
Purchasers or on their behalf or by any other Person, the issuance, sale and
delivery of the Notes and the Warrants, any disposition thereof, any payment or
cancellation of the Notes, and any exercise of the Warrants; provided, that
Sections 7 and 8 shall terminate upon the payment in full of all outstanding
Notes. All statements contained in any certificate or other document delivered
by or on behalf of the Company pursuant hereto shall constitute representations
and warranties by the Company hereunder. 

          24.3.
Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument, and all signatures need not appear on any one counterpart. 

          24.4.
Headings. The headings and captions in this Agreement are for
convenience of reference only and shall not define, limit or otherwise affect
any of the terms or provisions hereof. 

          24.5.
Binding Effect and Assignment. 

-59-

          (a)
The terms of this Agreement shall be binding upon, and inure to the benefit of,
the parties and their respective successors and permitted assigns whether so
expressed or not. 

          (b)
The Company may not assign any of its obligations, duties or rights under any
of the Loan Documents, except pursuant to Section 8.3 hereof or with the
Majority Noteholders’ consent, which shall not be unreasonably withheld. 

          (c)
In addition to any assignment by operation of law, a Purchaser may assign, in
whole or in part, any or all of its rights (and/or obligations) under this
Agreement and any of the Loan Documents to any transferee of any or all of its
Notes, Warrants or Shares, subject to the terms of Section 16 hereof, and
(unless such assignment expressly provides otherwise) any such assignment shall
not diminish the rights the Purchaser would otherwise have under this Agreement
or with respect to any remaining Notes, Warrants or Shares held by the
Purchaser. 

          24.6.
Severability. Any provision of this Agreement or of any Loan Document
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
thereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, the parties hereby
waive any provision of law which may render any provision hereof prohibited or
unenforceable in any respect. 

          24.7.
Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Michigan (other than any conflict of
laws rule which might result in the application of the laws of any other
jurisdiction). 

          24.8.
CONSENT TO JURISDICTION AND SERVICE OF PROCESS. THE PARTIES HEREBY
CONSENT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE
STATE OF MICHIGAN AND IRREVOCABLY AGREE THAT ALL ACTIONS OR PROCEEDINGS
RELATING TO THE LOAN DOCUMENTS MAY BE LITIGATED IN SUCH COURTS. THE PARTIES
ACCEPT GENERALLY AND UNCONDITIONALLY THE EXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS AND WAIVE ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY
AGREE TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LOAN
DOCUMENTS. THE PARTIES HEREBY AGREE THAT SERVICE UPON THEM BY MAIL AT THE
ADDRESSES PROVIDED IN SECTION 22 HEREOF SHALL CONSTITUTE SUFFICIENT NOTICE AND
SERVICE OF PROCESS IN ANY SUCH PROCEEDING. NOTHING HEREIN SHALL AFFECT THE
RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. 

          24.9.
WAIVER OF JURY TRIAL. THE COMPANY AND THE PURCHASERS HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY LOAN DOCUMENT, OR 

-60-

ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION. THE COMPANY
AND THE PURCHASERS ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND
WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF THE PURCHASERS. THE SCOPE OF
THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY
BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS
TRANSACTION, INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH
OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE COMPANY AND
THE PURCHASERS FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER 

-61-

ORALLY OR IN
WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT PAYMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO (OR ASSIGNMENTS OF) ANY LOAN DOCUMENT. IN THE
EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL (WITHOUT A JURY) BY THE COURT. 

          IN
WITNESS WHEREOF, the parties hereto have caused this Fifth Amended Agreement
Agreement to be executed effective as to each Purchaser on the date indicated
beside their signature on Exhibit A. 

	
 

	
 

	
 

	
Integral
  Vision, Inc. 

	
 

	
 

	
 

	

	
 

	
Charles J.
  Drake

	
 

	
Chairman of
  the Board

	
 

	
 

	
 

	
J.M. Warren
  Law Offices, P.C.

	
 

	
As Agent for
  the Purchasers

	
 

	
 

	
 

	

	
 

	
J. Michael
  Warren

	
 

	
President

(Signatures for the Purchasers appear on
Exhibit A)

-62-

EXHIBIT A

List of Purchasers

	 
	 
	 
	 

	 
	Principal  
	Number  
	Conversion Price  

	Name and Address  
	Amount of Note  
	of Warrants  
	Per Share  

	

    	

    	

    	

    

-A-

EXHIBIT B

Form of Class 2 Note

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER ANY APPLICABLE REGULATION OF ANY STATE AND IS NOT
TRANSFERABLE EXCEPT UPON THE CONDITIONS SPECIFIED IN SECTION 16 OF THE PURCHASE
AGREEMENT REFERRED TO HEREIN. 

INTEGRAL VISION, INC.

10% Secured Working Capital Class 2 Note

Due _____________

Dated ______________

Wixom, Michigan

No. __ 

          FOR
VALUE RECEIVED, the undersigned INTEGRAL VISION, INC., a Michigan corporation
(herein, together with any successor, referred to as the “Company”),
hereby promises to pay to __________________________________, a
______________________ of ______________________________________, (the “Payee”)
or registered assigns, the principal sum of__________________________ Dollars
($___________.00) at such time or times as the accounts receivable or the
specified Letter of Credit proceeds on the following specified orders is
received by the Company:
__________________________________________________________________________________________________________
__________________________________________________________________________________________________________
and shall pay in full the remaining principal amount then outstanding on the
maturity date of _______________, plus interest (computed on the basis of the
actual number of days elapsed over a 365-day year) on the unpaid balance of
such principal sum from the date hereof at the interest rate of 10% per annum
(12% per annum if the Holder has elected not to receive Class 2 Warrants) until
the entire principal amount hereof shall have become due and payable, whether
at maturity or at a date fixed for prepayment or by acceleration or declaration
or otherwise, and at the Default Rate on any overdue installment of principal
(including any overdue prepayment of principal) and on any overdue premium and
(to the extent permitted by law) on any overdue installment of interest until
paid. The Default Rate shall be equal to the per annum interest rate on this
Note, plus four percent (4%). 

          Capitalized
terms not otherwise defined herein shall have the meaning ascribed thereto in
the Note and Warrant Purchase Agreement dated effective as of _______________
(the “Purchase Agreement”), by and among the Company, the Agent,
the Payee and the other Purchasers named therein. 

          If
any payment due hereunder becomes due and payable on a day which is not a
Business 

1

Day, the due date thereof
shall be the next day which is a Business Day, and the interest payable on such
next Business Day shall be the interest accruing through such actual date of
payment. 

          Payments
of principal and interest shall be made in lawful money of the United States of
America, and may be paid by check mailed, or shall be made by wire transfer,
all as provided in the Purchase Agreement, to the address or account designated
by the holder hereof for such purpose. 

          This
Note is one of a duly authorized issue of Notes issued to the Purchasers
pursuant to the Purchase Agreement. This Note is subject to the provisions of
and is entitled to the benefits of the Purchase Agreement. Each holder of this
Note, by accepting the same, agrees to and shall be bound by the provisions of
the Purchase Agreement. 

          The
obligations of the Company under this Note (and under the Purchase Agreement)
are secured by the Collateral. The existence of such Collateral does not in any
way reduce or restrict the rights and remedies available to a holder of this
Note whether such rights and remedies arise under this Note, the Purchase
Agreement or otherwise. 

          This
Note is transferable only upon the terms and conditions specified in the
Purchase Agreement. 

          In
case an Event of Default shall occur and be continuing, all amounts then
remaining unpaid on this Note shall become or may be declared due and payable
in the manner and with the effect provided in the Purchase Agreement. 

          No
reference herein to the Purchase Agreement and no provision hereof or thereof
shall alter or impair the obligations of the Company, which are absolute and
unconditional, to pay the principal hereof and interest hereon at the
respective times and places specified herein and in the Purchase Agreement. 

          This
Note is delivered in and shall be construed and enforced in accordance with and
governed by the laws of the State of Michigan (other than any conflict of laws
rules which might result in the application of laws of any other jurisdiction).

          Subject
to the provisions of the Purchase Agreement, the Company may treat the person
in whose name this Note is registered as the owner and holder of this Note for
the purpose of receiving payment of principal of, premium, if any, and interest
on this Note and for all other purposes whatsoever, and the Company shall not
be affected by any notice to the contrary (except that the Company shall comply
with the provisions of the Purchase Agreement regarding the issuance of a new
Note or Notes to permitted transferees). 

(Signed on the next page)

2

          INTEGRAL
VISION, INC. has caused this Note to be dated and to be executed and issued on
its behalf by its officer thereto duly authorized. 

	
 

	
 

	
 

	
INTEGRAL VISION, INC.

	
 

	
 

	
 

	
 

	
 

	
By

	
 

	

	
 

	
Name: Charles J. Drake

	
 

	
Title: Chairman of the
 Board

3

EXHIBIT C

THIS WARRANT
CERTIFICATE (AND THE COMMON STOCK OR OTHER SECURITIES ISSUABLE UPON EXERCISE
HEREOF) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY
APPLICABLE REGULATION OF ANY STATE AND ARE NOT TRANSFERABLE EXCEPT UPON THE CONDITIONS
SPECIFIED IN SECTION 16 OF THE PURCHASE AGREEMENT REFERRED TO HEREIN. 

INTEGRAL VISION, INC.

Common Stock Purchase Warrant Certificate

Issued Pursuant to Class 2 Notes Dated After January 1, 2004

(and Dated prior to October 31, 2006)

Dated_______________________

Wixom, Michigan

	
 

	
 

	
No.
 _____________

	
___________Shares 

          FOR
VALUE RECEIVED, the undersigned INTEGRAL VISION, INC., a Michigan corporation
(herein referred to as the “Company”), hereby certifies and agrees that
____________________________________________________________________________________________________
______________________________________________________________________________________________,
or registered assigns, is entitled to purchase from the Company up to an
aggregate of ________________________________ _________________________ duly authorized, validly
issued, fully paid and nonassessable shares of the Company’s Common Stock, no
par value, or any stock into which such Common Stock shall have been changed or
any stock or other securities resulting from a reclassification thereof (all
such shares, stock or other securities which may be purchased by this, and all
other, Warrants are herein known as the “Shares”) at a purchase price per Share
of the lower of (i) $_________ or (ii) the price determined according to
Section 2.2(a) hereof (the “Purchase Price”) at any time and from time to time
from the date hereof until 5:00 p.m. on the fourth anniversary of the date
hereof. The foregoing agreement and rights are all subject to the terms,
conditions and adjustments set forth below in this Warrant Certificate. 

          This
Warrant Certificate is one of the Common Stock Purchase Warrant Certificates
(the “Warrants”, which term includes all Warrants issued in substitution therefor)
originally issued in connection with the issue and sale by the Company of its
10% Secured Notes (the “Notes”). The Warrants and the Notes have been issued
pursuant to the Fourth Amended Note and Warrant Purchase Agreement, as amended,
dated effective as of the Closing Date for each Purchaser (the “Purchase
Agreement”) among the Company and the Purchasers named therein. This Warrant is
subject to the provisions, and is entitled to the benefits, of the Purchase
Agreement, including, 

1

without limitation,
the registration rights provisions contained therein. Capitalized terms used
without definition herein are as defined in the Purchase Agreement. 

          The
Company represents that all Shares to which the holders of the Warrants shall
be entitled upon the exercise thereof (i) are duly authorized by the Articles
of Incorporation of the Company in accordance with the laws of the State of
Michigan, (ii) have been duly authorized to be issued upon the exercise of the
Warrants from time to time in whole or in part, (iii) will be, when issued in
accordance with the terms of the Warrants, duly authorized and validly issued
and fully paid and nonassessable and free and clear of all Liens and rights of
others whatsoever (other than Liens and rights of others claiming by, through
or under the holder hereof) and (iv) will not be at the time of such exercise
subject to any restrictions on transfer or sale except as provided by
applicable laws. 

          Section
1. Exercise of Warrant. 

          1.1. Manner of Exercise. 

          (a)
This Warrant may be exercised by the holder, in whole or in part, during normal
business hours on any Business Day by surrender of this Warrant, together with
a subscription duly executed by such holder, to the Company at its office
designated pursuant to the Purchase Agreement (or, if such exercise is in
connection with an underwritten public offering of Shares subject to this
Warrant, at the location at which the underwriting agreement requires that such
Shares be delivered). 

          (b)
Payment of the exercise price for Shares shall be made, at the option of the
holder (i) as provided in Section 1.5 hereof, or (ii) by check or wire transfer
payable to the order of the Company, in any case, in an amount equal to (A) the
number of Shares specified in such subscription, multiplied by (B) the then
current exercise price. Such holder shall thereupon be entitled to receive the
number of Shares specified in such subscription (plus cash in lieu of any
fractional share as provided in Section 1.3 hereof). 

          1.2.
Effective Date. Each exercise of this Warrant pursuant to Section 1.1
(a) shall be deemed to have been effected immediately prior to the close of
business on the Business Day on which this Warrant is surrendered to the
Company as provided in Section 1.1 hereof (except that if such exercise is in
connection with an underwritten public offering of Shares subject to this
Warrant, then such exercise shall be deemed to have been effected upon such
surrender of this Warrant), and such exercise shall be at the current exercise
price in effect at such time. On each such day that an exercise of this Warrant
is deemed effected, the Person or Persons in whose name or names any
certificate or certificates for Shares are issuable upon such exercise (as
provided in Section 1.3 hereof) shall be deemed to have become the holder or
holders of record. 

          1.3.
Share Certificates; Cash for Fractional Shares; and Reissuance of Warrants.
As promptly as practicable after the exercise of this Warrant, in whole or in
part, and in any event within five (5) Business Days thereafter (unless such
exercise shall be in connection with a public offering of Shares subject to
this Warrant, in which event concurrently with such exercise), the Company at
its expense (including the payment by it of any applicable issue, stamp or
other taxes) will cause to be issued in 

2

the name of
and delivered to the holder hereof or such other person as such holder may
direct: 

          (a)
a certificate or certificates for the number of Shares to which such holder
shall be entitled upon such exercise plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash in an amount equal to the
same fraction of the Market Price per Share on the effective date of such
exercise; and 

          (b)
in case such exercise is in part only, a new Warrant or Warrants of like tenor,
calling in the aggregate on the face or faces thereof for the number (which may
be fractional) of Shares (without giving effect to any adjustment therein)
equal to the number of such Shares called for on the face of this Warrant minus
the number of Shares obtained upon such exercise. 

          1.4.
Acknowledgment of Obligation. The Company will, at the time of each exercise
of this Warrant, upon the request of the holder hereof or of any Shares issued
upon such exercise, acknowledge in writing its continuing obligation to afford
to such holder all rights (including, without limitation, any rights to
registration of any such Shares pursuant to the Purchase Agreement) to which
such holder shall continue to be entitled under this Warrant and the Purchase
Agreement; provided, that if any such holder shall fail to make any such
request, the failure shall not affect the continuing obligation of the Company
to afford such rights to such holder. 

          1.5.
Notes. The holder shall have the option, but not the obligation, upon
any exercise of this Warrant, to apply to the payment required by Section 1.1
all or any part of the accrued and unpaid interest on, or principal of, any
Notes at the time held by the holder. The Company will accept the amount of
accrued and unpaid interest or principal, if such election is selected, in
satisfaction of the exercise price for such Shares to be purchased. The holder
shall have the right to apply all or any portion of such accrued and unpaid
interest or principal to exercise all or any portion of this Warrant whether or
not payment on the Notes is otherwise prohibited. 

          1.6.
Restriction. The holder acknowledges that the Shares acquired upon
exercise of the Warrant will be “restricted securities” as that term is defined
under the regulations promulgated under the Securities Act, will not be
saleable in the absence of an effective registration statement under the
Securities Act or an exemption from registration, and accordingly may be
required to be held for an indefinite period of time. The holder agrees that
Shares issued pursuant hereto may contain the following legend on the face thereof:
“This security has not been registered
pursuant to the Securities Act of 1933, as amended, and each holder of this
security by the acceptance hereof agrees that this security shall not be
transferred in violation of said Act.” The Company agrees that such
legend shall be removed from any Shares which are no longer subject to such
restrictions. 

          Each
holder of a Warrant by acceptance thereof agrees that it will not sell or
otherwise dispose of any Warrants or Shares unless such Warrants or Shares have
been registered under, or have been sold pursuant to an exemption from
registration under, the Securities Act. As a condition to the Company’s
obligation to issue a new Warrant to a transferee thereof which (x) is not a
holder of a Warrant, the transferor must certify to the Company the facts on
which the transferor is relying for such exemption or (y) is a holder of a
Warrant, the transferor must represent to the Company in 

3

writing that
the transfer is so exempt, and in either case the transferor must provide an
opinion from an attorney reasonably satisfactory to the Company that the
requirement for the exemption have been met. 

          Section
2. Current Exercise Price and Adjustments. 

          2.1
Current Exercise Price. The term “current exercise price” shall mean
initially the Purchase Price per Share, subject to adjustment from time to time
as hereinafter provided. In determining the current exercise price, the result
shall be expressed to the nearest $.01, but any lesser amount shall be carried
forward and shall be considered together with the next subsequent adjustment
which, together with any adjustments carried forward, shall amount to $.01 per
Share or more. 

          2.2.
Adjustment of Current Exercise Price. The current exercise price shall
be subject to adjustment, from time to time (but not below zero), as follows: 

          (a)
Anti-Dilution Adjustment. In the event the Company issues, after
February 29, 2004, any common stock, or any Preferred Stock, Warrant or Note
convertible into common stock, which has a share price, or any exercise or
conversion rate, lower than the exercise price for this Warrant, then the
exercise price for this Warrant shall be reduced to such lower rate, but in no
event will the exercise price be reduced to less than $0.25 per share. This
provision will not be triggered by shares issued for existing stock options
under the Company’s stock option plans or for the exercise of existing
Warrants. 

          (b)
Adjustments for Stock Dividends, Recapitalization. etc. In the event the
Company shall, after the Closing Date, issue any shares of Common Stock (i) by
stock dividend or any other distribution upon the stock of the Company payable
in Common Stock or in securities convertible into or exercisable for shares of
Common Stock or (ii) in subdivision of its outstanding Common Stock, by
reclassification or otherwise, the current exercise price then in effect shall
be reduced proportionately; and, in like manner, in the event of any
combination of shares of Common Stock, by reclassification or otherwise, the
current exercise price then in effect shall be increased proportionately. An
adjustment made pursuant to this Section 2.2(a) shall become effective
retroactively immediately after the record date in the case of a dividend or
other distribution and shall become effective immediately after the effective
date in the case of a subdivision or combination. 

          (c)
Reorganization Adjustments. In case of any capital reorganization or
reclassification of the capital stock of the Company (other than a change in
par value or a stock split-up), the holder of this Warrant shall thereafter be
entitled to purchase for the current exercise price the securities and property
receivable upon such capital reorganization or reclassification by a holder of
the number of shares of Common Stock which this Warrant entitled the holder
hereof to purchase immediately prior to such capital reorganization or
reclassification. In the event that at any time, as a result of an adjustment
made pursuant to this Section 2.2(c), the holder of this Warrant shall become
entitled to purchase any other securities or property other than Common Stock,
thereafter the number of such other securities or property so purchasable upon
exercise of this Warrant and the current exercise 

4

price shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in this Section 2.2. 

          (d)
Other Adjustments. Without limiting any provisions of this Section 2.2
or any other provisions of this Warrant, in case any event shall occur as to
which any of the provisions of this Section 2.2 are not strictly applicable but
the failure to make any adjustment would not fairly protect the exercise rights
represented by the Warrants in accordance with the intent and principles of
this Section 2.2, the Company shall at its expense appoint a firm of
independent public accountants of recognized national standing selected by the
Board of Directors of the Company (who may be the regular auditors of the
Company), and reasonably satisfactory to the Majority Holders, which shall give
their opinion upon the adjustment, if any, on a basis consistent with the intent
and principles established in this Section 2.2, necessary to preserve, without
dilution, the economic and other rights represented by the Warrants. Upon
receipt of such opinion, the Company will promptly mail copies thereof to the
holders of the Warrants and shall make the adjustments described therein. 

          Section
3. Company’s Consolidation or Merger. If the Company shall at any time
consolidate with or merge into another entity (where the Company is not the
continuing corporation after such merger or consolidation), the holder of a
Warrant shall thereafter be entitled to receive, upon the exercise thereof in
whole or in part, the securities or other property to which (and upon the same
terms and with the same rights as) a holder of the number of Shares then
deliverable upon the exercise thereof would have been entitled upon such
consolidation or merger (subject to adjustments under Section 2.2 hereof), and
the Company shall take such steps in connection with such consolidation or
merger as may be necessary to assure such holder that the provisions of the
Warrants and the Purchase Agreement shall thereafter be applicable in relation
to any securities or property thereafter deliverable upon the exercise of this
Warrant, including, but not limited to, obtaining a written acknowledgment from
the continuing entity of its obligation to supply such securities or property
upon such exercise and to be so bound by the Warrant and the Purchase
Agreement. A sale, transfer or lease (in one, or a series of related,
transactions) of all or substantially all of the assets of the Company to
another person shall be deemed a consolidation or merger for the foregoing
purposes. 

          Section
4. Notice to Holders of Warrants. 

          In
case at any time: 

          (i)
the Company shall take any action which would require an adjustment in the
current exercise price pursuant to Section 2.2; or 

          (ii)
there shall be any capital reorganization or reclassification of the Company’s
Common Stock (other than a change in par value or from par value to no par
value or from no par value to par value of the Common Stock), or any
consolidation or merger to which the Company is a party and for which approval
of any stockholders of the Company is required, or any sale, transfer or lease
(in one, or a series of related, transactions) of all or substantially all of
the assets of the Company; or 

5

          (iii)
there shall be a voluntary or involuntary dissolution, liquidation or
winding-up of the Company; 

then, in any
one or more of said cases, the Company shall give written notice to the holders
of the Warrants, not less than twenty (20) days before any record date or other
date set for definitive action, of the date on which such action,
reorganization, reclassification, sale, transfer, lease, consolidation, merger,
dissolution, liquidation or winding-up, as the case may be, and the terms
thereof. 

          Section
5. Number of Shares. No adjustment of the current exercise price will
increase the number of Shares which a holder will be entitled to purchase. 

          Section
6. No Rights or Liabilities as Stockholder. Nothing contained in this
Warrant shall be construed as conferring upon the holder hereof any rights as a
stockholder of the Company (prior to exercise of all or a portion of this
Warrant) or as imposing any liabilities on such holder to purchase any
securities or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors or stockholders of the Company or otherwise.

          Section
7. Ownership; Transfer. The Company may treat the Person in whose name
this Warrant is registered pursuant to the Purchase Agreement as the owner and
holder of this Warrant for all purposes, and the Company shall not be affected
by any notice to the contrary (except that the Company shall comply with the
provisions of the Purchase Agreement regarding the issuance of a new Warrant or
Warrants to transferees). This Warrant is transferable upon the conditions
specified in the Purchase Agreement. 

          Section
8. Covenants 

          8.1.
Information Requirements. The Company will provide to each holder of
Warrants or Shares, promptly after the same are available, copies of each
annual report, proxy or financial statement or other communication sent to the
Company’s or a Subsidiary’s stockholders and copies of all annual, regular,
periodic and special reports and registration statements which the Company may
file or be required to file with the Securities and Exchange Commission or with
any securities exchange or the National Association of Securities Dealers, Inc.

          8.2.
Reservation of Shares. There have been reserved, and the Company shall
at all times keep reserved, out of its authorized Common Stock, a number of
shares of Common Stock sufficient to provide for the exercise of the rights of
purchase represented by the then outstanding Warrants. 

          8.3.
No Dilution or Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant. The Company will at all times
in good faith assist in the carrying out of all such terms, and in the taking
of all such action, as may be necessary or appropriate in order to protect the
rights of the holder of this Warrant against dilution or other 

6

impairment.
Without limiting the generality of the foregoing, the Company (a) will not
permit the par value of any shares of Common Stock receivable upon the exercise
of this Warrant to exceed the amount payable therefor upon such exercise, (b)
will take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
the Company’s Common Stock, free from all taxes, Liens and charges with respect
to the issue thereof, upon the exercise of this Warrant from time to time
outstanding and (c) will not take any action which results in any adjustment of
this current exercise price under this Warrant if the total number of shares of
the Company’s Common Stock (or other securities) issuable after the action upon
the exercise of all of the Warrants would exceed the total number of shares of
Common Stock (or other securities) then authorized by the Company’s Certificate
of Incorporation and available for the purpose of issue upon such exercise. 

          8.4.
Listing of Shares. If the Company shall list any shares of its Common
Stock on any national securities exchange, it will take such action as may be
necessary, from time to time, to list the Shares, subject to issuance, on such
exchange. 

          8.5.
Securities Exchange Act Registration. At any time that the Company
either files and such filing becomes effective, or is required to file, a
registration statement with respect to Common Stock of the Company under
Section 5 of the Securities Act or Section 12(b) or Section 12(g) of the
Securities Exchange Act, then thereafter: 

          (a)
The Company will maintain effective a registration statement (containing such
information and documents as the Commission shall specify and otherwise
complying with the Securities Exchange Act) with respect to the Common Stock of
the Company under Section 12(b) or Section 12(g), whichever is applicable, of
the Securities Exchange Act and will file on time such information, documents
and reports as the Commission may require or prescribe for companies whose
stock has been registered pursuant to such Section 12(b) or Section 12(g),
whichever is applicable. 

          (b)
The Company will, upon the request of the holder hereof or of any Shares, make
whatever other filings with the Commission, or otherwise make generally
available to the public such financial and other information, as any such
holder may deem reasonably necessary or desirable in order to enable such
holder to be permitted to sell Shares pursuant to the provisions of Rule 144 under
the Securities Act (or any successor statute, rule or regulation to Rule 144). 

          8.6.
Delivery of Information for Rule 144A Transactions. If a holder of
Warrants or Shares proposes to transfer any such Warrants or Shares pursuant to
Rule 144A under the Securities Act (as in effect from time to time), the
Company agrees to provide (upon the request of such holder or the prospective
transferee) to such holder and (if requested) to the prospective transferee any
financial or other information concerning the Company and its Subsidiaries
which is required to be delivered by such holder to any transferee of such
Warrants or Shares pursuant to such Rule 144A. 

          Section
9. Headings. The headings and captions in this Warrant are for
convenience of reference only and shall not define, limit or otherwise affect
any of the terms or provisions 

7

hereof. 

          Section
10. Governing Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Michigan (other than any conflict of
laws rule which might result in the application of the laws of any other
jurisdiction). 

          Section
11. Survival. The obligations of the Company under this Warrant shall
survive its full exercise. 

          Section
12. Definitions. Terms not otherwise defined herein are defined in the Purchase
Agreement and are used herein with the same definition.  

          INTEGRAL
VISION, INC. has caused this Warrant to be dated and to be executed and issued
on its behalf by its officer thereunto duly authorized. 

	
 

	
 

	
 

	
 

	
 

	
Integral
 Vision, Inc. 

	
 

	
 

	
 

	
By: 

	
 

	
 

	

	
 

	
Name:
 Charles J. Drake 

	
 

	
 

	
Title:
 Chairman of the Board

8

EXHIBIT D

THIS WARRANT
CERTIFICATE (AND THE COMMON STOCK OR OTHER SECURITIES ISSUABLE UPON EXERCISE
HEREOF) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY
APPLICABLE REGULATION OF ANY STATE AND ARE NOT TRANSFERABLE EXCEPT UPON THE CONDITIONS
SPECIFIED IN SECTION 16 OF THE PURCHASE AGREEMENT REFERRED TO HEREIN.

INTEGRAL VISION, INC.

Common Stock Purchase Warrant Certificate

Issued Pursuant to Class 2 Notes Dated After November 1, 2006

Dated_______________________

Wixom, Michigan

No. _____

__________ Shares

          FOR
VALUE RECEIVED, the undersigned INTEGRAL VISION, INC., a Michigan corporation
    (herein referred to as the “Company”), hereby certifies and agrees
     that _________________________________________________________________________________________,
    or registered assigns, is entitled  to purchase from the Company up to an
    aggregate of ___________________________________________________________
    duly authorized, validly issued, fully paid and nonassessable shares of the
    Company’s Common Stock, no
par value, or any stock into which such Common Stock shall have been changed
    or any stock or other securities resulting from a reclassification thereof
    (all such shares, stock or other securities which may be purchased by this,
    and all other, Warrants are herein known as the “Shares”) at a
    purchase price per Share of the lower of (i) $_________ or (ii) the price
    determined according to Section 2.2(a) hereof (the “Purchase Price”)
    at any time and from time to time from the date hereof until 5:00 p.m. on
    the fourth anniversary of the date hereof. The foregoing agreement and rights
    are all subject to the terms, conditions and adjustments set forth below
    in this Warrant Certificate.

          This
Warrant Certificate is one of the Class 2 Common Stock Purchase Warrant
Certificates (the “Warrants”, which term includes all Class 2 Warrants issued
in substitution therefor) originally issued in connection with the issue and
sale by the Company of its Class 2 10% Secured Notes (the “Notes”). The
Warrants and the Notes have been issued pursuant to the Fourth Amended Note and
Warrant Purchase Agreement, as amended, dated effective as of the Closing Date
for each Purchaser (the “Purchase Agreement”) among the Company and the
Purchasers named therein. This Warrant is

1

subject to the
provisions, and is entitled to the benefits, of the Purchase Agreement.
Capitalized terms used without definition herein are as defined in the Purchase
Agreement.

          The
Company represents that all Shares to which the holders of the Warrants shall
be entitled upon the exercise thereof (i) are duly authorized by the Articles
of Incorporation of the Company in accordance with the laws of the State of
Michigan, (ii) have been duly authorized to be issued upon the exercise
of the Warrants from time to time in whole or in part, (iii) will be, when
issued in accordance with the terms of the Warrants, duly authorized and
validly issued and fully paid and nonassessable and free and clear of all Liens
and rights of others whatsoever (other than Liens and rights of others claiming
by, through or under the holder hereof) and (iv) will not be at the time of
such exercise subject to any restrictions on transfer or sale except as
provided by applicable laws.

          Section
1. Exercise of Warrant.

          1.1. Manner of Exercise.

          (a)
This Warrant may be exercised by the holder, in whole or in part, during normal
business hours on any Business Day by surrender of this Warrant, together with
a subscription duly executed by such holder, to the Company at its office
designated pursuant to the Purchase Agreement (or, if such exercise is in
connection with an underwritten public offering of Shares subject to this
Warrant, at the location at which the underwriting agreement requires that such
Shares be delivered).

          (b)
Payment of the exercise price for Shares shall be made, at the option of the
holder (i) as provided in Section 1.5 hereof, or (ii) by check or wire transfer
payable to the order of the Company, in any case, in an amount equal to (A) the
number of Shares specified in such subscription, multiplied by (B) the then
current exercise price. Such holder shall thereupon be entitled to receive the
number of Shares specified in such subscription (plus cash in lieu of any
fractional share as provided in Section 1.3 hereof).

          (c)
Restrictions. [The following provision shall be omitted at the request of any
Purchaser made to the Company prior to issuance of the Warrant] The holder shall not have the right to
exercise any portion of this Warrant, pursuant to Section 1.1(a) or otherwise,
to the extent that after giving effect to such issuance after exercise, the
holder (together with the holder’s affiliates), as set forth on the applicable
Notice of Exercise, would beneficially own in excess of 9.90% of the number of
shares of the Common Stock outstanding immediately after giving effect to such
issuance. For purposes of the foregoing sentence, the number of shares of Common
Stock beneficially owned by the holder and its affiliates shall include the
number of shares of Common Stock issuable upon exercise of this Warrant with
respect to which the determination of such sentence is being made, but shall
exclude the number of shares of Common Stock which would be issuable upon (A)
exercise of the remaining, nonexercised portion of this Warrant beneficially
owned by the holder or any of its affiliates and (B) exercise or conversion of
the unexercised or nonconverted portion of any other securities of the Company
(including, without limitation, any other Shares or Warrants) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the holder or any of its affiliates. Except as set
forth in the preceding sentence, for purposes of

2

this Section 1.1(c),
beneficial ownership shall be calculated in accordance with Section 13(d) of
the Exchange Act, it being acknowledged by holder that the Company is not
representing to holder that such calculation is in compliance with Section
13(d) of the Exchange Act and holder is solely responsible for any schedules
required to be filed in accordance therewith. To the extent that the limitation
contained in this Section 1.1(c) applies, the determination of whether this
Warrant is exercisable (in relation to other securities owned by the holder)
and of which a portion of this Warrant is exercisable shall be in the sole
discretion of such holder, and the submission of a Notice of Exercise shall be
deemed to be such holder’s determination of whether this Warrant is exercisable
(in relation to other securities owned by such holder) and of which portion of
this Warrant is exercisable, in each case subject to such aggregate percentage
limitation, and the Company shall have no obligation to verify or confirm the
accuracy of such determination. For purposes of this Section 1.1(c), in
determining the number of outstanding shares of Common Stock, the holder may
rely on the number of outstanding shares of Common Stock as reflected in (x)
the Company’s most recent Form 10-Q or Form 10-K, as the case may be, (y) a
more recent public announcement by the Company or (z) any other notice by the
Company or the Company’s Transfer Agent setting forth the number of shares of
Common Stock outstanding. Upon the written or oral request of the holder, the
Company shall within two Trading Days confirm orally and in writing to the
holder the number of shares of Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company, including
this Warrant, by the holder or its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. The provisions of
this Section 1.1(c) may be waived by the holder, at the election of the holder,
upon not less than 61 days’ prior notice to the Company, and the provisions of
this Section 1.1(c) shall continue to apply until such 61st day (or
such later date, as determined by the holder, as may be specified in such
notice of waiver).

          1.2.
Effective Date. Each exercise of this Warrant pursuant to Section 1.1
(a) shall be deemed to have been effected immediately prior to the close of
business on the Business Day on which this Warrant is surrendered to the
Company as provided in Section 1.1 hereof (except that if such exercise is in
connection with an underwritten public offering of Shares subject to this
Warrant, then such exercise shall be deemed to have been effected upon such
surrender of this Warrant), and such exercise shall be at the current exercise
price in effect at such time. On each such day that an exercise of this Warrant
is deemed effected, the Person or Persons in whose name or names any
certificate or certificates for Shares are issuable upon such exercise (as
provided in Section 1.3 hereof) shall be deemed to have become the holder or
holders of record.

          1.3.
Share Certificates; Cash for Fractional Shares; and Reissuance of Warrants.
As promptly as practicable after the exercise of this Warrant, in whole or in
part, and in any event within five (5) Business Days thereafter (unless such
exercise shall be in connection with a public offering of Shares subject to
this Warrant, in which event concurrently with such exercise), the Company at
its expense (including the payment by it of any applicable issue, stamp or
other taxes) will cause to be issued in the name of and delivered to the holder
hereof or such other person as such holder may direct:

          (a) a
certificate or certificates for the number of Shares to which such holder shall
be entitled upon such exercise plus, in lieu of any fractional share to which
such holder would otherwise be

3

entitled, cash
in an amount equal to the same fraction of the Market Price per Share on the
effective date of such exercise; and

          (b)
in case such exercise is in part only, a new Warrant or Warrants of like tenor,
calling in the aggregate on the face or faces thereof for the number (which may
be fractional) of Shares (without giving effect to any adjustment therein)
equal to the number of such Shares called for on the face of this Warrant minus
the number of Shares obtained upon such exercise.

          1.4.
Acknowledgment of Obligation. The Company will, at the time of each
exercise of this Warrant, upon the request of the holder hereof or of any
Shares issued upon such exercise, acknowledge in writing its continuing
obligation to afford to such holder all rights to which such holder shall
continue to be entitled under this Warrant and the Purchase Agreement;
provided, that if any such holder shall fail to make any such request, the
failure shall not affect the continuing obligation of the Company to afford
such rights to such holder.

          1.5.
Notes. The holder shall have the option, but not the obligation, upon
any exercise of this Warrant, to apply to the payment required by Section 1.1
all or any part of the accrued and unpaid interest on, or principal of, any
Notes at the time held by the holder. The Company will accept the amount of
accrued and unpaid interest or principal, if such election is selected, in
satisfaction of the exercise price for such Shares to be purchased. The holder
shall have the right to apply all or any portion of such accrued and unpaid
interest or principal to exercise all or any portion of this Warrant whether or
not payment on the Notes is otherwise prohibited.

          1.6.
Restriction. The holder acknowledges that the Shares acquired upon
exercise of the Warrant will be “restricted securities” as that term is defined
under the regulations promulgated under the Securities Act, will not be
saleable in the absence of an effective registration statement under the Securities
Act or an exemption from registration, and accordingly may be required to be
held for an indefinite period of time. The holder agrees that Shares issued
pursuant hereto may contain the following legend on the face thereof: “This
security has not been registered pursuant to the Securities Act of 1933, as
amended, and each holder of this security by the acceptance hereof agrees that
this security shall not be transferred in violation of said Act.”
The Company agrees that such legend shall be removed from any Shares which are
no longer subject to such restrictions.

          Each
holder of a Warrant by acceptance thereof agrees that it will not sell or
otherwise dispose of any Warrants or Shares unless such Warrants or Shares have
been registered under, or have been sold pursuant to an exemption from
registration under, the Securities Act. As a condition to the Company’s
obligation to issue a new Warrant to a transferee thereof which (x) is not a
holder of a Warrant, the transferor must certify to the Company the facts on
which the transferor is relying for such exemption or (y) is a holder of a
Warrant, the transferor must represent to the Company in writing that the
transfer is so exempt, and in either case the transferor must provide an
opinion from an attorney reasonably satisfactory to the Company that the
requirement for the exemption have been met.

4

          Section
2. Current Exercise Price and Adjustments.

          2.1
Current Exercise Price. The term “current exercise price” shall mean
initially the Purchase Price per Share, subject to adjustment from time to time
as hereinafter provided. In determining the current exercise price, the result
shall be expressed to the nearest $.01, but any lesser amount shall be carried
forward and shall be considered together with the next subsequent adjustment
which, together with any adjustments carried forward, shall amount to $.01 per
Share or more.

          2.2.
Adjustment of Current Exercise Price. The current exercise price shall
be subject to adjustment, from time to time (but not below zero), as follows:

          (a)
Anti-Dilution Adjustment. In the event the Company issues, after
November 1, 2006, any common stock, or any Preferred Stock, Warrant or Note
convertible into common stock, which has a share price, or any exercise or
conversion rate, lower than the exercise price for this Warrant, then the
exercise price for this Warrant shall be reduced to such lower rate, but in no
event will the exercise price be reduced to less than $0.25 per share (subject
to adjustment for stock splits, stock dividends and similar events after the
Issue Date). This provision will not be triggered by shares or options issued
to employees, officers, or directors of the Company under the Company’s stock
option plans or shares issued under existing warrants or convertible notes.

          (b)
Adjustments for Stock Dividends, Recapitalization. etc. In the event the
Company shall, after the Closing Date, issue any shares of Common Stock (i) by
stock dividend or any other distribution upon the stock of the Company payable
in Common Stock or in securities convertible into or exercisable for shares of
Common Stock or (ii) in subdivision of its outstanding Common Stock, by
reclassification or otherwise, the current exercise price then in effect shall
be reduced proportionately; and, in like manner, in the event of any
combination of shares of Common Stock, by reclassification or otherwise, the
current exercise price then in effect shall be increased proportionately. An
adjustment made pursuant to this Section 2.2(b) shall become effective
retroactively immediately after the record date in the case of a dividend or
other distribution and shall become effective immediately after the effective
date in the case of a subdivision or combination.

          (c)
Reorganization Adjustments. In case of any capital reorganization or
reclassification of the capital stock of the Company (other than a change in
par value or a stock split-up), the holder of this Warrant shall thereafter be
entitled to purchase for the current exercise price the securities and property
receivable upon such capital reorganization or reclassification by a holder of
the number of shares of Common Stock which this Warrant entitled the holder
hereof to purchase immediately prior to such capital reorganization or
reclassification. In the event that at any time, as a result of an adjustment
made pursuant to this Section 2.2(c), the holder of this Warrant shall become
entitled to purchase any other securities or property other than Common Stock,
thereafter the number of such other securities or property so purchasable upon
exercise of this Warrant and the current exercise price shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent 

5

as practicable
to the provisions with respect to the Common Stock contained in this Section
2.2.

          (d)
Other Adjustments. Without limiting any provisions of this Section 2.2
or any other provisions of this Warrant, in case any event shall occur as to
which any of the provisions of this Section 2.2 are not strictly applicable but
the failure to make any adjustment would not fairly protect the exercise rights
represented by the Warrants in accordance with the intent and principles of
this Section 2.2, the Company shall at its expense appoint a firm of
independent public accountants of recognized national standing selected by the
Board of Directors of the Company (who may be the regular auditors of the
Company), and reasonably satisfactory to the Majority Holders, which shall give
their opinion upon the adjustment, if any, on a basis consistent with the
intent and principles established in this Section 2.2, necessary to preserve
the economic and other rights represented by the Warrants. Upon receipt of such
opinion, the Company will promptly mail copies thereof to the holders of the
Warrants and shall make the adjustments described therein.

          (e)
Exclusions from the Adjustment for Current Exercise Price. No adjustment
of the current exercise price under Section 2.2 hereof shall be made as a
result of or in connection with: 

	
 

	
 

	
 

	
 

	
(i)

	
the issuance
  of Shares upon exercise of the Warrants or Class 3 Notes;

	
 

	
 

	
(ii)

	
the issuance
  of Warrants or Notes pursuant to this Agreement; or

	
 

	
 

	
(iii)

	
the exercise
  of options to purchase shares of the Company’s Common Stock pursuant to
  options granted to certain employees or agents of the Company pursuant to the
  Company’s stock option plans.

          Section
3. Company’s Consolidation or Merger. If the Company shall at any time
consolidate with or merge into another entity (where the Company is not the
continuing corporation after such merger or consolidation), the holder of a
Warrant shall thereafter (including, without limitation, the holder of a
Warrant that is blocked from exercising said warrant pursuant to Section
1.1.(c) hereof [“Blocked Holder”]) be entitled to receive, upon the exercise
thereof (including, without limitation, after allowing sufficient time for the
Blocked Holder to unblock and exercise said blocked Warrant) in whole or in
part, the securities or other property to which (and upon the same terms and
with the same rights as) a holder of the number of Shares then deliverable upon
the exercise thereof would have been entitled upon such consolidation or merger
(subject to adjustments under Section 2.2 hereof), and the Company shall take
such steps in connection with such consolidation or merger as may be necessary
to assure such holder that the provisions of the Warrants and the Purchase
Agreement shall thereafter be applicable in relation to any securities or
property thereafter deliverable upon the exercise of this Warrant, including,
but not limited to, obtaining a written acknowledgment from the continuing
entity of its obligation to supply such securities or property upon such
exercise and to be so bound by the Warrant and the Purchase Agreement. A sale,
transfer or lease (in one, or a series of related, transactions) of all or
substantially all of the assets of the Company to another person shall be
deemed a consolidation or merger for the foregoing purposes. The provision in this section shall apply
regardless of whether or not there would have been sufficient number of shares
of Common Stock authorized and available upon the exercise of this Warrant as
of the date of such consolidation or merger (due to a temporary waiver granted
the Company by the holder of this Warrant).

6

          Section
4. Notice to Holders of Warrants.

          In
case at any time:

          (i)
the Company shall take any action which would require an adjustment in the
current exercise price pursuant to Section 2.2; or

          (ii)
there shall be any capital reorganization or reclassification of the Company’s
Common Stock (other than a change in par value or from par value to no par
value or from no par value to par value of the Common Stock), or any
consolidation or merger to which the Company is a party and for which approval
of any stockholders of the Company is required, or any sale, transfer or lease
(in one, or a series of related, transactions) of all or substantially all of
the assets of the Company; or

          (iii)
there shall be a voluntary or involuntary dissolution, liquidation or
winding-up of the Company;

then, in any
one or more of said cases, the Company shall give written notice to the holders
of the Warrants, not less than twenty (20) days before any record date or other
date set for definitive action, of the date on which such action,
reorganization, reclassification, sale, transfer, lease, consolidation, merger,
dissolution, liquidation or winding-up, as the case may be, and the terms
thereof.

          Section
5. Number of Shares. No adjustment of the current exercise price will
increase the number of Shares which a holder will be entitled to purchase.

          Section
6. No Rights or Liabilities as Stockholder. Nothing contained in this
Warrant shall be construed as conferring upon the holder hereof any rights as a
stockholder of the Company (prior to exercise of all or a portion of this
Warrant) or as imposing any liabilities on such holder to purchase any
securities or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors or stockholders of the Company or
otherwise.

          Section
7. Ownership; Transfer. The Company may treat the Person in whose name
this Warrant is registered pursuant to the Purchase Agreement as the owner and
holder of this Warrant for all purposes, and the Company shall not be affected
by any notice to the contrary (except that the Company shall comply with the
provisions of the Purchase Agreement regarding the issuance of a new Warrant or
Warrants to transferees). This Warrant is transferable upon the conditions
specified in the Purchase Agreement.

          Section
8. Covenants

          8.1.
Information Requirements. The Company will provide to each holder of
Warrants or Shares, promptly after the same are available, copies of each
annual report, proxy or financial statement or other communication sent to the
Company’s or a Subsidiary’s stockholders and copies of all annual, regular,
periodic and special reports and registration statements which the Company may

7

file or be
required to file with the Securities and Exchange Commission or with any
securities exchange or the National Association of Securities Dealers, Inc.

          8.2.
Reservation of Shares. There have been reserved, and the Company shall
at all times keep reserved, out of its authorized Common Stock, a number of
shares of Common Stock sufficient to provide for the exercise of the rights of
purchase represented by the then outstanding Warrants.

          8.3.
No Dilution or Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant. The Company will at all times in good
faith assist in the carrying out of all such terms, and in the taking of all
such action, as may be necessary or appropriate in order to protect the rights
of the holder of this Warrant against dilution or other impairment. Without
limiting the generality of the foregoing, the Company (a) will not permit the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant to exceed the amount payable therefor upon such exercise, (b) will take
all such action as may be necessary or appropriate in order that the Company
may validly and legally issue fully paid and nonassessable shares of the
Company's Common Stock, free from all taxes, Liens and charges with respect to
the issue thereof, upon the exercise of this Warrant from time to time
outstanding and (c) will not take any action which results in any adjustment of
this current exercise price under this Warrant if the total number of shares of
the Company's Common Stock (or other securities) issuable after the action upon
the exercise of all of the Warrants would exceed the total number of shares of
Common Stock (or other securities) then authorized by the Company's Certificate
of Incorporation and available for the purpose of issue upon such exercise.

          8.4.
Listing of Shares. If the Company shall list any shares of its Common
Stock on any national securities exchange, it will take such action as may be
necessary, from time to time, to list the Shares, subject to issuance, on such
exchange.

          8.5.
Securities Exchange Act Registration. At any time that the Company
either files and such filing becomes effective, or is required to file, a
registration statement with respect to Common Stock of the Company under
Section 5 of the Securities Act or Section 12(b) or Section 12(g) of the
Securities Exchange Act, then thereafter:

          (a)
The Company will maintain effective a registration statement (containing such
information and documents as the Commission shall specify and otherwise
complying with the Securities Exchange Act) with respect to the Common Stock of
the Company under Section 12(b) or Section 12(g), whichever is applicable, of
the Securities Exchange Act and will file on time such information, documents
and reports as the Commission may require or prescribe for companies whose
stock has been registered pursuant to such Section 12(b) or Section 12(g),
whichever is applicable.

          (b)
The Company will, upon the request of the holder hereof or of any Shares, make
whatever other filings with the Commission, or otherwise make generally
available to the public such 

8

financial and
other information, as any such holder may deem reasonably necessary or
desirable in order to enable such holder to be permitted to sell Shares
pursuant to the provisions of Rule 144 under the Securities Act (or any
successor statute, rule or regulation to Rule 144).

          8.6.
Delivery of Information for Rule 144A Transactions. If a holder of
Warrants or Shares proposes to transfer any such Warrants or Shares pursuant to
Rule 144A under the Securities Act (as in effect from time to time), the
Company agrees to provide (upon the request of such holder or the prospective
transferee) to such holder and (if requested) to the prospective transferee any
financial or other information concerning the Company and its Subsidiaries
which is required to be delivered by such holder to any transferee of such
Warrants or Shares pursuant to such Rule 144A.

          Section
9. Headings. The headings and captions in this Warrant are for
convenience of reference only and shall not define, limit or otherwise affect
any of the terms or provisions

9

hereof.

          Section
10. Governing Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Michigan (other than any conflict of
laws rule which might result in the application of the laws of any other
jurisdiction).

          Section
11. Survival. The obligations of the Company under this Warrant shall
survive its full exercise.

          Section
12. Definitions. Terms not otherwise defined herein are defined in the
Purchase Agreement and are used herein with the same definition.

          INTEGRAL
VISION, INC. has caused this Warrant to be dated and to be executed and issued
on its behalf by its officer thereunto duly authorized.

	
 

	
 

	
 

	
 

	
Integral
 Vision, Inc.

	
 

	
 

	
 

	
By:

	
 

	
 

	
 

	

	
 

	
Name:
 Charles J. Drake

	
 

	
Title:
 Chairman of the Board

10

EXHIBIT E 

Form of Class 3 Note

(defined in the Fifth Amended Agreement as
Old Class 3 Notes)

	
 

	
 

	
No.
 __________________

	
$________________ 

INTEGRAL VISION, INC.

Farmington Hills, Michigan 

Dated ____________

8 Percent Convertible Note

Due _____________

          Integral
Vision, Inc., a Michigan corporation, (the “Corporation”), for value
received, promises to pay to _________________ or registered assigns, the sum
of $ _________________ on ______________, and to pay interest at the rate of 8
percent per annum with the initial interest payment due on April 1 and
thereafter semiannually on the first day of July and January of each year,
computed from ________________ (the “issue date”). Payment of principal and
interest shall be made at the offices of the Corporation in Farmington Hills,
Michigan, in lawful money of the United States of America, and shall be mailed
to the registered owner or owners hereof at the address appearing on the books
of the Corporation. 

          This
Note is one of a duly authorized issue of the Corporation’s Class 3 Notes dated
as of the Closing Date for each Purchaser, all of like tenor and maturity,
except variations necessary to express the number, principal amount and payee
of each Note. 

          1.
Equal rank. All Class 3 Notes of
this issue rank equally and ratably without priority over one another. 

          2.
Conversion. The holder or holders
of this Note may at any time prior to the maturity hereof (except that, if the
Corporation has called this Note for redemption, the right to convert shall
terminate at the close of business on the second business day prior to the day
fixed as the date for such redemption), convert the principal amount hereof
into the corporation’s common stock at the conversion ratio of $_____ of Note
principal for one share of common stock. To convert this Note, the holder or
holders hereof must surrender the same at the office of the Corporation,
together with a written instrument of transfer in a form satisfactory to the
Corporation, properly completed and executed and with a written notice of
conversion. No accrued interest will be payable on Notes surrendered for
conversion, whether or not notice of redemption has been given by the Company. 

          3.
Adjustments to conversion. If the
Corporation at any time pays to the holders of its common stock a dividend in
common stock, the number of shares of common stock issuable 

1

upon the
conversion of this Note shall be proportionally increased, effective at the
close of business on the record date for determination of the holders of the
common stock entitled to the dividend. 

          If
the Corporation at any time subdivides or combines in a larger or smaller
number of shares its outstanding shares of common stock, then the number of
shares of common stock issuable upon the conversion of this Note shall be
proportionally increased in the case of a subdivision and decreased in the case
of a combination, effective in either case at the close of business on the date
that the subdivision or combination becomes effective. 

          If
the Corporation is recapitalized, consolidated with or merged into any other
corporation, or sells or conveys to any other corporation all or substantially
all of its property as an entity, provision shall be made as part of the terms
of the recapitalization, consolidation, merger, sale, or conveyance so that the
holder or holders of this Note may receive, in lieu of the common stock
otherwise issuable to them upon conversion hereof, at the same conversion
ratio, the same kind and amount of securities or assets as may be distributable
upon the recapitalization, consolidation, merger, sale, or conveyance with
respect to the common stock. 

          In
the event the Corporation issues, after February 29, 2004, any common stock, or
any Preferred Stock, Warrant or Note convertible into common stock, which has a
share price, or an exercise or conversion rate, lower than the conversion rate
for this Note, then the conversion rate for this Note shall be reduced to such
lower rate, but in no event will the conversion rate be reduced to less than
$0.25 per share. This provision will not be triggered by shares issued for
existing employee stock options, for the exercise of existing Warrants. 

          4.
Fractional shares. In lieu of
issuing any fraction of a share upon the conversion of this Note, the
Corporation shall pay to the holder hereof for any fraction of a share
otherwise issuable upon the conversion cash equal to the same fraction of the
then current per share Market Price of the common stock. 

          5.
Forbearance from suit. No Note
holder of this issue may institute any suit or proceeding for the enforcement
of the payment of principal or interest unless the holders of more than 50
percent in amount of all outstanding Notes of this issue join in the suit or
proceeding. 

          6.
Redemption. 

          (a)
The Company may at its option (subject to the other provisions of this Section
6) prepay all or part of the principal amount of this Class 3 Note, at a price
equal to the principal amount of the Note to be prepaid plus accrued interest
thereon to the date of prepayment. 

          (b)
The aggregate amount of each prepayment of the principal amount of affected
Class 3 Notes shall be allocated among all affected Class 3 Notes, in
proportion, as nearly as practicable, to the respective unpaid principal
amounts of such Class 3 Notes. 

2

          (c)
The right of the Company to prepay Class 3 Notes pursuant to this Section 6
shall be conditioned upon its giving notice of prepayment, signed by an
officer, to the holders of Class 3 Notes not less than thirty (30) days and not
more than sixty (60) days prior to the date upon which the prepayment is to be
made specifying (i) the registered holder of each Class 3 Note to be prepaid,
(ii) the aggregate principal amount being prepaid, (iii) the date of such
prepayment (which must be a Business Day), (iv) the accrued and unpaid interest
(to but not including the date upon which the prepayment is to be made) and (v)
that the prepayment of Class 3 Notes is being made pursuant to this Section 6.
Notice of prepayment having been so given, the aggregate principal amount of
the Class 3 Notes so specified in such notice, and all accrued and unpaid
interest thereon, shall become due and payable on the specified prepayment
date, but the right to convert any or all of the affected Class 3 Notes to
Common Stock shall terminate at the close of business on the second business
day prior to the date of such prepayment. 

          (d)
The right of the Company to prepay Class 3 Notes pursuant to this Section 6
shall be further conditioned upon either of the following being met: 

	
 

	
 

	
 

	
 

	
(i)

	
fourteen
 months shall have elapsed from the Closing Date for each Class 3 Note
 affected, the Common Stock of the Company shall have been trading at an
 average Market Price of the greater of $1 per share or 125% of the conversion
 price for the Class 3 Notes being called for the four months prior to the
 specified prepayment date and the Common Stock receivable by the Class 3
 Purchasers upon conversion of their Class 3 Notes having been eligible for
 public market sale, whether through registration or an exemption therefrom,
 for at least four months prior to the specified prepayment date; or 

	
 

	
 

	
 

	
 

	
(ii)

	
the common
 stock of the Company shall have been trading at an average Market Price of
 the greater of $1 per share or 200% of the conversion price for the Class 3
 Notes being called for the four month prior to the specified prepayment date
 and the Common Stock receivable by the Class 3 Purchasers upon conversion of
 their Class 3 Notes having been eligible for public market sale, through
 registration, for at least four months prior to the specified prepayment
 date. 

          7.
Subordination. The rights of the holder or holders of
this Note to receive payment of any principal hereof or interest hereon is
subject and subordinate to the prior payment of the principal of and interest
on all existing or future obligations of the Corporation to any Class 1 Note
issued prior to April 16, 2002 (the “Senior Indebtedness”). Upon any
receivership, insolvency, assignment for the benefit of creditors, bankruptcy,
reorganization, sale of all or substantially all of the assets, dissolution,
liquidation, or any other marshalling of the assets and liabilities of the
Corporation, or in the event this Note is declared due and payable upon the
occurrence of a default as defined in this Note, then the Corporation shall not
pay any amount with respect to principal and interest on this Note unless and
until the principal of, and interest on, the Senior Indebtedness then
outstanding is paid in full. 

3

          8.
Registered owner. The Corporation
may treat the person or persons whose name or names appear on this Note as the
absolute owner or owners hereof for the purpose of receiving payment of, or on
account of, the principal and interest due on this Note and for all other
purposes. 

          9.
Release of shareholders, officers and
directors. This Note is the obligation of the Corporation only, and
no recourse shall be had for the payment of any principal or interest hereon
against any shareholder, officer or director of the Corporation, either
directly or through the Corporation, by virtue of any statute for the
enforcement of any assessment or otherwise. The holder or holders of this Note,
by the acceptance hereof, and as part of the consideration for this Note,
release all claims and waive all liabilities against the foregoing persons in
connection with this Note. 

4

          INTEGRAL
VISION, INC. has caused this Note to b dated and to executed and issued on its
behalf by its officer thereto duly authorized. 

	
 

	
 

	
 

	
 

	
INTEGRAL
 VISION, INC.

	
 

	
 

	
 

	
By

	
 

	
 

	

	
 

	
Name:
 Charles J. Drake

	
 

	
Title:
 Chairman of the Board

5

EXHIBIT F

Form of Class 3 Note 

(for notes issued after January 1, 2008)

	
 

	
 

	
No.
 _________________

	
$__________________

INTEGRAL VISION, INC.

Wixom, Michigan

Dated ___________ 
8 Percent Convertible Note

Due ____________

          Integral
Vision, Inc., a Michigan corporation, (the “Corporation”), for value
received, promises to pay to _________________ or registered assigns, the sum
of $_________________ on ______________, and to pay interest at the rate of 8
percent per annum (365 day interest table) with the initial interest payment
due on January 1, 2009 and thereafter semiannually on the first day of July and
January of each year, computed from ________________ (the “issue date”).
Payment of principal and interest shall be made at the offices of the Corporation
in Wixom, Michigan, in lawful money of the United States of America, and shall
be mailed to the registered owner or owners hereof at the address appearing on
the books of the Corporation. 

          This
Note is one of a duly authorized issue of the Corporation’s Class 3 Notes dated
as of the Closing Date for each Purchaser, all of like tenor and maturity,
except variations necessary to express the number, principal amount and payee
of each Note. 

          1.
Equal rank. All Class 3 Notes of
this issuer rank equally and ratably without priority over one another. 

          2.
Conversion. The holder or holders
of this Note may at any time prior to the maturity hereof (except that, if the
Corporation has called this Note for redemption, the right to convert shall
terminate at the close of business on the second business day prior to the day
fixed as the date for such redemption), convert the principal amount hereof
into the corporation’s common stock at the conversion ratio of $_____ of Note
principal for one share of common stock. To convert this Note, the holder or
holders hereof must surrender the same at the office of the Corporation,
together with a written instrument of transfer in a form satisfactory to the
Corporation, properly completed and executed and with a written notice of
conversion. No accrued interest will be payable on Notes surrendered for
conversion, whether or not notice of redemption has been given by the Company. 

          [The
following provision shall be omitted at the request of any Purchaser made to
the 

1

Company prior to issuance of the Class 3
Note] The holder shall not have the right to convert any portion of this Note, pursuant
to Section 2 or otherwise, to the extent that after giving effect to such
issuance after conversion, the holder (together with the holder’s affiliates),
as set forth on the applicable Notice of Conversion, would beneficially own in
excess of 4.90% of the number of shares of the Common Stock outstanding
immediately after giving effect to such issuance. 

          [The
following provision shall be omitted at the request of any Purchaser made to
the Company prior to issuance of the Class 3 Note] The holder shall not have the right to
convert any portion of this Note, pursuant to Section 2 or otherwise, to the
extent that after giving effect to such issuance after conversion, the holder
(together with the holder’s affiliates), as set forth on the applicable Notice
of Conversion, would beneficially own in excess of 9.90% of the number of
shares of the Common Stock outstanding immediately after giving effect to such
issuance. This paragraph shall only be applicable if the Purchaser of this Note
elected to omit the paragraph immediately preceding this paragraph (the
paragraph referring to the holder beneficially owning in excess of 4.90% of the
shares of the Company). 

          For
purposes of the foregoing two paragraphs, the number of shares of Common Stock
beneficially owned by the holder and its affiliates shall include the number of
shares of Common Stock issuable upon the conversion of this Note with respect
to which the determination of such sentence is being made, but shall exclude
the number of shares of Common Stock which would be issuable upon (A) exercise
of the remaining, nonexercised portion of this Note beneficially owned by the
holder or any of its affiliates and (B) exercise or conversion of the
unexercised or nonconverted portion of any other securities of the Company
(including, without limitation, any other Shares or Warrants) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the holder or any of its affiliates. Except as set
forth in the preceding sentence, for purposes of this Section 2, beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange
Act, it being acknowledged by holder that the Company is not representing to
holder that such calculation is in compliance with Section 13(d) of the
Exchange Act and holder is solely responsible for any schedules required to be
filed in accordance therewith. To the extent that the limitation contained in
this Section 2 applies, the determination of whether this Note is convertible
(in relation to other securities owned by the holder) and of which a portion of
this Note is convertible shall be in the sole discretion of such holder, and
the submission of a Notice of Conversion shall be deemed to be such holder’s
determination of whether this Note is convertible (in relation to other
securities owned by such holder) and of which portion of this Note is
convertible, in each case subject to such aggregate percentage limitation, and
the Company shall have no obligation to verify or confirm the accuracy of such
determination. For purposes of this Section 2, in determining the number of
outstanding shares of Common Stock, the holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the Company’s most
recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent public announcement
by the Company or (z) any other notice by the Company or the Company’s Transfer
Agent setting forth the number of shares of Common Stock outstanding. Upon the
written or oral request of the holder, the Company shall within two Trading
Days confirm orally and in writing to the holder the number of shares of Common
Stock then outstanding. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or exercise of
securities of the Company, 

2

including this Note, by the
holder or its affiliates since the date as of which such number of outstanding
shares of Common Stock was reported. The provisions of this Section 2 may be
waived by the holder, at the election of the holder, upon not less than 61
days’ prior notice to the Company, and the provisions of this Section 2 shall
continue to apply until such 61st day (or such later date, as
determined by the holder, as may be specified in such notice of waiver).

          3.
Adjustments to conversion. The
current conversion price shall be subject to adjustment, from time to time (but
not below zero), as follows: 

          (a)
Adjustments for Stock Dividends, Recapitalization. etc. In the event the
Company shall, after the Closing Date, issue any shares of Common Stock (i) by
stock dividend or any other distribution upon the stock of the Company payable
in Common Stock or in securities convertible into or exercisable for shares of
Common Stock or (ii) in subdivision of its outstanding Common Stock, by
reclassification or otherwise, the current conversion price then in effect
shall be reduced proportionately; and, in like manner, in the event of any
combination of shares of Common Stock, by reclassification or otherwise, the
current exercise price then in effect shall be increased proportionately. An
adjustment made pursuant to this Section 3(a) shall become effective
retroactively immediately after the record date in the case of a dividend or
other distribution and shall become effective immediately after the effective
date in the case of a subdivision or combination. 

          (b)
Reorganization Adjustments. In case of any capital reorganization or
reclassification of the capital stock of the Company (other than a change in
par value or a stock split-up), the holder of this Note shall thereafter be
entitled to purchase for the current exercise price the securities and property
receivable upon such capital reorganization or reclassification by a holder of
the number of shares of Common Stock which this Note entitled the holder hereof
to purchase immediately prior to such capital reorganization or
reclassification. In the event that at any time, as a result of an adjustment
made pursuant to this Section 3(b), the holder of this Note shall become entitled
to purchase any other securities or property other than Common Stock,
thereafter the number of such other securities or property so purchasable upon
exercise of this Note and the current conversion price shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
this Section 3. 

          (c)
Other Adjustments. Without limiting any provisions of this Section 3 or
any other provisions of this Note, in case any event shall occur as to which
any of the provisions of this Section 3 are not strictly applicable but the
failure to make any adjustment would not fairly protect the exercise rights
represented by the Note in accordance with the intent and principles of this
Section 3, the Company shall at its expense appoint a firm of independent
public accountants of recognized national standing selected by the Board of
Directors of the Company (who may be the regular auditors of the Company), and
reasonably satisfactory to the majority holders of all Class 3 Notes then
outstanding, which shall give their opinion upon the adjustment, if any, on a 

3

basis
consistent with the intent and principles established in this Section 3
necessary to preserve the economic and other rights represented by the Notes.
Upon receipt of such opinion, the Company will promptly mail copies thereof to
the holders of the Notes and shall make the adjustments described therein. 

          4.
Fractional shares. In lieu of
issuing any fraction of a share upon the conversion of this Note, the
Corporation shall pay to the holder hereof for any fraction of a share
otherwise issuable upon the conversion cash equal to the same fraction of the
then current per share Market Price of the common stock. 

          5.
Company’s Consolidation or Merger. If the Company shall at any time
consolidate with or merge into another entity (where the Company is not the
continuing corporation after such merger or consolidation), the holder of this
Note shall thereafter (including, without limitation, the holder of a Note that
is blocked from converting said Note pursuant to Section 2 hereof [“Blocked
Noteholder”]) be entitled to receive, upon the conversion thereof (including,
without limitation, after allowing sufficient time for the Blocked Noteholder
to unblock and convert said blocked Note) in whole or in part, the securities
or other property to which (and upon the same terms and with the same rights
as) a holder of the number of Shares then deliverable upon the conversion
thereof would have been entitled upon such consolidation or merger (subject to
adjustments under Section 3 hereof), and the Company shall take such steps in
connection with such consolidation or merger as may be necessary to assure such
holder that the provisions of the Notes and the Purchase Agreement shall
thereafter be applicable in relation to any securities or property thereafter
deliverable upon the conversion of this Note, including, but not limited to,
obtaining a written acknowledgment from the continuing entity of its obligation
to supply such securities or property upon such conversion and to be so bound
by the Note and the Purchase Agreement. A sale, transfer or lease (in one, or a
series of related, transactions) of all or substantially all of the assets of
the Company to another person shall be deemed a consolidation or merger for the
foregoing purposes. The provision in this section shall apply regardless of
whether or not there would have been sufficient number of shares of Common
Stock authorized and available upon the conversion of this Note as of the date
of such consolidation or merger (due to a temporary waiver granted the Company
by the holder of this Note). 

          6.
Forbearance from suit. No Note
holder of this issue may institute any suit or proceeding for the enforcement
of the payment of principal or interest unless the holders of more than 50
percent in amount of all outstanding Notes of this issue join in the suit or
proceeding. 

          7.
Redemption. 

          (a)
The Company may at its option (subject to the other provisions of this Section
7 prepay all or part of the principal amount of this Class 3 Note, at a price
equal to the principal amount of the Note to be prepaid plus accrued interest
thereon to the date of prepayment. 

          (b)
The aggregate amount of each prepayment of the principal amount of affected
Class 3 

4

Notes shall be
allocated among all affected Class 3 Notes, in proportion, as nearly as
practicable, to the respective unpaid principal amounts of such Class 3 Notes. 

          (c)
The right of the Company to prepay Class 3 Notes pursuant to this Section 7
shall be conditioned upon its giving notice of prepayment, signed by an
officer, to the holders of Class 3 Notes not less than thirty (30) days and not
more than sixty (60) days prior to the date upon which the prepayment is to be
made specifying (i) the registered holder of each Class 3 Note to be prepaid,
(ii) the aggregate principal amount being prepaid, (iii) the date of such
prepayment (which must be a Business Day), (iv) the accrued and unpaid interest
(to but not including the date upon which the prepayment is to be made) and (v)
that the prepayment of Class 3 Notes is being made pursuant to this Section 7.
Notice of prepayment having been so given, the aggregate principal amount of
the Class 3 Notes so specified in such notice, and all accrued and unpaid
interest thereon, shall become due and payable on the specified prepayment
date, but the right to convert any or all of the Class 3 Notes to Common Stock
shall continue to, but not including, the date of such prepayment. 

          (d)
The right of the Company to prepay New Class 3 Notes pursuant to this Section 7
shall be further conditioned upon the satisfaction of the following conditions:

	
 

	
 

	
 

	
 

	
i.

	
Twelve (12)
 months have elapsed from the Issue Date,

	
 

	
 

	
 

	
 

	
ii.

	
The Market
 Price for the Common Stock shall have averaged at least $0.50 per share
 during any period of twenty (20) consecutive Trading Days prior to the date
 the Company gives notice to prepay said notes, and

	
 

	
 

	
 

	
 

	
iii.

	
During such
 twenty consecutive Trading Days (referred to in ii above), the resale of all
 issuable shares underlying said notes shall have been covered by an effective
 registration statement or such issuable shares shall have been eligible for
 sale to the public pursuant to Rule 144 without limitation as to the number
 of shares to be sold. Notwithstanding other provisions in this Agreement that
 require the Company to treat all New Class 3 Notes without partiality, the
 Company may prepay notes under this provision [7.(d) iii] where the resale of
 issuable shares underlying said notes shall only have been eligible for sale
 to the public pursuant to Rule 144 without limitation as to the number of shares
 to be sold provided that the Company also offers to prepay a proportional
 share of the balance of New Class 3 Notes then outstanding 

	
 

	
 

	
 

	
 

	
 

	
The
 provisions of this section 7(d) shall not be applicable if the prepayment by
 the Company is pursuant to the sale by the Company of substantially all of
 its assets.

          (e)
     The right of the Company to prepay Class 3 Notes (other than notes specified the
Fifth Amended Agreement) pursuant to the terms in 7(d) shall be further
conditioned that the Company has no Class 2 Notes outstanding at the prepayment
date. 

          (f)
     The right of the Company to prepay Class 3 Notes outstanding that are “blocked”
from being converted pursuant to Section 2 of said notes shall be subject to
additional terms and 

5

conditions in
this section as follows: 

	
 

	
 

	
 

	
If such
 “blocked” holder of a Class 3 Note is directly or indirectly, the beneficial
 owner of ten percent (10%) of shares of the Company (pursuant to Section 16
 of the Securities Exchange Act) [“Blocked Insider”] and said Blocked Insider
 has sold any shares of the Company within the 6 month period prior to date of
 such planned prepayment date as specified in the notice of prepayment given
 pursuant to Section 7(c) above, the Company must extend the prepayment date
 for such Blocked Insider to10 Business Days after six months have elapse from
 said Blocked Insider’s latest sale or disposition of shares of the Company
 prior to said Blocked Insider being given notice of such planned prepayment
 (this limitation shall not apply to sales of shares by the Blocked Insider
 after being given notice of such planned prepayment). Said Blocked Insider
 may waive the extra prepayment notice time and accept the prepayment. If the
 Blocked Insider has not waived the extra prepayment notice time, delaying
 prepayment to the Blocked Insider pursuant to this section shall not be
 considered a violation of requirements in this Agreement that the Company
 treat all Class 3 Note holders without partiality. 

          8.
Restriction. The holder acknowledges that the
Shares acquired upon the conversion of this Note will be “restricted
securities” as that term is defined under the regulations promulgated under the
Securities Act, will not be saleable in the absence of an effective
registration statement under the Securities Act or an exemption from
registration, and accordingly may be required to be held for an indefinite
period of time. The holder agrees that Shares issued pursuant hereto may
contain the following legend on the face thereof: “This security has not been
registered pursuant to the Securities Act of 1933, as amended, and each holder
of this security by the acceptance hereof agrees that this security shall not
be transferred in violation of said Act.” The Company agrees that such legend
shall be removed from any Shares which are no longer subject to such
restrictions. 

          Each
holder of a Class 3 Convertible Note by acceptance thereof agrees that it will
not sell or otherwise dispose of any Notes or Shares unless such Notes or Shares
have been registered under, or have been sold pursuant to an exemption from
registration under, the Securities Act. As a condition to the Company’s
obligation to issue a new Note to a transferee thereof which (x) is not a
holder of a Note, the transferor must certify to the Company the facts on which
the transferor is relying for such exemption or (y) is a holder of a Note, the
transferor must represent to the Company in writing that the transfer is so
exempt, and in either case the transferor must provide an opinion from an
attorney reasonably satisfactory to the Company that the requirement for the
exemption have been met. 

          9.
Notice to Holders of Notes.

In case at any
time: 

	
 

	
 

	
 

	
 

	
(i)

	
the Company
 shall take any action which would require an adjustment in the 

6

current
exercise price pursuant to Section 3; or 

	
 

	
 

	
 

	
 

	
(ii)

	
there shall
 be any capital reorganization or reclassification of the Company’s Common
 Stock (other than a change in par value or from par value to no par value or
 from no par value to par value of the Common Stock), or any consolidation or
 merger to which the Company is a party and for which approval of any
 stockholders of the Company is required, or any sale, transfer or lease (in
 one, or a series of related, transactions) of all or substantially all of the
 assets of the Company; or 

	
 

	
 

	
 

	
 

	
(iii)

	
there shall
 be a voluntary or involuntary dissolution, liquidation or winding-up of the
 Company; 

then, in any
one or more of said cases, the Company shall give written notice to the holders
of this Note, not less than twenty (20) days before any record date or other
date set for definitive action, of the date on which such action,
reorganization, reclassification, sale, transfer, lease, consolidation, merger,
dissolution, liquidation or winding-up, as the case may be, and the terms
thereof. 

              10.
Registered owner. The Corporation
may treat the person or persons whose name or names appear on this Note as the
absolute owner or owners hereof for the purpose of receiving payment of, or on
account of, the principal and interest due on this Note and for all other
purposes. 

              11.
Covenants 

              11.1.
Information Requirements. The Company will provide to this Note holder,
promptly after the same are available, copies of each annual report, proxy or
financial statement or other communication sent to the Company’s or a
Subsidiary’s stockholders and copies of all annual, regular, periodic and
special reports and registration statements which the Company may file or be required
to file with the Securities and Exchange Commission or with any securities
exchange or the National Association of Securities Dealers, Inc. 

              11.2.
Reservation of Shares. There have been reserved, and the Company shall
at all times keep reserved, out of its authorized Common Stock, a number of
shares of Common Stock sufficient to provide for the exercise of the rights of
purchase represented by the then outstanding Warrants and Convertible Notes. 

              11.3.
No Impairment. The Company will not, by amendment of its Certificate of
Incorporation or through any consolidation, merger, reorganization, transfer of
assets, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of
this Note. The Company will at all times in good faith assist in the carrying
out of all such terms, and in the taking of all such action, as may 

7

be necessary
or appropriate in order to protect the rights of the holder of this Note
against impairment. Without limiting the generality of the foregoing, the
Company (a) will not permit the par value of any shares of Common Stock
receivable upon the exercise of this Note to exceed the amount payable
therefore upon such conversion, (b) will take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of the Company’s Common Stock, free
from all taxes, Liens and charges with respect to the issue thereof, upon the
exercise of this Note from time to time outstanding and (c) will not take any
action which results in any adjustment of this current exercise price under
this Note if the total number of shares of the Company’s Common Stock (or other
securities) issuable after the action upon the exercise of all of the
Convertible Notes and Warrants would exceed the total number of shares of
Common Stock (or other securities) then authorized by the Company’s Certificate
of Incorporation and available for the purpose of issue upon such exercise. 

          11.4.
Listing of Shares. If the Company shall list any shares of its Common
Stock on any national securities exchange, it will take such action as may be
necessary, from time to time, to list the Shares, subject to issuance, on such
exchange if permitted by law. 

          11.5.
Securities Exchange Act Registration. At any time that the Company
either files and such filing becomes effective, or is required to file, a
registration statement with respect to Common Stock of the Company under
Section 5 of the Securities Act or Section 12(b) or Section 12(g) of the
Securities Exchange Act, then thereafter, if permitted by law: 

          (a)
The Company will maintain effective a registration statement (containing such
information and documents as the Commission shall specify and otherwise
complying with the Securities Exchange Act) with respect to the Common Stock of
the Company under Section 12(b) or Section 12(g), whichever is applicable, of
the Securities Exchange Act and will file on time such information, documents
and reports as the Commission may require or prescribe for companies whose
stock has been registered pursuant to such Section 12(b) or Section 12(g),
whichever is applicable. 

          (b)
The Company will, upon the request of the holder hereof or of any Shares, make
whatever other filings with the Commission, or otherwise make generally
available to the public such financial and other information, as any such
holder may deem reasonably necessary or desirable in order to enable such
holder to be permitted to sell Shares pursuant to the provisions of Rule 144
under the Securities Act (or any successor statute, rule or regulation to Rule
144). 

          11.6.
Delivery of Information for Rule 144A Transactions. If a holder of
Convertible Notes, Warrants or Shares proposes to transfer any such Notes,
Warrants or Shares pursuant to Rule 144A under the Securities Act (as in effect
from time to time), the Company agrees to provide (upon the request of such
holder or the prospective transferee) to such holder and (if requested) to the
prospective transferee any financial or other information concerning the 

8

Company and
its Subsidiaries which is required to be delivered by such holder to any
transferee of such Warrants or Shares pursuant to such Rule 144A. 

          12.
Headings. The headings and captions in this
Note are for convenience of reference only and shall not define, limit or
otherwise affect any of the terms or provisions hereof. 

          13.
Governing Law. This Note shall be
governed by, and construed in accordance with, the laws of the State of
Michigan (other than any conflict of laws rule which might result in the
application of the laws of any other jurisdiction). 

          14.
Survival. The obligations of the
Company under this Note shall survive its full conversion. 

          15.
Definitions. Terms not otherwise
defined herein are defined in the Purchase Agreement and are used herein with
the same definition. 

          16.
Release of shareholders, officers and
directors. This Note is the obligation of the Corporation only, and
no recourse shall be had for the payment of any principal or interest hereon
against any shareholder, officer or director of the Corporation, either
directly or through the Corporation, by virtue of any statute for the
enforcement of any assessment or otherwise. The holder or holders of this Note,
by the acceptance hereof, and as part of the consideration for this Note,
release all claims and waive all liabilities against the foregoing persons in
connection with this Note. 

9

          INTEGRAL
VISION, INC. has caused this Note to be dated and to executed and issued on its
behalf by its officer thereto duly authorized. 

	
 

	
 

	
 

	
 

	
 

	
INTEGRAL
 VISION, INC. 

	
 

	
 

	
 

	
By

	
 

	
 

	

	
 

	
 

	
Name:
 Charles J. Drake

 Title: Chairman of the Board 

10

EXHIBIT G

Defaults or Potential Defaults of Other Agreements

NONE

1EXHIBIT 10(5)

INTEGRAL VISION, INC. 2008 EQUITY INCENTIVE
PLAN

	
 

	

          Integral
Vision, Inc. (“Company”) hereby establishes the Integral Vision, Inc. 2008
Equity Incentive Plan (“Plan”), effective _________, 2008. 

ARTICLE I 

APPROVAL AND PURPOSE

          Section 1.01. Approval of Plan. The
Company’s Board of Directors approved this Plan on March 12, 2008, contingent
on approval by the Company’s shareholders within 12 months following its
adoption by the Board. The Company’s shareholder’s approved the Plan on
_______, 2008. 

          Section 1.02. Description of Plan. The Plan
is designed to promote the interests of the Company and its shareholders by
providing a means by which the Company can grant equity-based incentives to
eligible employees of the Company or any Subsidiary as well as non-employee
directors, consultants, or advisors who are in a position to contribute
materially to the Company’s success (“Participants”). The Plan permits the
Compensation Committee of the Company’s Board of Directors to grant Incentive
Stock Options, Non-Qualified Stock Options, Restricted Stock, and Shares, all
as provided herein. 

          Section 1.03. Purpose of Plan.
The purpose of the Plan is to further the growth, development, and financial
success of the Company by providing for stock-based incentives to Participants
that align their interests more closely with those of the Company’s
shareholders. The Company also believes that the Plan will assist it in its
efforts to attract and retain quality employees, directors, consultants, and
advisors. 

ARTICLE II

DEFINITIONS AND RULES OF CONSTRUCTION

          Section
2.01. Definitions. When capitalized in this Plan, the
following terms shall have the meanings specified below, unless the context
otherwise requires: 

          (a) “Advisor” means an individual who provides
valuable services to the Company or a Subsidiary in a capacity other than as an
Employee or Director. 

          (b) “Agreement” means a written instrument
between the Company and a Participant evidencing an Award and prescribing the
terms, conditions, and restrictions applicable to the Award. 

          (c) “Award” an Incentive Stock Option, a
Non-Qualified Stock Option, Restricted Stock, or Shares granted pursuant to the
Plan. 

          (d) “Board of Directors” or “Board”
means the
Company’s Board of Directors, as constituted from time to time. 

          (e) “Code” means the Internal Revenue Code of
1986, as amended from time to time. 

          (f) “Committee” means the committee described in
Section 3.01; provided however, to the extent that the Board has not designated
a Committee, “Committee” means the “Board.” 

          (g) “Company” means Integral Vision, Inc.

          (h) “Director” means a director of the Company
or a Subsidiary who is not also an Employee. 

          (i) “Effective Date” means ________, 2008, the
effective date of the Plan. 

          (j)  “Employee” means any individual
employed by the Company or a Subsidiary, including an employee who is a member
of the Board or the board of directors of a Subsidiary. 

          (k) “Employer” means the Company and/or a
Subsidiary. 

          (l) “Exercise Price” means the price required to
be paid to the Company upon the exercise of an Award. 

          (m) “Fair Market Value” means, with respect to a
Share on any date, as follows: 

	
 

	
 

	
 

	
          (1)
 if the Shares are listed or admitted to trade and are readily tradable on a
 national securities exchange, the closing price of a Share on the principal
 national securities exchange on which the Shares are listed or admitted to
 trade on such date, or, if there is no trading of the Shares on such date,
 the closing price of a Share as quoted on the next preceding date on which
 there was trading in Shares; 

	
 

	
 

	
 

	
          (2)
 if the Shares are not subject to paragraph (1) above, but are readily
 tradable on an established securities market, the closing price of a Share on
 such date on such market, or if there is no trading of the Shares on such
 date, the closing price of a Share on the next preceding date on which there
 was trading in Shares; and 

	
 

	
 

	
 

	
          (3)
 if the Shares are not subject to paragraph (1) or (2) above, the fair market
 value of the Shares on such date, as determined by the Committee in a manner
 that satisfies the requirements of Code Section 409A and the guidance
 thereunder for exempt equity-based compensation. 

          (n) “Grant Date” means the date on which the
Committee or its designee approves the grant of an Award. Notwithstanding the
preceding sentence, if the Committee grants an Option and expressly designates
a future Grant Date, with the minimum per Share Exercise Price based on the
Fair Market Value of a Share on that future date, such future date shall be the
Grant Date. 

          (o) “Incentive Stock Option” means an option for
Shares granted pursuant to the Plan that satisfies the requirements of Code
Section 422. 

          (p) “Non-Qualified Stock Option” means an option
for Shares granted pursuant to the Plan that is not an Incentive Stock Option. 

- 2 -

          (q) “Option” means an Incentive Stock Option or
a Non-Qualified Stock Option. 

          (r) “Participant” means a person to whom an
Award has been granted under the Plan, provided, however, a Participant shall
cease to be such at such time as all Awards granted to him under the Plan have
been exercised and/or forfeited. 

          (s) “Period of Restriction” means the period
during which a Share of Restricted Stock is subject to restrictions and a
substantial risk of forfeiture. 

          (t) “Plan” means the Integral Vision, Inc. 2008
Equity Incentive Plan, as set out in this document, as amended from time to
time. 

          (u) “Restricted Stock” means Shares awarded
pursuant to the Plan that, at the time of grant, are non-transferable and subject
to a substantial risk of forfeiture. 

          (v) “Prior Plan” means the Integral Vision,
Inc. 2004 Stock Option Plan. 

          (w) “Rule 16b-3” means Rule 16b-3 under the
Securities Exchange Act of 1934, as amended. 

          (x) “Separation from Service,” “Separates
from
Service,” or any variation of such term means, (i) in the case of an Employee,
a complete termination of the employment relationship between the Employee and
all Employers, (ii) in the case of a Director, termination of the Director’s
service as a Director, and (iii), in the case of an Advisor, a complete
termination of the contractual relationship between the Advisor and the Company
and all Subsidiaries. 

          (y) “Share” means a share of the Company’s
common stock. 

          (z) “Subsidiary” means any company that is a
“subsidiary corporation” of the Company within the meaning of Code Section 424.

          Section 2.02. Rules of Construction. The
following rules shall apply in construing the Plan and any Agreement: 

          (a) Except as expressly provided below, the
Plan, all Awards and Agreements, and all other related documents shall be
governed by, and construed in accordance with, the laws of the State of
Michigan without regard to conflict of law principles. 

          (b) Words used in the masculine shall be
construed to include the feminine gender, where appropriate, and words used in
the singular or plural shall be construed as being in the plural or singular,
where appropriate. 

          (c) Provisions of the Plan applicable to
Incentive Stock Options shall be construed to effect compliance with Code
Section 422. 

          (d) Captions and headings are for convenience
only, and they shall not affect the construction of the Plan or any Agreement. 

- 3 -

          (e) Reference to any provision of the Code or
other law shall be deemed to include a reference to the successor of such
provision. 

          (f) The Plan and the Awards are intended to
comply with and shall be construed to effect compliance with, the exemptions
under Rule 16b-3, in the case of Participants who are subject to Section 16 of
the Securities Exchange Act of 1934; provided, however, the Company shall have
no liability to any Participant for Section 16 consequences of an Award. 

          (g) It is intended that Options shall qualify as
performance-based compensation or otherwise be exempt from deductibility
limitations under Code Section 162(m), and the Plan and the Agreements shall be
construed accordingly. 

          (h) It is intended that all Awards shall be
exempt from the provisions of Code Section 409A, and the provisions of the Plan
and all Agreements shall be construed in accordance with such intent. 

          (i) If a court of competent jurisdiction holds
any provision hereof invalid and unenforceable, the remaining provisions shall
continue in effect, provided that the essential economic terms of the Plan and
any Award can still be enforced. 

ARTICLE III 

ADMINISTRATION

          Section
3.01. Committee. Except as otherwise provided herein,
the Plan shall be administered by the compensation committee of the Board. The
Committee shall consist solely of two or more non-employee directors (within
the meaning of Rule 16b-3) who are “outside directors” for purposes of Code
Section 162(m) and the regulations thereunder. Any action of the Committee with
respect to administration of the Plan shall be taken by a majority vote or
written consent of its members. 

          Section
3.02. Powers of Committee. Subject to the express
provisions of the Plan and any express limitations on its authority, the
Committee is authorized and empowered to administer the Plan and to (i)
designate those persons who are Participants; (ii) grant Awards; (iii)
determine the effective date of each Award, the number of Shares subject to the
Award, and the other terms and conditions governing the Award, which terms and
conditions need not be the same for each Award; (iv) interpret the Plan; (v)
determine the Fair Market Value of the Shares; (vi) accelerate the time during
which an Option may be exercised or the restrictions applicable to Shares of
Restricted Stock shall lapse, notwithstanding any provision of the applicable
Agreement; (vii) prescribe, amend, and rescind rules relating to the Plan; (viii)
authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of an Award; (ix) determine the rights and
obligations of Participants under the Plan; and (x) make all other
determinations deemed necessary or advisable for the administration of the
Plan. Notwithstanding the preceding provisions, the Committee is not authorized
to take any action that would cause an Award to become subject to the
provisions of Code Section 409A. 

          Section
3.03. Binding Determinations. Subject only to
compliance with the express provisions hereof, the Board and Committee may act
in their sole discretion with respect to matters within their authority related
to the Plan, and any action taken by, or inaction of, the 

- 4 -

Company, the
Board, or the Committee consistent with the terms of the Plan and relating or
pursuant to the Plan shall be conclusive and binding on all persons. 

          Section
3.04. Reliance on Experts. In making any determination
or in taking or not taking any action under the Plan, the Committee may obtain
and rely upon the advice of experts, including employees of and professional
advisors to the Company. 

          Section
3.05. Delegation. The Committee may delegate
ministerial non-discretionary functions to one or more Company officers or
employees. Subject to applicable law, the Committee may delegate to the
Company’s Chief Executive Officer all or part of its authority and duties with
respect to the granting of Awards to individuals who are not (i) subject to the
reporting and other provisions of Section 16 of the Securities Exchange Act of
1934 or (ii) covered employees within the meaning of Code Section 162(m)(3).
Any delegation pursuant to this Section shall specify the duration of the
delegation and limit the amount and types of Awards that may be granted
pursuant thereto. 

          Section
3.06. Limitations on Liability. No director, officer,
or agent of the Company shall be liable for any action, omission, or decision
under the Plan that is taken, made, or omitted in good faith. 

ARTICLE IV 

ELIGIBILITY

          The
Committee shall, from time to time, designate those persons eligible to receive
Awards under the Plan from among Employees, Directors, and Advisors. The
Committee may grant more than one Award to any Participant. The Committee may
grant Awards before shareholder approval of the Plan, provided, however, any
such Award shall become null and void upon the shareholder’s failure to approve
the Plan at or before the 2008 annual meeting of the Company’s shareholders. 

ARTICLE V 

SHARES SUBJECT TO AWARDS

          Section
5.01. Shares Available The only shares subject to
Awards shall be the Company’s authorized, but unissued, or reacquired Shares.
Upon the expiration or termination, in whole or in part, for any reason of an
outstanding Award or any portion thereof that shall not have vested or shall
not have been exercised in full, or upon the surrender of Shares as payment for
an Award, any Shares subject to the Award that have not been acquired by the
Participant or that are forfeited or surrendered by the Participant shall again
become available for the granting of additional Awards. 

          Section
5.02. Aggregate Share Limit. Subject to adjustment as
provided in Section 5.05 and any limitations specified elsewhere in the Plan,
the maximum number of Shares cumulatively available for issuance pursuant to
Awards shall not exceed the sum of the following: 

          (a) 4,828,000 Shares, plus 

- 5 -

          (b) any Shares covered by an Award under the
Plan or option under the Prior Plan that are forfeited or remain unpurchased or
undistributed upon termination or expiration of the Award or option under the
Prior Plan, plus 

          (c) any Shares exchanged by a Participant as
full or partial payment to the Company of the Exercise Price of any Award under
the Plan. 

          Section
5.03. Limitation Applicable to Incentive Stock Options.
The maximum number of Shares that may be delivered pursuant to Incentive Stock
Options granted under the Plan is 4,828,000 Shares, subject to adjustment under
Section 5.05. The only limitations on the number of Shares available for Awards
other than Incentive Stock Options shall be those specified in Sections 5.02
and 5.04. 

          Section
5.04. Annual Limitations on Awards to Any Participant.
The maximum number of Shares subject to all Awards granted in any calendar year
to a Participant shall be limited to 400,000, subject to adjustment under
Section 5.05. Notwithstanding the preceding sentence, the Committee may grant
an Award of up to 2,000,000 Shares to the Company’s Chief Executive Officer
during the two year period beginning on the Effective Date. 

          Section
5.05. Adjustments Upon Recapitalization or Reorganization.
If the outstanding Shares are changed into, or exchanged for, a different
number or kind of shares or securities of the Company through any capital
reorganization or reclassification, or if the number of outstanding Shares is
changed through a stock split or stock dividend, an appropriate adjustment
shall be made by the Committee in the number, kind, and/or Exercise Price with
respect to Shares as to which Awards may be granted under the Plan. A
corresponding adjustment shall likewise be made in the number, kind, and/or
Exercise Price for Shares with respect to which there are unexercised
outstanding Awards. Any such adjustment in an outstanding Award, however, shall
be made without change in the total price applicable to the unexercised portion
of the Award but with a corresponding adjustment in the price for each Share
covered by the Award. In making such adjustments, or in determining that no
such adjustments are necessary, the Committee may rely upon the advice of
counsel and accountants to the Company, and the good faith determination of the
Committee shall be final, conclusive, and binding. No fractional Shares shall
be issued or issuable under the Plan on account of any such adjustment. No
adjustment shall be made pursuant to this Section, if it would cause an Award
to become subject to Code Section 409A or would cause an Incentive Stock Option
to fail to be such. 

ARTICLE VI 

OPTION GRANTS

          Section
6.01. Option Grants. The Committee may grant
Non-Qualified Stock Options to any Employee, Director, or Advisor, and it may
grant Incentive Stock Options to any Employee, in each case, as it deems
appropriate. The Company may assume options granted by an organization acquired
by the Company or may grant Options in replacement of, or in substitution for,
any such options. Each Option shall consist of a right to purchase a specified
number of Shares during a specified period and at a specified Exercise Price,
all as determined by the Committee. In addition to the terms, conditions,
vesting periods, and restrictions 

- 6 -

established by
the Committee in the Agreement, each Incentive Stock Option must comply with
the requirements of Code Section 422 and Section 6.03. 

          Section
6.02. Terms and Conditions of Options; Agreements.
Each Option shall be evidenced by an Agreement executed by the Company and the
Participant, which shall contain such terms and be in such form as the
Committee may from time to time approve, subject to the following limitations
and conditions: 

          (a) Grant and
Notice of Option. The date of an Option grant shall, for all
purposes, be the date on which the Committee or its designee makes the
determination granting such Option, unless the Committee designates a specific
future Grant Date at such time. Notice of the determination shall be given to
each Participant to whom an Option is granted within a reasonable time after
the Grant Date. The grant of an Option shall not obligate the Participant to
exercise it. 

          (b) Number of
Shares. The Agreement shall state the number of Shares with respect
to which each Option is granted and whether the Option is a Non-Qualified Stock
Option or Incentive Stock Option. 

          (c) Exercise
Price. The Agreement shall state the per Share Exercise Price for
the Shares subject to the Option. The per Share Exercise Price under an Option
shall not be less than the Fair Market Value of a Share on the Grant Date. For
Incentive Stock Options, the per Share Exercise Price shall satisfy the
requirements of Section 6.03 and the provisions of the Code applicable to
incentive stock options. 

          (d) Exercise
and Payment of Exercise Price. A Participant may exercise a vested
Option by (i) giving written notice to the Company specifying the number of
Shares to be purchased and accompanied by payment of the full Exercise Price
therefor in cash, by check, or in such other form of lawful consideration as
the Committee may approve, including without limitation and in the sole
discretion of the Committee, the transfer by the Participant to the Company of
outstanding Shares held by the Participant in a manner intended to comply with
the provisions of Rule 16b-3, if applicable, and (ii) satisfying any other
requirements set forth herein (including, without limitation, the tax
withholding requirements of Article IX) or in the applicable Agreement. Any
Shares delivered by the Participant in connection with the exercise of an
Option must have been owned by the Participant for at least six months as of
the date of delivery. Shares used to satisfy the Exercise Price of an Option
shall be valued at their Fair Market Value on the date of exercise. 

          (e) Restrictions
on Grants. Notwithstanding any other provisions set forth herein or
in an Agreement, no Option may be granted under the Plan after _______, 2018. 

          (f) Limitations
on Transfer. No Option may be assigned, transferred, or pledged,
except by will or under the laws of descent and distribution. During the
lifetime of a Participant, an Option may be exercised only by the Participant
and may not be assigned, transferred, or pledged. 

- 7 -

          (g) Vesting
of Options. Options shall vest based on longevity of service and/or
other schedules established by the Committee, as set forth in each Agreement.
The Committee may grant Options that are fully vested and exercisable at grant.

          (h) Issuance
of Shares and Compliance with Securities Laws. The Company may
postpone the issuance and delivery of certificates representing Shares until
(i) the admission of such Shares to listing on any stock exchange on which
Shares are then listed and (ii) the completion of such registration or other
qualification of Shares under any state or federal law, rule, or regulation as
the Company shall determine to be necessary or advisable, which registration or
other qualification the Company shall use its best efforts to complete;
provided, however, a person purchasing or otherwise receiving Shares pursuant
to the Plan has no right to require the Company to register the Shares under
federal or state securities laws at any time. Any person purchasing or
otherwise receiving Shares pursuant to the Plan may be required to make such
representations and furnish such information as may, in the opinion of counsel
for the Company, be appropriate to permit the Company, in light of the
existence or non-existence with respect to such Shares of an effective
registration under the Securities Act of 1933, as amended, or any similar state
statute, to issue the Shares in compliance with the provisions of those or any
comparable acts. 

          Section
6.03. Additional Limitations Applicable to Incentive Stock Options. 

          (a) General. The
limitations and conditions of this Section, in addition to the terms and
conditions otherwise specified by the Plan and the Agreement, shall apply to
all Incentive Stock Options. 

          (b) Price.
The per Share Exercise Price under an Incentive Stock Option shall be not less
than the Fair Market Value of a Share on the Grant Date. In the case of an
Incentive Stock Option granted to an Employee who is a 10% shareholder, the per
Share Exercise Price shall be not less than one hundred ten percent (110%) of
the Fair Market Value of a Share on the Grant Date. 

          (c) Exercise
Period. Unless terminated earlier pursuant to other terms and
provisions of the Agreement or the Plan, the term of each Incentive Stock
Option shall expire within the period prescribed in the Agreement relating
thereto, which shall not be more than five years from the Grant Date, if the
Participant is a 10% shareholder (as defined in Code Section 422(b)(6)), and
not more than ten years from the Grant Date, if the Participant is not a 10%
shareholder (as defined in Code Section 422(b)(6)). An Option shall not be
treated as an Incentive Stock Option if it is exercisable by the Participant
more than (i) three months after his termination of employment (ii), if the
Participant is disabled (within the meaning of Code Section 22(e)(3)), 12
months after his termination of employment. 

          (d) Maximum
Exercise Rule. The aggregate Fair Market Value (determined as of the
Grant Date) of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by any Participant during any calendar year
under this Plan and any other incentive stock option plan (within the meaning
of Code Section 422) of the Company or any parent or subsidiary corporation of
the Company shall not exceed $100,000. 

- 8 -

          (e) Other
Restrictions. Incentive Stock Options may be granted only to
employees of the Company (or a Subsidiary) that satisfy the other eligibility
requirements of the Code. There shall be imposed in any Agreement relating to
Incentive Stock Options such other terms and conditions as from time to time
are required for the Option be an “incentive stock option” within the meaning
of Code Section 422. 

          Section
6.04. Termination of Options. 

          (a) Each Option granted under the Plan shall set
forth a termination date, which shall be not later than ten years from the
Grant Date, subject to earlier termination as set forth in this Plan or the
Agreement. 

          (b) The Committee shall establish the effect of
a Separation from Service on the rights and benefits under each Option and in
so doing may make distinctions based upon, among other factors, the cause of
Separation from Service. Following Separation from Service, an Option may be
exercised only in accordance with the applicable Agreement and, unless
otherwise expressly provided by the Committee, only with respect to that number
of Shares for which the Option could have been exercised by the Participant on
the date of Severance from Service. 

          (c) The Committee may cancel any unexpired
Options at any time, if the Participant is not in compliance with all applicable
provisions of the Plan or with any Agreement, or if the Participant, whether or
not he is currently employed by an Employer, engages in any of the following
activities without the prior written consent of the Employer: 

	
 

	
 

	
 

	
      (1) directly
 or indirectly renders services to or for an organization, or engages in a
 business, that is, in the judgment of the Committee, in competition with the
 Employer; or 

	
 

	
 

	
 

	
      (2)
 discloses to anyone outside of the Employer, or uses for any purpose other
 than the Employer’s business, any confidential or proprietary information or
 material relating to the Employer, whether acquired by the Participant during
 or after employment with the Employer. 

The Committee
may, in its discretion and as a condition to the exercise of an Option, require
a Participant to acknowledge in writing that he is in compliance with all
applicable provisions of the Plan and of any Agreement and has not engaged in
any activities referred to in clauses (1) and (2) above. 

          (d) Subject to Section 6.06, (i) upon the
dissolution, liquidation, or sale of all or substantially all of the business,
properties, and assets of the Company, (ii) upon any reorganization, merger,
consolidation, sale, or exchange of securities in which the Company does not survive,
(iii) upon any sale, reorganization, merger, consolidation, or exchange of
securities in which the Company does survive and any of the Company’s
shareholders have the opportunity to receive cash, securities of another
corporation, partnership, or limited liability company and/or other property in
exchange for their capital stock of the Company, or (iv) upon any acquisition
by any person or group (as defined in Section 13d of the Exchange Act) of
beneficial ownership of more than 50% of the then outstanding Shares (each of
the events described in clauses (i), (ii), 

- 9 -

(iii) or (iv)
is referred to herein as an “Extraordinary Event”), the Plan and each
outstanding Option shall terminate, subject to any provision that has been made
by the Committee through a plan of reorganization or otherwise for the
substitution, assumption, settlement, or other continuation of the Options. If
Options are to terminate (with no substitution, assumption, settlement, or
other continuation) in such circumstances, each Participant shall have the
right, by giving notice at least ten days before the effective date of the
Extraordinary Event (“Effective Date”), to exercise on or before the Effective
Date, in whole or in part, any unexpired Option issued to the Participant, to
the extent that the Option is vested and exercisable as of the Effective Date. 

          Section
6.05. Rights as a Shareholder. Unless otherwise
provided by the Board or the Committee, a Participant shall have rights as a
shareholder with respect to Shares covered by an Option, including voting
rights or rights to dividends, only upon the date of issuance of a certificate
to him and, if payment is required, only after payment if full has been made
for such Shares. 

          Section
6.06. Acceleration of Options.

          (a) Notwithstanding the preceding provisions of
this Article or any provision to the contrary contained in a particular
Agreement, the Committee, in its sole discretion, may accelerate the vesting
and exercisability of all or any portion of any Option then outstanding. The
decision by the Committee to accelerate an Option or to decline to accelerate
an Option shall be final. In the event of the acceleration of the
exercisability of Option as the result of a decision by the Committee pursuant
to this Section, each outstanding Option so accelerated shall be exercisable
for a period from and after the date of such acceleration and upon such other
terms and conditions as the Committee may determine in its sole discretion,
provided that such terms and conditions (other than terms and conditions
relating solely to the acceleration of exercisability and the related
termination of an Option) may not materially adversely affect the rights of any
Participant without the consent of that Participant. Any outstanding Option
that has not been exercised by the holder at the end of such period shall
terminate automatically at that time. 

          (b) If the vesting of an Option has been
accelerated in anticipation of an event, and the Committee or the Board later
determines that the event will not occur, the Committee may rescind the effect
of the acceleration as to any then outstanding and unexercised or otherwise
unvested Options. 

          Section
6.07. Substitute Options. If the Company at any time should
succeed to the business of another entity through a merger, consolidation,
corporate reorganization or exchange, or through the acquisition of stock or
assets of such entity or its subsidiaries or otherwise, the Committee may grant
Options under the Plan to option holders of such entity or its subsidiaries, in
substitution for options to purchase shares in such entity held by them at the
time of succession. The Committee, in its sole and absolute discretion, shall
determine the extent to which such substitute Options shall be granted (if at
all), the person or persons to receive such substitute Options (who need not be
all option holders of such entity), the number of Options to be received by
each such person, the exercise price of such Option, and the other terms and
conditions of such substitute Options. 

- 10 -

ARTICLE VII 

RESTRICTED STOCK

          Section
7.01. Grants of
Restricted Stock. Subject to the terms and provisions of the Plan,
including Article V, the Committee, at any time and from time to time, may
grant Shares of Restricted Stock to any Employee, Director, or Advisor in such
amounts as the Committee, in its sole discretion, shall determine. 

          Section
7.02. Restricted
Stock Award Agreement. Each Award of Restricted Stock shall be
evidenced by an Agreement, which shall specify the Period of Restriction, the
number of Shares granted, and the terms and conditions of the Award. 

          Section
7.03. Restrictions on Transferability. Except as
provided in herein, Shares of Restricted Stock may not be assigned,
transferred, or pledged, whether by operation of law and whether voluntarily or
involuntarily, until the end of the applicable Period of Restriction. 

          Section
7.04. Other Restrictions. The Committee, in its sole
discretion, may impose such other restrictions on Shares of Restricted Stock as
it may deem advisable or appropriate in accordance with this Article. Such
restrictions may be based upon any one or more of the following criteria: (i)
the achievement of specific performance targets, (ii) vesting based on period
of service with the Company and any of its Subsidiaries, (iii) applicable
federal or state securities laws, or (iv) any other basis determined by the
Committee, in its sole discretion. 

          Section
7.05. Legend on Certificates. The Committee, in its
sole discretion, may require the placement of a legend on certificates
representing Shares of Restricted Stock to give appropriate notice of such
restrictions. For example, the Committee may determine that some or all
certificates representing Shares of Restricted Stock shall bear the following
legend: 

	
 

	
 

	
 

	
 

	
THE SALE, PLEDGE, OR OTHER TRANSFER OF THE SHARES OF STOCK
 REPRESENTED BY THIS CERTIFICATE, WHETHER VOLUNTARY, INVOLUNTARY, OR BY
 OPERATION OF LAW, IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER UNDER
 FEDERAL AND STATE SECURITIES LAWS AND UNDER THE INTREGRAL VISION, INC. 2008
 EQUTY INCENTIVE PLAN, AS SET FORTH IN AN AWARD AGREEMENT EXECUTED THEREUNDER.
 A COPY OF SUCH PLAN AND SUCH AWARD AGREEMENT MAY BE OBTAINED FROM THE
 CORPORATE SECRETARY OF INTEGRAL VISION, INC.

	
 

          Section
7.06. Removal of Restrictions. Except as otherwise
provided in this Article, as soon as practicable after the applicable Period of
Restriction lapses, Shares of Restricted Stock covered by an Award shall be
subject to release to the Participant in accordance with the terms of the
Award. The Committee, in its sole discretion, may accelerate the time at which
any restrictions shall lapse or remove any restrictions. 

- 11 -

          Section
7.07. Voting Rights. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder may exercise
full voting rights with respect to those Shares, unless the applicable Award
Agreement provides otherwise. 

          Section
7.08. Return of Restricted Stock to Company. On the
date set forth in the applicable Agreement, the Restricted Stock for which
restrictions have not lapsed by the last day of the Period of Restriction shall
revert to the Company and thereafter shall be available for the grant of new
Awards. 

          Section
7.09. Termination of Service. Unless otherwise
provided in an Agreement or determined by the Committee, if a Participant
Terminates Service during the Period of Restriction, Shares of Restricted Stock
still subject to restriction shall be forfeited by the Participant and
thereafter shall be available for the grant of new Awards; provided, however,
that the Committee shall have the sole discretion to waive, in whole or in
part, any or all remaining restrictions with respect to any or all of such Participant’s
Shares of Restricted Stock. 

          Section
7.10. Issuance of Shares and Compliance with Securities Laws. The
Company may postpone the issuance and delivery of certificates representing
Shares until (i) the admission of such Shares to listing on any stock exchange
on which Shares are then listed and (ii) the completion of such registration or
other qualification of Shares under any state or federal law, rule, or
regulation as the Company shall determine to be necessary or advisable, which registration
or other qualification the Company shall use its best efforts to complete;
provided, however, a person purchasing or otherwise receiving Shares pursuant
to the Plan has no right to require the Company to register the Shares under
federal or state securities laws at any time. Any person purchasing or
otherwise receiving Shares pursuant to the Plan may be required to make such
representations and furnish such information as may, in the opinion of counsel
for the Company, be appropriate to permit the Company, in light of the
existence or non-existence with respect to such Shares of an effective
registration under the Securities Act of 1933, as amended, or any similar state
statute, to issue the Shares in compliance with the provisions of those or any
comparable acts. 

ARTICLE VIII 

SHARE GRANTS

          Subject
to the provisions of the Plan, including Article V and this Section, the
Committee may make an Award of Shares to any Employee, Director, or Advisor in
such amount as the Committee, in its sole discretion, may determine. A grant
pursuant to this Section may be evidenced by an Agreement or such other
documents as the Committee, in its sole discretion, determines to be
appropriate. Awards of shares pursuant to this Section shall be subject to the
withholding requirements of Article IX. 

ARTICLE IX 

WITHHOLDING OF TAXES

          The
Company (or a Subsidiary) may deduct and withhold from the wages, salary,
bonus, and other income paid by the Company (or Subsidiary) to the Participant
the requisite tax upon the amount of taxable income, if any, recognized by the
Participant in connection with the 

- 12 -

exercise in
whole or in part of any Option, lapse of restrictions on Restricted Stock,
grant of Shares, or sale of Shares issued to the Participant upon the exercise
of an Option, as may be required from time to time under any federal or state
tax laws and regulations. This withholding of tax shall be made from the
Company’s (or Subsidiary’s) concurrent or next payment of wages, salary, bonus,
or other income to the Participant or by payment to the Company by the
Participant of the required withholding tax, as the Committee may determine;
provided, however, that, in the sole discretion of the Committee, the
Participant may pay such tax by reducing the number of Shares issued upon
exercise of an Option, lapse of restrictions, or award of Shares (for which
purpose such Shares shall be valued at Fair Market Value at such time).
Notwithstanding the foregoing, the Company shall not be obligated to issue certificates
representing the Shares to be acquired through the exercise of an Option or
grant of an Award, if the Participant fails to provide the Company with
adequate assurance that the Participant will pay such amounts to the Company as
required herein. Participants shall notify the Company in writing of any
amounts included as income in the Participants’ federal income tax returns in
connection with an Award. Any Shares or cash withheld by the Company to satisfy
a Participant’s withholding tax obligation in connection with an Award shall
not exceed the number of Shares or amount of cash necessary to satisfy the
minimum required levels of withholding under applicable law. 

ARTICLE X 

COMPLIANCE WITH LAWS

          Section 10.01. General. The Plan, the granting
and vesting of Awards under the Plan, and the offer, issuance, and delivery of
the Shares to Awards are subject to compliance with all applicable federal and
state laws, rules, and regulations (including but not limited to state and
federal securities laws and federal margin requirements) and to such approvals
by any listing, regulatory, or governmental authority as may, in the opinion of
counsel for the Company, be necessary or advisable in connection therewith. A
person acquiring any securities under the Plan shall, if requested by the
Company, provide such assurances and representations to the Company as the
Committee may deem necessary or desirable to assure compliance with all
applicable legal and accounting requirements. 

          Section 10.02. Compliance with Securities Laws. No
Participant shall sell, pledge, or otherwise transfer Shares acquired pursuant
to an Award or any interest in such Shares except in accordance with the
express terms of the Plan and the applicable Agreement. Any attempted transfer
in violation of this Section shall be void and of no effect. Without in any way
limiting the provisions set forth above, no Participant shall make any
disposition of all or any portion of Shares acquired or to be acquired pursuant
to an Award, except in compliance with all applicable federal and state
securities laws. Notwithstanding anything else herein to the contrary, the
Company has no obligation to register the Shares or file any registration
statement under either federal or state securities laws. 

ARTICLE XI 

TERMINATION OF PLAN

          The
Plan shall terminate at the close of business on _______, 2018, provided,
however, the Board may, in its sole discretion, terminate the Plan at any prior
time. Subject to Sections 

- 13 -

6.04 and 6.06,
no such termination shall in any way affect any Award then outstanding or the
Committee’s authority hereunder with respect to such Award. 

ARTICLE XII 

AMENDMENT OF PLAN

          Subject
to Article VI, the Committee may make such amendments to the Plan and/or an
Agreement as it shall deem advisable; provided, however, except as permitted by
Article VI, no amendment shall materially adversely affect any Award then
outstanding without the written consent of the affected Participant.
Adjustments contemplated by Section 5.05 shall not be deemed to be amendments
for purposes of the foregoing. Shareholder approval for any amendment shall be
required only to the extent required under applicable law, including Code
Section 162(m) and Code Section 422 and other provisions of the Code applicable
to incentive stock options, or to the extent deemed necessary or advisable by
the Board. 

ARTICLE XIII 

INDEMNIFICATION

          In
addition to such other rights of indemnification as they may have as members of
the Board, the members of the Committee shall be indemnified by the Company to
the fullest extent permitted by law against reasonable expenses, including
attorneys’ fees, actually and necessarily incurred in connection with the
defense of any action, suit, or proceeding, or in connection with any appeal
thereof, to which they or any of them may be a party by reason of any act or
failure to act under or in connection with the Plan or any Award, and against
all amounts paid by them in satisfaction of a judgment in any such action,
suit, or proceeding except in relation to matters as to which it shall be
adjudged in such action, suit, or proceeding that such Committee member is not
entitled to indemnification under applicable law; provided, however, within 60
days after institution of any such action, suit, or proceeding, such Committee
member shall in writing offer the Company the opportunity, at the Company’s
expense, to handle and defend the same, and such Committee member shall
cooperate with and assist the Company in the defense of any such action, suit,
or proceeding. The Company shall not be obligated to indemnify any Committee
member with regard to the settlement of any action, suit, or proceeding to
which the Company did not give its prior written consent. 

ARTICLE XIV

NOT AN EMPLOYMENT OR CONSULTING AGREEMENT

          Nothing
contained in the Plan or in any Agreement shall confer, intend to confer, or
imply any right of employment or right to continued employment by, or rights to
a continued relationship with, the Company (or any affiliate) in favor of any
Participant or limit the ability of the Company (or any affiliate) to
terminate, with or without cause, in its sole and absolute discretion, the
employment or other relationship between the Company and the Participant,
subject to the terms of any written agreement between the Company and the
Participant. In addition, nothing contained in the Plan or in any Agreement
shall preclude any lawful action by the Company or the Board. Status as an
eligible person under the Plan shall not be construed as a commitment that any
Award will be granted to the eligible person. 

- 14 -

ARTICLE XV 

MISCELLANEOUS

          Section 15.01. Non-Exclusivity of Plan. Nothing
in the Plan shall limit or be deemed to limit the authority of the Board or the
Committee to grant options or authorize any other compensation, with or without
reference to the Shares, under any other plan or independent authority. 

          Section 15.02. No Restriction on Corporate Powers. The
existence of the Plan and the Awards granted hereunder shall not affect or
restrict in any way the right or power of the Board or the shareholders of the
Company to make or authorize any adjustment, recapitalization, reorganization
or other change in the Company’s capital structure or its business, any merger
or consolidation of the Company, any issue of bonds, debentures, preferred or
prior preference stocks ahead of or affecting the Company’s capital stock or
the rights thereof, the dissolution or liquidation of the Company or any sale
or transfer of all or any part of its assets or business, or any other
corporate act or proceeding. 

          Section 15.03. No Fiduciary Duties. Neither
the provisions of this Plan (or of any related documents), nor the creation or
adoption of this Plan, nor any action taken pursuant to the provisions of this
Plan shall create, or be construed to create, a trust of any kind or a
fiduciary relationship between the Company and any Participant or other person.

- 15 -

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00139-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00139-of-00352.parquet"}]]