Document:

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                                                                    Exhibit 10.3

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS WARRANT NOR
THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL
SHALL BE SELECTED BY THE HOLDER), IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

                                  CATUITY, INC.

                        WARRANT TO PURCHASE COMMON STOCK

Warrant No.: GCMaster 001
Number of Shares of Common Stock: 220,459
Date of Issuance: November 21, 2006 ("ISSUANCE DATE")

     Catuity, Inc., a Delaware corporation (the "COMPANY"), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, GOTTBETTER CAPITAL MASTER, LTD., the registered holder
hereof or its permitted assigns (the "HOLDER"), is entitled, subject to the
terms set forth below, to purchase from the Company, at the Exercise Price (as
defined below) then in effect, upon surrender of this Warrant to purchase Common
Stock (including any Warrants to purchase Common Stock issued in exchange,
transfer or replacement hereof, the "WARRANT"), at any time or times on or after
the date hereof, but not after 11:59 p.m., New York Time, on the Expiration Date
(as defined below), Two Hundred and Twenty Thousand, Four Hundred and Fifty Nine
(220,459) fully paid nonassessable shares of Common Stock (as defined below)
(the "WARRANT SHARES"). Except as otherwise defined herein, capitalized terms in
this Warrant shall have the meanings set forth in Section 15. This Warrant is
one of the Warrants to purchase Common Stock (the "SPA WARRANTS") issued
pursuant to Section 1 of that certain Securities Purchase Agreement, dated as of
November 21, 2006 (the "SUBSCRIPTION DATE"), by and among the Company and the
investors (the "BUYERS") referred to therein (the "SECURITIES PURCHASE
AGREEMENT").

1.   EXERCISE OF WARRANT.

     (a) Mechanics of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Warrant may be exercised by the Holder on any day on or after the date hereof,
in whole or in part, by (i) delivery of a written notice, in the form attached
hereto as Exhibit A (the "EXERCISE NOTICE"), of the Holder's election to
exercise this Warrant and (ii) (A) payment to the Company of an amount equal to
the applicable Exercise Price multiplied by the number of Warrant Shares as to
which this Warrant is

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being exercised (the "AGGREGATE EXERCISE PRICE") in cash or by wire transfer of
immediately available funds or (B) by notifying the Company that this Warrant is
being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)).
The Holder shall not be required to deliver the original Warrant in order to
affect an exercise hereunder. Execution and delivery of the Exercise Notice with
respect to less than all of the Warrant Shares shall have the same effect as
cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Warrant Shares. On or before the
first (1st) Business Day following the date on which the Company has received
each of the Exercise Notice and the Aggregate Exercise Price (or notice of a
Cashless Exercise) (the "EXERCISE DELIVERY DOCUMENTS"), the Company shall
transmit by facsimile an acknowledgment of confirmation of receipt of the
Exercise Delivery Documents to the Holder and the Company's transfer agent (the
"TRANSFER AGENT"). On or before the second (2nd) Business Day following the date
on which the Company has received all of the Exercise Delivery Documents (the
"SHARE DELIVERY DATE"), the Company shall (X) provided that the Transfer Agent
is participating in The Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program, credit such aggregate number of shares of Common
Stock to which the Holder is entitled pursuant to such exercise to the Holder's
or its designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system, or (Y) if the Transfer Agent is not participating in the DTC
Fast Automated Securities Transfer Program, issue and dispatch by overnight
courier to the address as specified in the Exercise Notice, a certificate,
registered in the Company's share register in the name of the Holder or its
designee, for the number of shares of Common Stock to which the Holder is
entitled pursuant to such exercise. Upon delivery of the Exercise Delivery
Documents, the Holder shall be deemed for all corporate purposes to have become
the holder of record of the Warrant Shares with respect to which this Warrant
has been exercised, irrespective of the date such Warrant Shares are credited to
the Holder's DTC account or the date of delivery of the certificates evidencing
such Warrant Shares as the case may be. If this Warrant is submitted in
connection with any exercise pursuant to this Section 1(a) and the number of
Warrant Shares represented by this Warrant submitted for exercise is greater
than the number of Warrant Shares being acquired upon an exercise, then the
Company shall as soon as practicable and in no event later than three Business
Days after any exercise and at its own expense, issue, a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant is
exercised. No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock to be
issued shall be rounded up to the nearest whole number. The Company shall pay
any and all taxes which may be payable with respect to the issuance and delivery
of Warrant Shares upon exercise of this Warrant.

     (b) Exercise Price. For purposes of this Warrant, "EXERCISE PRICE" means
$3.58 subject to adjustment as provided herein.

     (c) Company's Failure to Timely Deliver Securities. If the Company shall
fail for any reason or for no reason to issue to the Holder within three (3)
Trading Days of receipt of the Exercise Delivery Documents, a certificate for
the number of shares of Common Stock to which the Holder is entitled and
register such shares of Common Stock on the Company's share register or to
credit the Holder's balance account with DTC for such number of shares of Common
Stock to which the Holder is entitled upon the Holder's exercise of this
Warrant, then, in addition to all

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other remedies available to the Holder, the Company shall pay in cash to the
Holder on each day after such third Business Day that the issuance of such
shares of Common Stock is not timely effected an amount equal to 1.5% of the
product of (A) the sum of the number of shares of Common Stock not issued to the
Holder on a timely basis and to which the Holder is entitled and (B) the Closing
Sale Price of a share of Common Stock on the Trading Day immediately preceding
the last possible date which the Company could have issued such shares of Common
Stock to the Holder without violating Section 1(a). In addition if within three
(3) Trading Days after the Company's receipt of a copy (whether delivered by
facsimile or any other method) of an Exercise Notice the Company shall fail to
issue and deliver a certificate to the Holder and register such shares of Common
Stock on the Company's share register or credit the Holder's balance account
with DTC for the number of shares of Common Stock to which the Holder is
entitled upon the Holder's exercise hereunder, and if on or after such Trading
Day the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of shares of
Common Stock issuable upon such exercise that the Holder anticipated receiving
from the Company (a "BUY-IN" ), then the Company shall, within three (3)
Business Days after the Holder's request and in the Holder's sole discretion,
either (i) pay cash to the Holder in an amount equal to the Holder's total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased (the "BUY-IN Price"), at which point the Company's
obligation to deliver such certificate (and to issue such shares of Common
Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Warrant Shares and pay
cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price
over the product of (A) such number of shares of Common Stock, times (B) the
Closing Bid Price on the date of exercise. Nothing herein shall limit the
holder's right to pursue actual damages for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock or to otherwise issue
shares of Common Stock upon exercise of this Warrant in accordance with the
terms hereof, and the Holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance and/or
injunctive relief).

     (d) Cashless Exercise. Notwithstanding anything contained herein to the
contrary, if, at the time of exercise of this Warrant, a Registration Statement
(as defined in the Registration Rights Agreement) covering the Warrant Shares
that are the subject of the Exercise Notice (the "UNAVAILABLE WARRANT SHARES")
is not available for the resale of such Unavailable Warrant Shares, the Holder
may, in its sole discretion, exercise this Warrant in whole or in part and, in
lieu of making the cash payment otherwise contemplated to be made to the Company
upon such exercise in payment of the Aggregate Exercise Price, elect instead to
receive upon such exercise the "Net Number" of shares of Common Stock determined
according to the following formula (a "CASHLESS EXERCISE"):

                         Net Number = (A x B) - (A x C)
                                      -----------------
                                               B

                     For purposes of the foregoing formula:

          A = the total number of shares with respect to
              which this Warrant is then being exercised.

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          B = the Closing Sale Price of the shares of
              Common Stock (as reported by Bloomberg) on
              the date immediately preceding the date of
              the Exercise Notice.

          C = the Exercise Price then in effect for the
              applicable Warrant Shares at the time of
              such exercise.

     (e) Disputes. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company
shall promptly issue to the Holder the number of Warrant Shares that are not
disputed and resolve such dispute in accordance with Section 12.

     (f) Limitations on Exercises.

          (1) Beneficial Ownership. The Company shall not effect the exercise of
     this Warrant, and the Holder shall not have the right to exercise this
     Warrant, to the extent that after giving effect to such exercise, such
     Person (together with such Person's affiliates) would beneficially own
     (directly or indirectly through Warrant Shares or otherwise) in excess of
     4.99% of the shares of Common Stock outstanding immediately after giving
     effect to such exercise. For purposes of the foregoing sentence, the
     aggregate number of shares of Common Stock beneficially owned (directly or
     indirectly through Warrant Shares or otherwise) by such Person 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 shares of Common Stock which
     would be issuable upon (i) exercise of the remaining, unexercised portion
     of this Warrant beneficially owned by such Person and its affiliates and
     (ii) exercise or conversion of the unexercised or unconverted portion of
     any other securities of the Company beneficially owned by such Person and
     its affiliates (including, without limitation, any convertible notes or
     convertible preferred stock or warrants) subject to a limitation on
     conversion or exercise analogous to the limitation contained herein. Except
     as set forth in the preceding sentence, for purposes of this paragraph,
     beneficial ownership shall be calculated in accordance with Section 13(d)
     of the Securities Exchange Act of 1934, as amended. For purposes of this
     Warrant, 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 (1) the Company's most recent Form 10-KSB, Form 10-QSB,
     Current Report on Form 8-K or other public filing with the Securities and
     Exchange Commission, as the case may be, (2) a more recent public
     announcement by the Company or (3) any other notice by the Company or the
     Transfer Agent setting forth the number of shares of Common Stock
     outstanding. For any reason at any time, upon the written request of the
     Holder, the Company shall within two Business 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 the SPA Securities and the SPA
     Warrants, by the

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     Holder and its affiliates since the date as of which such number of
     outstanding shares of Common Stock was reported. By written notice to the
     Company, the Holder may from time to time increase or decrease the Maximum
     Percentage specified in such notice; provided that (i) any such increase
     will not be effective until the sixty-first (61st) day after such notice is
     delivered to the Company, and (ii) any such increase or decrease will apply
     only to the Holder and not to any other holder of SPA Warrants.

          (2) Principal Market Regulation. The Company shall not be obligated to
     issue any shares of Common Stock upon exercise of this Warrant if the
     issuance of such shares of Common Stock would exceed that number of shares
     of Common Stock which the Company may issue upon exercise, redemption or
     conversion, as applicable, of the SPA Warrants and SPA Securities or
     otherwise without breaching the Company's obligations under the rules or
     regulations of the Principal Market or the Australian Stock Exchange (the
     "EXCHANGE CAP"), except that such limitation shall not apply in the event
     that the Company (A) obtains the approval of its stockholders as required
     by the applicable rules of the Principal Market or the Australian Stock
     Exchange for issuances of shares of Common Stock in excess of such amount
     or (B) obtains a written opinion from outside counsel to the Company that
     such approval is not required, which opinion shall be reasonably
     satisfactory to the Required Holders. Until such approval or written
     opinion is obtained, no Buyer shall be issued in the aggregate, upon
     exercise or conversion, as applicable, of any SPA Warrants or SPA
     Securities, shares of Common Stock in an amount greater than the product of
     the Exchange Cap multiplied by a fraction, the numerator of which is the
     total number of shares of Common Stock underlying the SPA Warrants issued
     to such Buyer pursuant to the Securities Purchase Agreement on the Issuance
     Date and the denominator of which is the aggregate number of shares of
     Common Stock underlying the SPA Warrants issued to the Buyers pursuant to
     the Securities Purchase Agreement on the Issuance Date (with respect to
     each Buyer, the "EXCHANGE CAP ALLOCATION"). In the event that any Buyer
     shall sell or otherwise transfer any of such Buyer's SPA Warrants, the
     transferee shall be allocated a pro rata portion of such Buyer's Exchange
     Cap Allocation, and the restrictions of the prior sentence shall apply to
     such transferee with respect to the portion of the Exchange Cap Allocation
     allocated to such transferee. In the event that any holder of SPA Warrants
     shall exercise all of such holder's SPA Warrants into a number of shares of
     Common Stock which, in the aggregate, is less than such holder's Exchange
     Cap Allocation, then the difference between such holder's Exchange Cap
     Allocation and the number of shares of Common Stock actually issued to such
     holder shall be allocated to the respective Exchange Cap Allocations of the
     remaining holders of SPA Warrants on a pro rata basis in proportion to the
     shares of Common Stock underlying the SPA Warrants then held by each such
     holder. To the extent required by the Principal Market, the provisions of
     the Exchange Cap shall be modified to comply with the applicable rules and
     regulations of the Principal Market, provided that any such changes shall
     not, in the Holder's reasonable discretion, materially change the terms of
     the transaction contemplated hereby.

     (g) Insufficient Authorized Shares. If at any time while any of the
Warrants remain outstanding the Company does not have a sufficient number of
authorized and unreserved shares of Common Stock (an "AUTHORIZED SHARE FAILURE")
to satisfy its obligation to reserve for

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issuance upon exercise of the Warrants at least a number of shares of Common
Stock equal to 175% of the number of shares of Common Stock as shall from time
to time be necessary to effect the exercise of all of the Warrants then
outstanding (the "REQUIRED RESERVE AMOUNT"), then the Company shall immediately
take all action necessary to increase the Company's authorized shares of Common
Stock to an amount sufficient to allow the Company to reserve the Required
Reserve Amount for the Warrants then outstanding. Without limiting the
generality of the foregoing sentence, as soon as practicable after the date of
the occurrence of an Authorized Share Failure, but in no event later than ninety
(90) days after the occurrence of such Authorized Share Failure, the Company
shall hold a meeting of its stockholders for the approval of an increase in the
number of authorized shares of Common Stock. In connection with such meeting,
the Company shall provide each stockholder with a proxy statement and shall use
its reasonable best efforts to solicit its stockholders' approval of such
increase in authorized shares of Common Stock and to cause its board of
directors to recommend to the stockholders that they approve such proposal.

     (h) Right of Mandatory Redemption by the Company.

          (1) If at any time from and after the Effective Date (as defined in
the Registration Rights Agreement), (i) the Closing Sales Price of the Common
Stock for each Trading Day of any 20 consecutive Trading Day period preceding
the applicable Mandatory Redemption Eligibility Date equals or exceeds $7.87 per
share (subject to equitable adjustment for stock splits, stock dividends,
combinations, and capital reorganizations, as applicable), and (ii) the average
daily dollar trading volume of the Common Stock over such 20 consecutive Trading
Day period equals or exceeds $400,000 and no single Trading Day is less than
$200,000.00 (the "MANDATORY REDEMPTION ELIGIBILITY DATE"), the Company shall
have the right to require the Holder to exercise this Warrant in whole or in
part, subject to Sections 1(h)(2) below, as designated in the Mandatory
Redemption Notice (as defined below) into fully paid, validly issued and
non-assessable shares of Common Stock in accordance with the terms of this
Warrant at the Exercise Price as of the Mandatory Redemption Eligibility Date (a
"MANDATORY REDEMPTION"). Notwithstanding anything contained herein to the
contrary, Warrants subject to Mandatory Redemption may be exercised by the
Holder anytime prior to the receipt of the redemption amount by the Holder. The
Company may exercise its right to require redemption under this Section 1(h) by
delivering within not more than ten (10) days after the end of the Mandatory
Redemption Eligibility Date a written notice thereof by facsimile and overnight
courier to all, but not less than all, of the holders of Warrants (the
"MANDATORY REDEMPTION NOTICE" and the date all of the holders received such
notice by facsimile is referred to as the "MANDATORY REDEMPTION NOTICE DATE").
The Mandatory Redemption Notice shall state (i) the aggregate number of Warrants
subject to Mandatory Redemption from the Holder and all of the holders of the
Warrants pursuant to this Section 1(h). The Holder shall have ten (10) Trading
Days from the receipt of the Mandatory Redemption Notice to exercise the number
of warrants stated in the Mandatory Redemption Notice prior to redemption.

          (2) Notwithstanding anything to the contrary contained in this Section
1(h), the aggregate number of Warrants that the Company shall have the right to
call at any given time under Section 1(h) shall be limited to a number of
Warrants such that the number of Warrant Shares issuable upon exercise of the
Warrants so called does not exceed 61,728 Warrants

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(subject to equitable adjustment for stock splits, stock dividends,
combinations, and capital reorganizations, as applicable) per calendar month.
The purchase of the Warrants listed in any Mandatory Redemption Notice shall
occur on the tenth (10th) Trading Day following the receipt by the Holder of the
corresponding Mandatory Redemption Notice. If following the receipt by the
Holder of a Mandatory Redemption Notice and prior to such tenth (10th) Trading
Day following the receipt of such Mandatory Redemption Notice, the Holder shall
have exercised a number of Warrants equal to the number of Warrants stated in
such Mandatory Redemption Notice, there shall be no Mandatory Redemption
pursuant to such notice. There shall be no restriction on the ability of the
Holder to exercise the Warrants that are not called by the Company.

               (i) Unregistered Shares. Upon the exercise of this Warrant, the
Company shall have the right to issue unregistered Common Stock if the Piggyback
Registration (as defined in the Registration Rights Agreement) is not declared
effective by the Securities and Exchange Commission.

2.   ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.

The Exercise Price and the number of Warrant Shares shall be adjusted from time
to time as follows:

     (a) Adjustment upon Issuance of shares of Common Stock. If and whenever on
or after the Subscription Date the Company issues or sells, or in accordance
with this Section 2 is deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or held by or
for the account of the Company, but excluding shares of Common Stock deemed to
have been issued by the Company in connection with any Excluded Securities (as
defined in the SPA Securities)) for a consideration per share (the "NEW ISSUANCE
PRICE") less than a price (the "APPLICABLE PRICE") equal to the Exercise Price
in effect immediately prior to such issue or sale or deemed issuance or sale
(the foregoing a "DILUTIVE ISSUANCE"), then immediately after such Dilutive
Issuance, the Exercise Price then in effect shall be reduced to an amount equal
to the New Issuance Price. For purposes of determining the adjusted Exercise
Price under this Section 2(a), the following shall be applicable:

          (i)  Issuance of Options. If the Company in any manner grants any
               Options and the lowest price per share for which one share of
               Common Stock is issuable upon the exercise of any such Option or
               upon conversion, exercise or exchange of any Convertible
               Securities issuable upon exercise of any such Option is less than
               the Applicable Price, then such shares of Common Stock
               (underlying such Option shall be deemed to be outstanding and to
               have been issued and sold by the Company at the time of the
               granting or sale of such Option for such price per share. For
               purposes of this Section 2(a)(i), the "lowest price per share for
               which one share of Common Stock is issuable upon exercise of such
               Options or upon conversion, exercise or exchange of such
               Convertible Securities" shall be equal to the sum of the lowest
               amounts of consideration (if any) received or receivable by the
               Company with respect to any one share of Common

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               Stock upon the granting or sale of the Option, upon exercise of
               the Option and upon conversion, exercise or exchange of any
               Convertible Security issuable upon exercise of such Option. No
               further adjustment of the Exercise Price or number of Warrant
               Shares shall be made upon the actual issuance of such shares of
               Common Stock or of such Convertible Securities upon the exercise
               of such Options or upon the actual issuance of such shares of
               Common Stock upon conversion, exercise or exchange of such
               Convertible Securities.

          (ii) Issuance of Convertible Securities. If the Company in any manner
               issues or sells any Convertible Securities and the lowest price
               per share for which one share of Common Stock is issuable upon
               the conversion, exercise or exchange thereof is less than the
               Applicable Price, then such shares of Common Stock issuable upon
               conversion of such Convertible Securities shall be deemed to be
               outstanding and to have been issued and sold by the Company at
               the time of the issuance or sale of such Convertible Securities
               for such price per share. For the purposes of this Section
               2(a)(ii), the "lowest price per share for which one share of
               Common Stock is issuable upon the conversion, exercise or
               exchange" shall be equal to the sum of the lowest amounts of
               consideration (if any) received or receivable by the Company with
               respect to one share of Common Stock upon the issuance or sale of
               the Convertible Security and upon conversion, exercise or
               exchange of such Convertible Security. No further adjustment of
               the Exercise Price or number of Warrant Shares shall be made upon
               the actual issuance of such shares of Common Stock upon
               conversion, exercise or exchange of such Convertible Securities,
               and if any such issue or sale of such Convertible Securities is
               made upon exercise of any Options for which adjustment of this
               Warrant has been or is to be made pursuant to other provisions of
               this Section 2(a), no further adjustment of the Exercise Price or
               number of Warrant Shares shall be made by reason of such issue or
               sale. A change that permits the holder of an Option or
               Convertible Security to utilize a cashless exercise feature shall
               not be deemed to decrease the consideration payable by the holder
               solely by reason of the fact that the cashless exercise feature
               would result in a reduction in cash consideration receivable by
               the Company.

          (iii) Change in Option Price or Rate of Conversion. If the purchase
               price provided for in any Options, the additional consideration,
               if any, payable upon the issue, conversion, exercise or exchange
               of any Convertible Securities, or the rate at which any
               Convertible Securities are convertible into or exercisable or
               exchangeable for shares of Common Stock increases or decreases at
               any time, the Exercise Price and the number of Warrant Shares in
               effect at the time of such increase or decrease shall be adjusted
               to the Exercise Price and the number of Warrant Shares which
               would have been in effect at such time had such Options or
               Convertible Securities provided for such increased or decreased
               purchase price, additional consideration or increased or
               decreased conversion rate, as the case may

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               be, at the time initially granted, issued or sold. For purposes
               of this Section 2(a)(iii), if the terms of any Option or
               Convertible Security that was outstanding as of the date of
               issuance of this Warrant are increased or decreased in the manner
               described in the immediately preceding sentence, then such Option
               or Convertible Security and the shares of Common Stock deemed
               issuable upon exercise, conversion or exchange thereof shall be
               deemed to have been issued as of the date of such increase or
               decrease. No adjustment pursuant to this Section 2(a) shall be
               made if such adjustment would result in an increase of the
               Exercise Price then in effect or a decrease in the number of
               Warrant Shares. A change that permits the holder of an Option or
               Convertible Security to utilize a cashless exercise feature shall
               not be deemed to decrease the consideration payable by the holder
               solely by reason of the fact that the cashless exercise feature
               would result in a reduction in cash consideration receivable by
               the Company.

          (iv) Calculation of Consideration Received. In case any Option is
               issued in connection with the issue or sale of other securities
               of the Company, together comprising one integrated transaction in
               which no specific consideration is allocated to such Options by
               the parties thereto, the Options will be deemed to have been
               issued for a consideration of $0.001. If any shares of Common
               Stock, Options or Convertible Securities are issued or sold or
               deemed to have been issued or sold for cash, the consideration
               received therefor will be deemed to be the amount received by the
               Company therefor. If any shares of Common Stock, Options or
               Convertible Securities are issued or sold for a consideration
               other than cash, the amount of such consideration received by the
               Company will be the fair value of such consideration, except
               where such consideration consists of publicly traded securities,
               in which case the amount of consideration received by the Company
               will be the Closing Sale Price of such publicly traded security
               on the date of receipt. If any shares of Common Stock, Options or
               Convertible Securities are issued to the owners of the
               non-surviving entity in connection with any merger in which the
               Company is the surviving entity, the amount of consideration
               therefor will be deemed to be the fair value of such portion of
               the net assets and business of the non-surviving entity as is
               attributable to such shares of Common Stock, Options or
               Convertible Securities, as the case may be. The fair value of any
               consideration other than cash or publicly traded securities will
               be determined jointly by the Company and the Required Holders. If
               such parties are unable to reach agreement within ten (10) days
               after the occurrence of an event requiring valuation (the
               "VALUATION EVENT"), the fair value of such consideration will be
               determined within five (5) Business Days after the tenth day
               following the Valuation Event by an independent, reputable
               appraiser jointly selected by the Company and the Required
               Holders. The determination of such appraiser shall be final and
               binding upon all parties absent manifest error

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               and the fees and expenses of such appraiser shall be borne by the
               Company.

          (v)  Record Date. If the Company takes a record of the holders of
               shares of Common Stock for the purpose of entitling them (A) to
               receive a dividend or other distribution payable in shares of
               Common Stock, Options or in Convertible Securities or (B) to
               subscribe for or purchase shares of Common Stock, Options or
               Convertible Securities, then such record date will be deemed to
               be the date of the issue or sale of the shares of Common Stock
               deemed to have been issued or sold upon the declaration of such
               dividend or the making of such other distribution or the date of
               the granting of such right of subscription or purchase, as the
               case may be.

     (b) Adjustment upon Subdivision or Combination of Common Stock. If the
Company at any time on or after the Subscription Date subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the Exercise
Price in effect immediately prior to such subdivision will be proportionately
reduced and the number of Warrant Shares will be proportionately increased. If
the Company at any time on or after the Subscription Date combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination will be proportionately
increased and the number of Warrant Shares will be proportionately decreased.
Any adjustment under this Section 2(b) shall become effective at the close of
business on the date the subdivision or combination becomes effective.

     (c) Other Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Exercise Price and
the number of Warrant Shares so as to protect the rights of the Holder; provided
that no such adjustment pursuant to this Section 2(c) will increase the Exercise
Price or decrease the number of Warrant Shares as otherwise determined pursuant
to this Section 2.

3.   RIGHTS UPON DISTRIBUTION OF ASSETS.

If the Company shall declare or make any dividend or other distribution of its
assets (or rights to acquire its assets) to holders of shares of Common Stock,
by way of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of a
dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a "DISTRIBUTION"), at any time after
the issuance of this Warrant, then, in each such case:

     (a) any Exercise Price in effect immediately prior to the close of business
on the record date fixed for the determination of holders of shares of Common
Stock entitled to receive the Distribution shall be reduced, effective as of the
close of business on such record date, to a

                                       10

<PAGE>

price determined by multiplying such Exercise Price by a fraction of which (i)
the numerator shall be the Closing Bid Price of a share of Common Stock on the
Trading Day immediately preceding such record date minus the value of the
Distribution (as determined in good faith by the Company's Board of Directors)
applicable to one share of Common Stock, and (ii) the denominator shall be the
Closing Bid Price of a share of Common Stock on the Trading Day immediately
preceding such record date; and

     (b) the number of Warrant Shares shall be increased to a number of shares
equal to the number of shares of Common Stock obtainable immediately prior to
the close of business on the record date fixed for the determination of holders
of shares of Common Stock entitled to receive the Distribution multiplied by the
reciprocal of the fraction set forth in the immediately preceding paragraph (a);
provided that in the event that the Distribution is of shares of Common Stock
(or common stock) ("OTHER SHARES OF COMMON STOCK") of a company whose common
shares are traded on a national securities exchange or a national automated
quotation system, then the Holder may elect to receive a warrant to purchase
Other Shares of Common Stock in lieu of an increase in the number of Warrant
Shares, the terms of which shall be identical to those of this Warrant, except
that such warrant shall be exercisable into the number of shares of Other Shares
of Common Stock that would have been payable to the Holder pursuant to the
Distribution had the Holder exercised this Warrant immediately prior to such
record date and with an aggregate exercise price equal to the product of the
amount by which the exercise price of this Warrant was decreased with respect to
the Distribution pursuant to the terms of the immediately preceding paragraph
(a) and the number of Warrant Shares calculated in accordance with the first
part of this paragraph (b).

4.   PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

     (a) Purchase Rights. In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the proportionate
number of shares of Common Stock acquirable upon complete exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of shares of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.

     (b) Fundamental Transactions. The Company shall not enter into or be party
to a Fundamental Transaction unless (i) the Successor Entity assumes in writing
all of the obligations of the Company under this Warrant and the other
Transaction Documents in accordance with the provisions of this Section (4)(b)
pursuant to written agreements in form and substance satisfactory to the
Required Holders and approved by the Required Holders prior to such Fundamental
Transaction, including agreements to deliver to each holder of Warrants in
exchange for such Warrants a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to this Warrant,
including, without limitation, an adjusted exercise price equal to the value for
the shares of Common Stock reflected by the terms

                                       11

<PAGE>

of such Fundamental Transaction, and exercisable for a corresponding number of
shares of capital stock equivalent to the shares of Common Stock acquirable and
receivable upon exercise of this Warrant (without regard to any limitations on
the exercise of this Warrant) prior to such Fundamental Transaction, and
satisfactory to the Required Holders and (ii) the Successor Entity (including
its Parent Entity) is a publicly traded corporation whose common stock is quoted
on or listed for trading on an Eligible Market. Upon the occurrence of any
Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Warrant referring to the "Company" shall
refer instead to the Successor Entity), the Company and may exercise every right
and power of the Company and shall assume all of the obligations of the Company
under this Warrant with the same effect as if such Successor Entity had been
named as the Company herein. Upon consummation of the Fundamental Transaction,
the Successor Entity shall deliver to the Holder confirmation that there shall
be issued upon exercise of this Warrant at any time after the consummation of
the Fundamental Transaction, in lieu of the shares of the Common Stock (or other
securities, cash, assets or other property) issuable upon the exercise of the
Warrant prior to such Fundamental Transaction, such shares of the publicly
traded Common Stock (or its equivalent) of the Successor Entity (including its
Parent Entity) which the Holder would have been entitled to receive upon the
happening of such Fundamental Transaction had this Warrant been converted
immediately prior to such Fundamental Transaction, as adjusted in accordance
with the provisions of this Warrant. In addition to and not in substitution for
any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock are entitled to
receive securities or other assets with respect to or in exchange for shares of
Common Stock (a "CORPORATE EVENT"), the Company shall make appropriate provision
to insure that the Holder will thereafter have the right to receive upon an
exercise of this Warrant at any time after the consummation of the Fundamental
Transaction but prior to the Expiration Date, in lieu of the shares of the
Common Stock (or other securities, cash, assets or other property) issuable upon
the exercise of the Warrant prior to such Fundamental Transaction, such shares
of stock, securities, cash, assets or any other property whatsoever (including
warrants or other purchase or subscription rights) which the Holder would have
been entitled to receive upon the happening of such Fundamental Transaction had
the Warrant been exercised immediately prior to such Fundamental Transaction.
Provisions made pursuant to the preceding sentence shall be in the form and
substance reasonably satisfactory to the Required Holders. The provisions of
this Section shall apply similarly and equally to successive Fundamental
Transactions and Corporate Events and shall be applied without regard to any
limitations on the exercise of this Warrant.

     (c) Notwithstanding the foregoing and the provisions of Section 4(b) above,
in the event of a Fundamental Transaction, only if such Fundamental Transaction
is within the control of the Company, if the Holder has not exercised the
Warrant in full prior to the consummation of the Fundamental Transaction, then
the Company may enter into a Fundamental Transaction pursuant to which the
Holder shall receive, simultaneously with the consummation of the Fundamental
Transaction, in lieu of the warrant referred to in Section 4(b) cash in the
amount equal to the value of the remaining unexercised portion of this Warrant
on the date of such consummation, which value shall be determined by use of the
Black Scholes Option Pricing Model reflecting (A) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the remaining term
of this Warrant as of such date of request and (B) an expected

                                       12

<PAGE>

volatility equal to the greater of 60% and the 100 day volatility obtained from
the HVT function on Bloomberg.

5.   NONCIRCUMVENTION.

The Company hereby covenants and agrees that the Company will not, by amendment
of its Articles of Incorporation, Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, 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, and will at all
times in good faith carry out all the provisions of this Warrant and take all
action as may be required to protect the rights of the Holder. Without limiting
the generality of the foregoing, the Company (i) shall not increase the par
value of any shares of Common Stock receivable upon the exercise of this Warrant
above the Exercise Price then in effect, (ii) shall take all such actions as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise of
this Warrant, and (iii) shall, so long as any of the SPA Warrants are
outstanding, take all action necessary to reserve and keep available out of its
authorized and unissued shares of Common Stock, solely for the purpose of
effecting the exercise of the SPA Warrants, 175% of the number of shares of
Common Stock as shall from time to time be necessary to effect the exercise of
the SPA Warrants then outstanding (without regard to any limitations on
exercise).

6.   WARRANT HOLDER NOT DEEMED A STOCKHOLDER.

Except as otherwise specifically provided herein, the Holder, solely in such
Person's capacity as a holder of this Warrant, shall not be entitled to vote or
be deemed the holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person's capacity as the Holder of this Warrant, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, or subscription rights, or otherwise, prior to the
issuance to the Holder of the Warrant Shares which such Person is then entitled
to receive upon the due exercise of this Warrant. In addition, nothing contained
in this Warrant shall be construed as imposing any liabilities on the Holder to
purchase any securities (upon exercise of this Warrant or otherwise) or as a
stockholder of the Company, whether such liabilities are asserted by the Company
or by creditors of the Company. Notwithstanding this Section 6, the Company
shall provide the Holder with copies of the same notices and other information
given to the stockholders of the Company generally, contemporaneously with the
giving thereof to the stockholders.

Notwithstanding the above, in the event that the Company shall at any time prior
to the exercise of all Warrants declare a dividend (other than a dividend
consisting solely of shares of Common Stock) or otherwise distribute to its
stockholders any assets, property, rights, evidences of indebtedness, securities
(other than shares of Common Stock), whether issued by the Company or by
another, or any other thing of value, the Holders of the unexercised Warrants
shall thereafter be entitled, in addition to the shares of Common Stock or other
securities and property receivable upon the exercise thereof, to receive, upon
the exercise of such Warrants, the same

                                       13

<PAGE>

property, assets, rights, evidences of indebtedness, securities or any other
thing of value that they would have been entitled to receive at the time of such
dividend or distribution as if the Warrants had been exercised immediately prior
to such dividend or distribution. At the time of any such dividend or
distribution, the Company shall make appropriate reserves to ensure the timely
performance of the provisions of this Section 6. Nothing contained herein shall
provide for the receipt or accrual by a Holder of cash dividends prior to the
exercise by such Holder of the Warrants.

7.   REISSUANCE OF WARRANTS.

     (a) Transfer of Warrant. If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company, whereupon the Company will issue
promptly following satisfaction of the transfer provisions contained in the
Securities Purchase Agreement and deliver upon the order of the Holder a new
Warrant (in accordance with Section 7(d)), in the name of the validly registered
assignee or transferee, representing the right to purchase the number of Warrant
Shares being transferred by the Holder and, if less then the total number of
Warrant Shares then underlying this Warrant is being transferred, a new Warrant
(in accordance with Section 7(d)) to the Holder representing the right to
purchase the number of Warrant Shares not being transferred.

     (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant, and, in the case of loss, theft or destruction,
of any indemnification undertaking by the Holder to the Company in customary
form and, in the case of mutilation, upon surrender and cancellation of this
Warrant, the Company shall execute and deliver to the Holder a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the Warrant
Shares then underlying this Warrant.

     (c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon
the surrender hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, that no Warrants for fractional shares of
Common Stock shall be given.

     (d) Issuance of New Warrants. Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be
of like tenor with this Warrant, (ii) shall represent, as indicated on the face
of such new Warrant, the right to purchase the Warrant Shares then underlying
this Warrant (or in the case of a new Warrant being issued pursuant to Section
7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when
added to the number of shares of Common Stock underlying the other new Warrants
issued in connection with such issuance, does not exceed the number of Warrant
Shares then underlying this Warrant), (iii) shall have an issuance date, as
indicated on the face of such new Warrant which is the same as the Issuance
Date, and (iv) shall have the same rights and conditions as this Warrant.

                                       14

<PAGE>

8.   NOTICES.

Whenever notice is required to be given under this Warrant, unless otherwise
provided herein, such notice shall be given in accordance with Section 9(f) of
the Securities Purchase Agreement. The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Warrant, including
in reasonable detail a description of such action and the reason therefore.
Without limiting the generality of the foregoing, the Company will give written
notice to the Holder (i) immediately upon any adjustment of the Exercise Price,
setting forth in reasonable detail, and certifying, the calculation of such
adjustment and (ii) at least fifteen (15) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the shares of Common Stock, (B) with respect to any grants,
issuances or sales of any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property to holders of shares of Common
Stock or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder.

9.   AMENDMENT AND WAIVER.

Except as otherwise provided herein, the provisions of this Warrant may be
amended and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company has
obtained the written consent of the Required Holders; provided that no such
action may increase the exercise price of any SPA Warrant or decrease the number
of shares or class of stock obtainable upon exercise of any SPA Warrant without
the written consent of the Holder. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the SPA Warrants then
outstanding.

10.  GOVERNING LAW.

This Warrant shall be governed by and construed and enforced in accordance with,
and all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the State
of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York.

11.  CONSTRUCTION; HEADINGS.

This Warrant shall be deemed to be jointly drafted by the Company and all the
Buyers and shall not be construed against any person as the drafter hereof. The
headings of this Warrant are for convenience of reference and shall not form
part of, or affect the interpretation of, this Warrant.

12.  DISPUTE RESOLUTION.

                                       15

<PAGE>

In the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two
Business Days of receipt of the Exercise Notice giving rise to such dispute, as
the case may be, to the Holder. If the Holder and the Company are unable to
agree upon such determination or calculation of the Exercise Price or the
Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within two Business Days submit via facsimile (a) the disputed determination of
the Exercise Price to an independent, reputable investment bank selected by the
Company and approved by the Holder (such approval not to be unreasonably
withheld or delayed) or (b) the disputed arithmetic calculation of the Warrant
Shares to the Company's independent, outside accountant. The Company shall cause
at its expense the investment bank or the accountant, as the case may be, to
perform the determinations or calculations and notify the Company and the Holder
of the results no later than ten Business Days from the time it receives the
disputed determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.

13.  REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.

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

14.  TRANSFER.

This Warrant may be offered for sale, sold, transferred or assigned without the
consent of the Company, except as may otherwise be required by Section 2(f) of
the Securities Purchase Agreement.

15.  CERTAIN DEFINITIONS.

For purposes of this Warrant, the following terms shall have the following
meanings:

     (a) "BLOOMBERG" means Bloomberg Financial Markets.

     (b) "BUSINESS DAY" means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.

                                       16

<PAGE>

     (c) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any security as
of any date, the last closing bid price and last closing trade price,
respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 12. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.

     (d) "COMMON STOCK" means (i) the Company's shares of Common Stock, par
value $0.001 per share, and (ii) any share capital into which such Common Stock
shall have been changed or any share capital resulting from a reclassification
of such Common Stock.

     (e) "CONVERTIBLE SECURITIES" means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for shares of Common Stock.

     (f) "ELIGIBLE MARKET" means the Principal Market, The New York Stock
Exchange, Inc., the Nasdaq National Market, Over-the-Counter Bulletin Board or
the American Stock Exchange.

     (g) "EXPIRATION DATE" means the date sixty months after the Issuance Date
or, if such date falls on a day other than a Business Day or on which trading
does not take place on the Principal Market (a "HOLIDAY"), the next date that is
not a Holiday.

     (h) "FUNDAMENTAL TRANSACTION" means that the Company shall, directly or
indirectly, in one or more related transactions, (i) consolidate or merge with
or into (whether or not the Company is the surviving corporation) another
Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
or (iii) allow another Person to make a purchase, tender or exchange offer that
is accepted by the holders of more than the 50% of either the outstanding shares
of Common Stock (not including any shares of Common Stock held by the Person or
Persons making or party to, or associated or affiliated with the Persons making
or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination

                                       17

<PAGE>

(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than the 50% of the outstanding shares of Common Stock (not including any
shares of Common Stock held by the other Person or other Persons making or party
to, or associated or affiliated with the other Persons making or party to, such
stock purchase agreement or other business combination), (v) reorganize,
recapitalize or reclassify its Common Stock (other than a forward or reverse
stock split), or (vi) any "person" or "group" (as these terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 50% of the aggregate ordinary voting power represented by
issued and outstanding Common Stock.

     (i) "OPTIONS" means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.

     (j) "PARENT ENTITY" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.

     (k) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.

     (l) "PRINCIPAL MARKET" means the Nasdaq Small Cap Market.

     (m) "REGISTRATION RIGHTS AGREEMENT" means that certain registration rights
agreement by and among the Company and the Buyers.

     (n) "REQUIRED HOLDERS" means the holders of the SPA Warrants representing
at least a majority of shares of Common Stock underlying the SPA Warrants then
outstanding.

     (o) "SPA SECURITIES" means the Notes and Preferred Stock issued pursuant to
the Securities Purchase Agreement.

     (p) "SUCCESSOR ENTITY" means the Person (or, if so elected by the Required
Holders, the Parent Entity) formed by, resulting from or surviving any
Fundamental Transaction or the Person (or, if so elected by the Required
Holders, the Parent Entity) with which such Fundamental Transaction shall have
been entered into.

                            [SIGNATURE PAGE FOLLOWS]

                                       18

<PAGE>

     IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.

                                        CATUITY, INC.

                                        By:
                                            ------------------------------------
                                        Name: John Racine
                                        Title: Chief Executive Officer

<PAGE>

                                                                       EXHIBIT A

                                 EXERCISE NOTICE
            TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
                        WARRANT TO PURCHASE COMMON STOCK

                                  CATUITY, INC.

     The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of Catuity,
Inc., a Delaware corporation (the "COMPANY"), evidenced by the attached Warrant
to Purchase Common Stock (the "WARRANT"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

     1. Form of Exercise Price. The Holder intends that payment of the Exercise
Price shall be made as:

                     a "Cash Exercise" with respect to _________________ Warrant
                     Shares; and/or
     _______________

                     a "Cashless Exercise" with respect to _______________
                     Warrant Shares.
     _______________

     2. Payment of Exercise Price. In the event that the holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.

     3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.

     4. Delivery of Warrant. The Registered Holder shall deliver the Warrant to
the Company.

Date: _______________ __, ______

Name of Registered Holder

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

                                       20

<PAGE>

                                 ACKNOWLEDGMENT

     The Company hereby acknowledges this Exercise Notice and hereby directs
Computershare Investor Services to issue the above indicated number of shares of
Common Stock in accordance with the Transfer Agent Instructions dated November
21, 2006 from the Company and acknowledged and agreed to by Computershare
Investor Services.

                                        CATUITY, INC.

                                        By:
                                            ------------------------------------
                                        Name: John Racine
                                        Title: Chief Executive Officer

                                       21
<PAGE>

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS WARRANT NOR
THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL
SHALL BE SELECTED BY THE HOLDER), IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

                                  CATUITY, INC.

                        WARRANT TO PURCHASE COMMON STOCK

Warrant No.: BMF 001
Number of Shares of Common Stock: 136,684
Date of Issuance: November 21, 2006 ("ISSUANCE DATE")

     Catuity, Inc., a Delaware corporation (the "COMPANY"), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, BRIDGEPOINTE MASTER FUND LTD., the registered holder
hereof or its permitted assigns (the "HOLDER"), is entitled, subject to the
terms set forth below, to purchase from the Company, at the Exercise Price (as
defined below) then in effect, upon surrender of this Warrant to purchase Common
Stock (including any Warrants to purchase Common Stock issued in exchange,
transfer or replacement hereof, the "WARRANT"), at any time or times on or after
the date hereof, but not after 11:59 p.m., New York Time, on the Expiration Date
(as defined below), One Hundred and Thirty Six Thousand, Six Hundred and Eighty
Four (136,684) fully paid nonassessable shares of Common Stock (as defined
below) (the "WARRANT SHARES"). Except as otherwise defined herein, capitalized
terms in this Warrant shall have the meanings set forth in Section 15. This
Warrant is one of the Warrants to purchase Common Stock (the "SPA WARRANTS")
issued pursuant to Section 1 of that certain Securities Purchase Agreement,
dated as of November 21, 2006 (the "SUBSCRIPTION DATE"), by and among the
Company and the investors (the "BUYERS") referred to therein (the "SECURITIES
PURCHASE AGREEMENT").

1. EXERCISE OF WARRANT.

     (a) Mechanics of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Warrant may be exercised by the Holder on any day on or after the date hereof,
in whole or in part, by (i) delivery of a written notice, in the form attached
hereto as Exhibit A (the "EXERCISE NOTICE"), of the Holder's election to
exercise this Warrant and (ii) (A) payment to the Company of an amount equal to
the applicable Exercise Price multiplied by the number of Warrant Shares as to
which this Warrant is

<PAGE>

being exercised (the "AGGREGATE EXERCISE PRICE") in cash or by wire transfer of
immediately available funds or (B) by notifying the Company that this Warrant is
being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)).
The Holder shall not be required to deliver the original Warrant in order to
affect an exercise hereunder. Execution and delivery of the Exercise Notice with
respect to less than all of the Warrant Shares shall have the same effect as
cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Warrant Shares. On or before the
first (1st) Business Day following the date on which the Company has received
each of the Exercise Notice and the Aggregate Exercise Price (or notice of a
Cashless Exercise) (the "EXERCISE DELIVERY DOCUMENTS"), the Company shall
transmit by facsimile an acknowledgment of confirmation of receipt of the
Exercise Delivery Documents to the Holder and the Company's transfer agent (the
"TRANSFER AGENT"). On or before the second (2nd) Business Day following the date
on which the Company has received all of the Exercise Delivery Documents (the
"SHARE DELIVERY DATE"), the Company shall (X) provided that the Transfer Agent
is participating in The Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program, credit such aggregate number of shares of Common
Stock to which the Holder is entitled pursuant to such exercise to the Holder's
or its designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system, or (Y) if the Transfer Agent is not participating in the DTC
Fast Automated Securities Transfer Program, issue and dispatch by overnight
courier to the address as specified in the Exercise Notice, a certificate,
registered in the Company's share register in the name of the Holder or its
designee, for the number of shares of Common Stock to which the Holder is
entitled pursuant to such exercise. Upon delivery of the Exercise Delivery
Documents, the Holder shall be deemed for all corporate purposes to have become
the holder of record of the Warrant Shares with respect to which this Warrant
has been exercised, irrespective of the date such Warrant Shares are credited to
the Holder's DTC account or the date of delivery of the certificates evidencing
such Warrant Shares as the case may be. If this Warrant is submitted in
connection with any exercise pursuant to this Section 1(a) and the number of
Warrant Shares represented by this Warrant submitted for exercise is greater
than the number of Warrant Shares being acquired upon an exercise, then the
Company shall as soon as practicable and in no event later than three Business
Days after any exercise and at its own expense, issue, a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant is
exercised. No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock to be
issued shall be rounded up to the nearest whole number. The Company shall pay
any and all taxes which may be payable with respect to the issuance and delivery
of Warrant Shares upon exercise of this Warrant.

     (b) Exercise Price. For purposes of this Warrant, "EXERCISE PRICE" means
$3.58 subject to adjustment as provided herein.

     (c) Company's Failure to Timely Deliver Securities. If the Company shall
fail for any reason or for no reason to issue to the Holder within three (3)
Trading Days of receipt of the Exercise Delivery Documents, a certificate for
the number of shares of Common Stock to which the Holder is entitled and
register such shares of Common Stock on the Company's share register or to
credit the Holder's balance account with DTC for such number of shares of Common
Stock to which the Holder is entitled upon the Holder's exercise of this
Warrant, then, in addition to all

                                       2

<PAGE>

other remedies available to the Holder, the Company shall pay in cash to the
Holder on each day after such third Business Day that the issuance of such
shares of Common Stock is not timely effected an amount equal to 1.5% of the
product of (A) the sum of the number of shares of Common Stock not issued to the
Holder on a timely basis and to which the Holder is entitled and (B) the Closing
Sale Price of a share of Common Stock on the Trading Day immediately preceding
the last possible date which the Company could have issued such shares of Common
Stock to the Holder without violating Section 1(a). In addition if within three
(3) Trading Days after the Company's receipt of a copy (whether delivered by
facsimile or any other method) of an Exercise Notice the Company shall fail to
issue and deliver a certificate to the Holder and register such shares of Common
Stock on the Company's share register or credit the Holder's balance account
with DTC for the number of shares of Common Stock to which the Holder is
entitled upon the Holder's exercise hereunder, and if on or after such Trading
Day the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of shares of
Common Stock issuable upon such exercise that the Holder anticipated receiving
from the Company (a "BUY-IN" ), then the Company shall, within three (3)
Business Days after the Holder's request and in the Holder's sole discretion,
either (i) pay cash to the Holder in an amount equal to the Holder's total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased (the "BUY-IN PRICE"), at which point the Company's
obligation to deliver such certificate (and to issue such shares of Common
Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Warrant Shares and pay
cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price
over the product of (A) such number of shares of Common Stock, times (B) the
Closing Bid Price on the date of exercise. Nothing herein shall limit the
holder's right to pursue actual damages for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock or to otherwise issue
shares of Common Stock upon exercise of this Warrant in accordance with the
terms hereof, and the Holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance and/or
injunctive relief).

     (d) Cashless Exercise. Notwithstanding anything contained herein to the
contrary, if, at the time of exercise of this Warrant, a Registration Statement
(as defined in the Registration Rights Agreement) covering the Warrant Shares
that are the subject of the Exercise Notice (the "UNAVAILABLE WARRANT SHARES")
is not available for the resale of such Unavailable Warrant Shares, the Holder
may, in its sole discretion, exercise this Warrant in whole or in part and, in
lieu of making the cash payment otherwise contemplated to be made to the Company
upon such exercise in payment of the Aggregate Exercise Price, elect instead to
receive upon such exercise the "Net Number" of shares of Common Stock determined
according to the following formula (a "CASHLESS EXERCISE"):

               Net Number = (A x B) - (A x C)
                            -----------------
                                    B

               For purposes of the foregoing formula:

          A = the total number of shares with respect to
              which this Warrant is then being exercised.

                                       3

<PAGE>

          B = the Closing Sale Price of the shares of
              Common Stock (as reported by Bloomberg) on
              the date immediately preceding the date of
              the Exercise Notice.

          C = the Exercise Price then in effect for the
              applicable Warrant Shares at the time of
              such exercise.

     (e) Disputes. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company
shall promptly issue to the Holder the number of Warrant Shares that are not
disputed and resolve such dispute in accordance with Section 12.

     (f) Limitations on Exercises.

          (1) Beneficial Ownership. The Company shall not effect the exercise of
     this Warrant, and the Holder shall not have the right to exercise this
     Warrant, to the extent that after giving effect to such exercise, such
     Person (together with such Person's affiliates) would beneficially own
     (directly or indirectly through Warrant Shares or otherwise) in excess of
     4.99% of the shares of Common Stock outstanding immediately after giving
     effect to such exercise. For purposes of the foregoing sentence, the
     aggregate number of shares of Common Stock beneficially owned (directly or
     indirectly through Warrant Shares or otherwise) by such Person 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 shares of Common Stock which
     would be issuable upon (i) exercise of the remaining, unexercised portion
     of this Warrant beneficially owned by such Person and its affiliates and
     (ii) exercise or conversion of the unexercised or unconverted portion of
     any other securities of the Company beneficially owned by such Person and
     its affiliates (including, without limitation, any convertible notes or
     convertible preferred stock or warrants) subject to a limitation on
     conversion or exercise analogous to the limitation contained herein. Except
     as set forth in the preceding sentence, for purposes of this paragraph,
     beneficial ownership shall be calculated in accordance with Section 13(d)
     of the Securities Exchange Act of 1934, as amended. For purposes of this
     Warrant, 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 (1) the Company's most recent Form 10-KSB, Form 10-QSB,
     Current Report on Form 8-K or other public filing with the Securities and
     Exchange Commission, as the case may be, (2) a more recent public
     announcement by the Company or (3) any other notice by the Company or the
     Transfer Agent setting forth the number of shares of Common Stock
     outstanding. For any reason at any time, upon the written request of the
     Holder, the Company shall within two Business 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 the SPA Securities and the SPA
     Warrants, by the

                                       4

<PAGE>

     Holder and its affiliates since the date as of which such number of
     outstanding shares of Common Stock was reported. By written notice to the
     Company, the Holder may from time to time increase or decrease the Maximum
     Percentage specified in such notice; provided that (i) any such increase
     will not be effective until the sixty-first (61st) day after such notice is
     delivered to the Company, and (ii) any such increase or decrease will apply
     only to the Holder and not to any other holder of SPA Warrants.

          (2) Principal Market Regulation. The Company shall not be obligated to
     issue any shares of Common Stock upon exercise of this Warrant if the
     issuance of such shares of Common Stock would exceed that number of shares
     of Common Stock which the Company may issue upon exercise, redemption or
     conversion, as applicable, of the SPA Warrants and SPA Securities or
     otherwise without breaching the Company's obligations under the rules or
     regulations of the Principal Market or the Australian Stock Exchange (the
     "EXCHANGE CAP"), except that such limitation shall not apply in the event
     that the Company (A) obtains the approval of its stockholders as required
     by the applicable rules of the Principal Market or the Australian Stock
     Exchange for issuances of shares of Common Stock in excess of such amount
     or (B) obtains a written opinion from outside counsel to the Company that
     such approval is not required, which opinion shall be reasonably
     satisfactory to the Required Holders. Until such approval or written
     opinion is obtained, no Buyer shall be issued in the aggregate, upon
     exercise or conversion, as applicable, of any SPA Warrants or SPA
     Securities, shares of Common Stock in an amount greater than the product of
     the Exchange Cap multiplied by a fraction, the numerator of which is the
     total number of shares of Common Stock underlying the SPA Warrants issued
     to such Buyer pursuant to the Securities Purchase Agreement on the Issuance
     Date and the denominator of which is the aggregate number of shares of
     Common Stock underlying the SPA Warrants issued to the Buyers pursuant to
     the Securities Purchase Agreement on the Issuance Date (with respect to
     each Buyer, the "EXCHANGE CAP ALLOCATION"). In the event that any Buyer
     shall sell or otherwise transfer any of such Buyer's SPA Warrants, the
     transferee shall be allocated a pro rata portion of such Buyer's Exchange
     Cap Allocation, and the restrictions of the prior sentence shall apply to
     such transferee with respect to the portion of the Exchange Cap Allocation
     allocated to such transferee. In the event that any holder of SPA Warrants
     shall exercise all of such holder's SPA Warrants into a number of shares of
     Common Stock which, in the aggregate, is less than such holder's Exchange
     Cap Allocation, then the difference between such holder's Exchange Cap
     Allocation and the number of shares of Common Stock actually issued to such
     holder shall be allocated to the respective Exchange Cap Allocations of the
     remaining holders of SPA Warrants on a pro rata basis in proportion to the
     shares of Common Stock underlying the SPA Warrants then held by each such
     holder. To the extent required by the Principal Market, the provisions of
     the Exchange Cap shall be modified to comply with the applicable rules and
     regulations of the Principal Market, provided that any such changes shall
     not, in the Holder's reasonable discretion, materially change the terms of
     the transaction contemplated hereby.

     (g) Insufficient Authorized Shares. If at any time while any of the
Warrants remain outstanding the Company does not have a sufficient number of
authorized and unreserved shares of Common Stock (an "AUTHORIZED SHARE FAILURE")
to satisfy its obligation to reserve for

                                       5

<PAGE>

issuance upon exercise of the Warrants at least a number of shares of Common
Stock equal to 175% of the number of shares of Common Stock as shall from time
to time be necessary to effect the exercise of all of the Warrants then
outstanding (the "REQUIRED RESERVE AMOUNT"), then the Company shall immediately
take all action necessary to increase the Company's authorized shares of Common
Stock to an amount sufficient to allow the Company to reserve the Required
Reserve Amount for the Warrants then outstanding. Without limiting the
generality of the foregoing sentence, as soon as practicable after the date of
the occurrence of an Authorized Share Failure, but in no event later than ninety
(90) days after the occurrence of such Authorized Share Failure, the Company
shall hold a meeting of its stockholders for the approval of an increase in the
number of authorized shares of Common Stock. In connection with such meeting,
the Company shall provide each stockholder with a proxy statement and shall use
its reasonable best efforts to solicit its stockholders' approval of such
increase in authorized shares of Common Stock and to cause its board of
directors to recommend to the stockholders that they approve such proposal.

     (h) Right of Mandatory Redemption by the Company.

          (1) If at any time from and after the Effective Date (as defined in
the Registration Rights Agreement), (i) the Closing Sales Price of the Common
Stock for each Trading Day of any 20 consecutive Trading Day period preceding
the applicable Mandatory Redemption Eligibility Date equals or exceeds $7.87 per
share (subject to equitable adjustment for stock splits, stock dividends,
combinations, and capital reorganizations, as applicable), and (ii) the average
daily dollar trading volume of the Common Stock over such 20 consecutive Trading
Day period equals or exceeds $400,000 and no single Trading Day is less than
$200,000.00 (the "MANDATORY REDEMPTION ELIGIBILITY DATE"), the Company shall
have the right to require the Holder to exercise this Warrant in whole or in
part, subject to Sections 1(h)(2) below, as designated in the Mandatory
Redemption Notice (as defined below) into fully paid, validly issued and
non-assessable shares of Common Stock in accordance with the terms of this
Warrant at the Exercise Price as of the Mandatory Redemption Eligibility Date (a
"MANDATORY REDEMPTION"). Notwithstanding anything contained herein to the
contrary, Warrants subject to Mandatory Redemption may be exercised by the
Holder anytime prior to the receipt of the redemption amount by the Holder. The
Company may exercise its right to require redemption under this Section 1(h) by
delivering within not more than ten (10) days after the end of the Mandatory
Redemption Eligibility Date a written notice thereof by facsimile and overnight
courier to all, but not less than all, of the holders of Warrants (the
"MANDATORY REDEMPTION NOTICE" and the date all of the holders received such
notice by facsimile is referred to as the "MANDATORY REDEMPTION NOTICE DATE").
The Mandatory Redemption Notice shall state (i) the aggregate number of Warrants
subject to Mandatory Redemption from the Holder and all of the holders of the
Warrants pursuant to this Section 1(h). The Holder shall have ten (10) Trading
Days from the receipt of the Mandatory Redemption Notice to exercise the number
of warrants stated in the Mandatory Redemption Notice prior to redemption.

          (2) Notwithstanding anything to the contrary contained in this Section
1(h), the aggregate number of Warrants that the Company shall have the right to
call at any given time under Section 1(h) shall be limited to a number of
Warrants such that the number of Warrant Shares issuable upon exercise of the
Warrants so called does not exceed 38,272 Warrants

                                       6

<PAGE>

(subject to equitable adjustment for stock splits, stock dividends,
combinations, and capital reorganizations, as applicable) per calendar month.
The purchase of the Warrants listed in any Mandatory Redemption Notice shall
occur on the tenth (10th) Trading Day following the receipt by the Holder of the
corresponding Mandatory Redemption Notice. If following the receipt by the
Holder of a Mandatory Redemption Notice and prior to such tenth (10th) Trading
Day following the receipt of such Mandatory Redemption Notice, the Holder shall
have exercised a number of Warrants equal to the number of Warrants stated in
such Mandatory Redemption Notice, there shall be no Mandatory Redemption
pursuant to such notice. There shall be no restriction on the ability of the
Holder to exercise the Warrants that are not called by the Company.

               (i) Unregistered Shares. Upon the exercise of this Warrant, the
Company shall have the right to issue unregistered Common Stock if the Piggyback
Registration (as defined in the Registration Rights Agreement) is not declared
effective by the Securities and Exchange Commission.

2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.

The Exercise Price and the number of Warrant Shares shall be adjusted from time
to time as follows:

     (a) Adjustment upon Issuance of shares of Common Stock. If and whenever on
or after the Subscription Date the Company issues or sells, or in accordance
with this Section 2 is deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or held by or
for the account of the Company, but excluding shares of Common Stock deemed to
have been issued by the Company in connection with any Excluded Securities (as
defined in the SPA Securities)) for a consideration per share (the "NEW ISSUANCE
PRICE") less than a price (the "APPLICABLE PRICE") equal to the Exercise Price
in effect immediately prior to such issue or sale or deemed issuance or sale
(the foregoing a "DILUTIVE ISSUANCE"), then immediately after such Dilutive
Issuance, the Exercise Price then in effect shall be reduced to an amount equal
to the New Issuance Price. For purposes of determining the adjusted Exercise
Price under this Section 2(a), the following shall be applicable:

          (i)  Issuance of Options. If the Company in any manner grants any
               Options and the lowest price per share for which one share of
               Common Stock is issuable upon the exercise of any such Option or
               upon conversion, exercise or exchange of any Convertible
               Securities issuable upon exercise of any such Option is less than
               the Applicable Price, then such shares of Common Stock
               (underlying such Option shall be deemed to be outstanding and to
               have been issued and sold by the Company at the time of the
               granting or sale of such Option for such price per share. For
               purposes of this Section 2(a)(i), the "lowest price per share for
               which one share of Common Stock is issuable upon exercise of such
               Options or upon conversion, exercise or exchange of such
               Convertible Securities" shall be equal to the sum of the lowest
               amounts of consideration (if any) received or receivable by the
               Company with respect to any one share of Common

                                       7

<PAGE>

               Stock upon the granting or sale of the Option, upon exercise of
               the Option and upon conversion, exercise or exchange of any
               Convertible Security issuable upon exercise of such Option. No
               further adjustment of the Exercise Price or number of Warrant
               Shares shall be made upon the actual issuance of such shares of
               Common Stock or of such Convertible Securities upon the exercise
               of such Options or upon the actual issuance of such shares of
               Common Stock upon conversion, exercise or exchange of such
               Convertible Securities.

          (ii) Issuance of Convertible Securities. If the Company in any manner
               issues or sells any Convertible Securities and the lowest price
               per share for which one share of Common Stock is issuable upon
               the conversion, exercise or exchange thereof is less than the
               Applicable Price, then such shares of Common Stock issuable upon
               conversion of such Convertible Securities shall be deemed to be
               outstanding and to have been issued and sold by the Company at
               the time of the issuance or sale of such Convertible Securities
               for such price per share. For the purposes of this Section
               2(a)(ii), the "lowest price per share for which one share of
               Common Stock is issuable upon the conversion, exercise or
               exchange" shall be equal to the sum of the lowest amounts of
               consideration (if any) received or receivable by the Company with
               respect to one share of Common Stock upon the issuance or sale of
               the Convertible Security and upon conversion, exercise or
               exchange of such Convertible Security. No further adjustment of
               the Exercise Price or number of Warrant Shares shall be made upon
               the actual issuance of such shares of Common Stock upon
               conversion, exercise or exchange of such Convertible Securities,
               and if any such issue or sale of such Convertible Securities is
               made upon exercise of any Options for which adjustment of this
               Warrant has been or is to be made pursuant to other provisions of
               this Section 2(a), no further adjustment of the Exercise Price or
               number of Warrant Shares shall be made by reason of such issue or
               sale. A change that permits the holder of an Option or
               Convertible Security to utilize a cashless exercise feature shall
               not be deemed to decrease the consideration payable by the holder
               solely by reason of the fact that the cashless exercise feature
               would result in a reduction in cash consideration receivable by
               the Company.

          (iii) Change in Option Price or Rate of Conversion. If the purchase
               price provided for in any Options, the additional consideration,
               if any, payable upon the issue, conversion, exercise or exchange
               of any Convertible Securities, or the rate at which any
               Convertible Securities are convertible into or exercisable or
               exchangeable for shares of Common Stock increases or decreases at
               any time, the Exercise Price and the number of Warrant Shares in
               effect at the time of such increase or decrease shall be adjusted
               to the Exercise Price and the number of Warrant Shares which
               would have been in effect at such time had such Options or
               Convertible Securities provided for such increased or decreased
               purchase price, additional consideration or increased or
               decreased conversion rate, as the case may

                                       8

<PAGE>

               be, at the time initially granted, issued or sold. For purposes
               of this Section 2(a)(iii), if the terms of any Option or
               Convertible Security that was outstanding as of the date of
               issuance of this Warrant are increased or decreased in the manner
               described in the immediately preceding sentence, then such Option
               or Convertible Security and the shares of Common Stock deemed
               issuable upon exercise, conversion or exchange thereof shall be
               deemed to have been issued as of the date of such increase or
               decrease. No adjustment pursuant to this Section 2(a) shall be
               made if such adjustment would result in an increase of the
               Exercise Price then in effect or a decrease in the number of
               Warrant Shares. A change that permits the holder of an Option or
               Convertible Security to utilize a cashless exercise feature shall
               not be deemed to decrease the consideration payable by the holder
               solely by reason of the fact that the cashless exercise feature
               would result in a reduction in cash consideration receivable by
               the Company.

          (iv) Calculation of Consideration Received. In case any Option is
               issued in connection with the issue or sale of other securities
               of the Company, together comprising one integrated transaction in
               which no specific consideration is allocated to such Options by
               the parties thereto, the Options will be deemed to have been
               issued for a consideration of $0.001. If any shares of Common
               Stock, Options or Convertible Securities are issued or sold or
               deemed to have been issued or sold for cash, the consideration
               received therefor will be deemed to be the amount received by the
               Company therefor. If any shares of Common Stock, Options or
               Convertible Securities are issued or sold for a consideration
               other than cash, the amount of such consideration received by the
               Company will be the fair value of such consideration, except
               where such consideration consists of publicly traded securities,
               in which case the amount of consideration received by the Company
               will be the Closing Sale Price of such publicly traded security
               on the date of receipt. If any shares of Common Stock, Options or
               Convertible Securities are issued to the owners of the
               non-surviving entity in connection with any merger in which the
               Company is the surviving entity, the amount of consideration
               therefor will be deemed to be the fair value of such portion of
               the net assets and business of the non-surviving entity as is
               attributable to such shares of Common Stock, Options or
               Convertible Securities, as the case may be. The fair value of any
               consideration other than cash or publicly traded securities will
               be determined jointly by the Company and the Required Holders. If
               such parties are unable to reach agreement within ten (10) days
               after the occurrence of an event requiring valuation (the
               "VALUATION EVENT"), the fair value of such consideration will be
               determined within five (5) Business Days after the tenth day
               following the Valuation Event by an independent, reputable
               appraiser jointly selected by the Company and the Required
               Holders. The determination of such appraiser shall be final and
               binding upon all parties absent manifest error

                                       9

<PAGE>

               and the fees and expenses of such appraiser shall be borne by the
               Company.

          (v)  Record Date. If the Company takes a record of the holders of
               shares of Common Stock for the purpose of entitling them (A) to
               receive a dividend or other distribution payable in shares of
               Common Stock, Options or in Convertible Securities or (B) to
               subscribe for or purchase shares of Common Stock, Options or
               Convertible Securities, then such record date will be deemed to
               be the date of the issue or sale of the shares of Common Stock
               deemed to have been issued or sold upon the declaration of such
               dividend or the making of such other distribution or the date of
               the granting of such right of subscription or purchase, as the
               case may be.

     (b) Adjustment upon Subdivision or Combination of Common Stock. If the
Company at any time on or after the Subscription Date subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the Exercise
Price in effect immediately prior to such subdivision will be proportionately
reduced and the number of Warrant Shares will be proportionately increased. If
the Company at any time on or after the Subscription Date combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination will be proportionately
increased and the number of Warrant Shares will be proportionately decreased.
Any adjustment under this Section 2(b) shall become effective at the close of
business on the date the subdivision or combination becomes effective.

     (c) Other Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Exercise Price and
the number of Warrant Shares so as to protect the rights of the Holder; provided
that no such adjustment pursuant to this Section 2(c) will increase the Exercise
Price or decrease the number of Warrant Shares as otherwise determined pursuant
to this Section 2.

3. RIGHTS UPON DISTRIBUTION OF ASSETS.

If the Company shall declare or make any dividend or other distribution of its
assets (or rights to acquire its assets) to holders of shares of Common Stock,
by way of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of a
dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a "DISTRIBUTION"), at any time after
the issuance of this Warrant, then, in each such case:

     (a) any Exercise Price in effect immediately prior to the close of business
on the record date fixed for the determination of holders of shares of Common
Stock entitled to receive the Distribution shall be reduced, effective as of the
close of business on such record date, to a

                                       10

<PAGE>

price determined by multiplying such Exercise Price by a fraction of which (i)
the numerator shall be the Closing Bid Price of a share of Common Stock on the
Trading Day immediately preceding such record date minus the value of the
Distribution (as determined in good faith by the Company's Board of Directors)
applicable to one share of Common Stock, and (ii) the denominator shall be the
Closing Bid Price of a share of Common Stock on the Trading Day immediately
preceding such record date; and

     (b) the number of Warrant Shares shall be increased to a number of shares
equal to the number of shares of Common Stock obtainable immediately prior to
the close of business on the record date fixed for the determination of holders
of shares of Common Stock entitled to receive the Distribution multiplied by the
reciprocal of the fraction set forth in the immediately preceding paragraph (a);
provided that in the event that the Distribution is of shares of Common Stock
(or common stock) ("OTHER SHARES OF COMMON STOCK") of a company whose common
shares are traded on a national securities exchange or a national automated
quotation system, then the Holder may elect to receive a warrant to purchase
Other Shares of Common Stock in lieu of an increase in the number of Warrant
Shares, the terms of which shall be identical to those of this Warrant, except
that such warrant shall be exercisable into the number of shares of Other Shares
of Common Stock that would have been payable to the Holder pursuant to the
Distribution had the Holder exercised this Warrant immediately prior to such
record date and with an aggregate exercise price equal to the product of the
amount by which the exercise price of this Warrant was decreased with respect to
the Distribution pursuant to the terms of the immediately preceding paragraph
(a) and the number of Warrant Shares calculated in accordance with the first
part of this paragraph (b).

4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

     (a) Purchase Rights. In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the proportionate
number of shares of Common Stock acquirable upon complete exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of shares of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.

     (b) Fundamental Transactions. The Company shall not enter into or be party
to a Fundamental Transaction unless (i) the Successor Entity assumes in writing
all of the obligations of the Company under this Warrant and the other
Transaction Documents in accordance with the provisions of this Section (4)(b)
pursuant to written agreements in form and substance satisfactory to the
Required Holders and approved by the Required Holders prior to such Fundamental
Transaction, including agreements to deliver to each holder of Warrants in
exchange for such Warrants a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to this Warrant,
including, without limitation, an adjusted exercise price equal to the value for
the shares of Common Stock reflected by the terms

                                       11

<PAGE>

of such Fundamental Transaction, and exercisable for a corresponding number of
shares of capital stock equivalent to the shares of Common Stock acquirable and
receivable upon exercise of this Warrant (without regard to any limitations on
the exercise of this Warrant) prior to such Fundamental Transaction, and
satisfactory to the Required Holders and (ii) the Successor Entity (including
its Parent Entity) is a publicly traded corporation whose common stock is quoted
on or listed for trading on an Eligible Market. Upon the occurrence of any
Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Warrant referring to the "Company" shall
refer instead to the Successor Entity), the Company and may exercise every right
and power of the Company and shall assume all of the obligations of the Company
under this Warrant with the same effect as if such Successor Entity had been
named as the Company herein. Upon consummation of the Fundamental Transaction,
the Successor Entity shall deliver to the Holder confirmation that there shall
be issued upon exercise of this Warrant at any time after the consummation of
the Fundamental Transaction, in lieu of the shares of the Common Stock (or other
securities, cash, assets or other property) issuable upon the exercise of the
Warrant prior to such Fundamental Transaction, such shares of the publicly
traded Common Stock (or its equivalent) of the Successor Entity (including its
Parent Entity) which the Holder would have been entitled to receive upon the
happening of such Fundamental Transaction had this Warrant been converted
immediately prior to such Fundamental Transaction, as adjusted in accordance
with the provisions of this Warrant. In addition to and not in substitution for
any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock are entitled to
receive securities or other assets with respect to or in exchange for shares of
Common Stock (a "CORPORATE EVENT"), the Company shall make appropriate provision
to insure that the Holder will thereafter have the right to receive upon an
exercise of this Warrant at any time after the consummation of the Fundamental
Transaction but prior to the Expiration Date, in lieu of the shares of the
Common Stock (or other securities, cash, assets or other property) issuable upon
the exercise of the Warrant prior to such Fundamental Transaction, such shares
of stock, securities, cash, assets or any other property whatsoever (including
warrants or other purchase or subscription rights) which the Holder would have
been entitled to receive upon the happening of such Fundamental Transaction had
the Warrant been exercised immediately prior to such Fundamental Transaction.
Provisions made pursuant to the preceding sentence shall be in the form and
substance reasonably satisfactory to the Required Holders. The provisions of
this Section shall apply similarly and equally to successive Fundamental
Transactions and Corporate Events and shall be applied without regard to any
limitations on the exercise of this Warrant.

     (c) Notwithstanding the foregoing and the provisions of Section 4(b) above,
in the event of a Fundamental Transaction, only if such Fundamental Transaction
is within the control of the Company, if the Holder has not exercised the
Warrant in full prior to the consummation of the Fundamental Transaction, then
the Company may enter into a Fundamental Transaction pursuant to which the
Holder shall receive, simultaneously with the consummation of the Fundamental
Transaction, in lieu of the warrant referred to in Section 4(b) cash in the
amount equal to the value of the remaining unexercised portion of this Warrant
on the date of such consummation, which value shall be determined by use of the
Black Scholes Option Pricing Model reflecting (A) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the remaining term
of this Warrant as of such date of request and (B) an expected

                                       12

<PAGE>

volatility equal to the greater of 60% and the 100 day volatility obtained from
the HVT function on Bloomberg.

5. NONCIRCUMVENTION.

The Company hereby covenants and agrees that the Company will not, by amendment
of its Articles of Incorporation, Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, 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, and will at all
times in good faith carry out all the provisions of this Warrant and take all
action as may be required to protect the rights of the Holder. Without limiting
the generality of the foregoing, the Company (i) shall not increase the par
value of any shares of Common Stock receivable upon the exercise of this Warrant
above the Exercise Price then in effect, (ii) shall take all such actions as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the exercise of
this Warrant, and (iii) shall, so long as any of the SPA Warrants are
outstanding, take all action necessary to reserve and keep available out of its
authorized and unissued shares of Common Stock, solely for the purpose of
effecting the exercise of the SPA Warrants, 175% of the number of shares of
Common Stock as shall from time to time be necessary to effect the exercise of
the SPA Warrants then outstanding (without regard to any limitations on
exercise).

6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER.

Except as otherwise specifically provided herein, the Holder, solely in such
Person's capacity as a holder of this Warrant, shall not be entitled to vote or
be deemed the holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person's capacity as the Holder of this Warrant, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, or subscription rights, or otherwise, prior to the
issuance to the Holder of the Warrant Shares which such Person is then entitled
to receive upon the due exercise of this Warrant. In addition, nothing contained
in this Warrant shall be construed as imposing any liabilities on the Holder to
purchase any securities (upon exercise of this Warrant or otherwise) or as a
stockholder of the Company, whether such liabilities are asserted by the Company
or by creditors of the Company. Notwithstanding this Section 6, the Company
shall provide the Holder with copies of the same notices and other information
given to the stockholders of the Company generally, contemporaneously with the
giving thereof to the stockholders.

Notwithstanding the above, in the event that the Company shall at any time prior
to the exercise of all Warrants declare a dividend (other than a dividend
consisting solely of shares of Common Stock) or otherwise distribute to its
stockholders any assets, property, rights, evidences of indebtedness, securities
(other than shares of Common Stock), whether issued by the Company or by
another, or any other thing of value, the Holders of the unexercised Warrants
shall thereafter be entitled, in addition to the shares of Common Stock or other
securities and property receivable upon the exercise thereof, to receive, upon
the exercise of such Warrants, the same

                                       13

<PAGE>

property, assets, rights, evidences of indebtedness, securities or any other
thing of value that they would have been entitled to receive at the time of such
dividend or distribution as if the Warrants had been exercised immediately prior
to such dividend or distribution. At the time of any such dividend or
distribution, the Company shall make appropriate reserves to ensure the timely
performance of the provisions of this Section 6. Nothing contained herein shall
provide for the receipt or accrual by a Holder of cash dividends prior to the
exercise by such Holder of the Warrants.

7. REISSUANCE OF WARRANTS.

     (a) Transfer of Warrant. If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company, whereupon the Company will issue
promptly following satisfaction of the transfer provisions contained in the
Securities Purchase Agreement and deliver upon the order of the Holder a new
Warrant (in accordance with Section 7(d)), in the name of the validly registered
assignee or transferee, representing the right to purchase the number of Warrant
Shares being transferred by the Holder and, if less then the total number of
Warrant Shares then underlying this Warrant is being transferred, a new Warrant
(in accordance with Section 7(d)) to the Holder representing the right to
purchase the number of Warrant Shares not being transferred.

     (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant, and, in the case of loss, theft or destruction,
of any indemnification undertaking by the Holder to the Company in customary
form and, in the case of mutilation, upon surrender and cancellation of this
Warrant, the Company shall execute and deliver to the Holder a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the Warrant
Shares then underlying this Warrant.

     (c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon
the surrender hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, that no Warrants for fractional shares of
Common Stock shall be given.

     (d) Issuance of New Warrants. Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be
of like tenor with this Warrant, (ii) shall represent, as indicated on the face
of such new Warrant, the right to purchase the Warrant Shares then underlying
this Warrant (or in the case of a new Warrant being issued pursuant to Section
7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when
added to the number of shares of Common Stock underlying the other new Warrants
issued in connection with such issuance, does not exceed the number of Warrant
Shares then underlying this Warrant), (iii) shall have an issuance date, as
indicated on the face of such new Warrant which is the same as the Issuance
Date, and (iv) shall have the same rights and conditions as this Warrant.

                                       14

<PAGE>

8. NOTICES.

Whenever notice is required to be given under this Warrant, unless otherwise
provided herein, such notice shall be given in accordance with Section 9(f) of
the Securities Purchase Agreement. The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Warrant, including
in reasonable detail a description of such action and the reason therefore.
Without limiting the generality of the foregoing, the Company will give written
notice to the Holder (i) immediately upon any adjustment of the Exercise Price,
setting forth in reasonable detail, and certifying, the calculation of such
adjustment and (ii) at least fifteen (15) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the shares of Common Stock, (B) with respect to any grants,
issuances or sales of any Options, Convertible Securities or rights to purchase
stock, warrants, securities or other property to holders of shares of Common
Stock or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder.

9. AMENDMENT AND WAIVER.

Except as otherwise provided herein, the provisions of this Warrant may be
amended and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company has
obtained the written consent of the Required Holders; provided that no such
action may increase the exercise price of any SPA Warrant or decrease the number
of shares or class of stock obtainable upon exercise of any SPA Warrant without
the written consent of the Holder. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the SPA Warrants then
outstanding.

10. GOVERNING LAW.

This Warrant shall be governed by and construed and enforced in accordance with,
and all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the State
of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York.

11. CONSTRUCTION; HEADINGS.

This Warrant shall be deemed to be jointly drafted by the Company and all the
Buyers and shall not be construed against any person as the drafter hereof. The
headings of this Warrant are for convenience of reference and shall not form
part of, or affect the interpretation of, this Warrant.

12. DISPUTE RESOLUTION.

                                       15

<PAGE>

In the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two
Business Days of receipt of the Exercise Notice giving rise to such dispute, as
the case may be, to the Holder. If the Holder and the Company are unable to
agree upon such determination or calculation of the Exercise Price or the
Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within two Business Days submit via facsimile (a) the disputed determination of
the Exercise Price to an independent, reputable investment bank selected by the
Company and approved by the Holder (such approval not to be unreasonably
withheld or delayed) or (b) the disputed arithmetic calculation of the Warrant
Shares to the Company's independent, outside accountant. The Company shall cause
at its expense the investment bank or the accountant, as the case may be, to
perform the determinations or calculations and notify the Company and the Holder
of the results no later than ten Business Days from the time it receives the
disputed determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.

13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.

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

14. TRANSFER.

This Warrant may be offered for sale, sold, transferred or assigned without the
consent of the Company, except as may otherwise be required by Section 2(f) of
the Securities Purchase Agreement.

15. CERTAIN DEFINITIONS.

For purposes of this Warrant, the following terms shall have the following
meanings:

     (a) "BLOOMBERG" means Bloomberg Financial Markets.

     (b) "BUSINESS DAY" means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.

                                       16

<PAGE>

     (c) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any security as
of any date, the last closing bid price and last closing trade price,
respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 12. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.

     (d) "COMMON STOCK" means (i) the Company's shares of Common Stock, par
value $0.001 per share, and (ii) any share capital into which such Common Stock
shall have been changed or any share capital resulting from a reclassification
of such Common Stock.

     (e) "CONVERTIBLE SECURITIES" means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for shares of Common Stock.

     (f) "ELIGIBLE MARKET" means the Principal Market, The New York Stock
Exchange, Inc., the Nasdaq National Market, Over-the-Counter Bulletin Board or
the American Stock Exchange.

     (g) "EXPIRATION DATE" means the date sixty months after the Issuance Date
or, if such date falls on a day other than a Business Day or on which trading
does not take place on the Principal Market (a "HOLIDAY"), the next date that is
not a Holiday.

     (h) "FUNDAMENTAL TRANSACTION" means that the Company shall, directly or
indirectly, in one or more related transactions, (i) consolidate or merge with
or into (whether or not the Company is the surviving corporation) another
Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
or (iii) allow another Person to make a purchase, tender or exchange offer that
is accepted by the holders of more than the 50% of either the outstanding shares
of Common Stock (not including any shares of Common Stock held by the Person or
Persons making or party to, or associated or affiliated with the Persons making
or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination

                                       17

<PAGE>

(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than the 50% of the outstanding shares of Common Stock (not including any
shares of Common Stock held by the other Person or other Persons making or party
to, or associated or affiliated with the other Persons making or party to, such
stock purchase agreement or other business combination), (v) reorganize,
recapitalize or reclassify its Common Stock (other than a forward or reverse
stock split), or (vi) any "person" or "group" (as these terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 50% of the aggregate ordinary voting power represented by
issued and outstanding Common Stock.

     (i) "OPTIONS" means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.

     (j) "PARENT ENTITY" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.

     (k) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.

     (l) "PRINCIPAL MARKET" means the Nasdaq Small Cap Market.

     (m) "REGISTRATION RIGHTS AGREEMENT" means that certain registration rights
agreement by and among the Company and the Buyers.

     (n) "REQUIRED HOLDERS" means the holders of the SPA Warrants representing
at least a majority of shares of Common Stock underlying the SPA Warrants then
outstanding.

     (o) "SPA SECURITIES" means the Notes and Preferred Stock issued pursuant to
the Securities Purchase Agreement.

     (p) "SUCCESSOR ENTITY" means the Person (or, if so elected by the Required
Holders, the Parent Entity) formed by, resulting from or surviving any
Fundamental Transaction or the Person (or, if so elected by the Required
Holders, the Parent Entity) with which such Fundamental Transaction shall have
been entered into.

                            [SIGNATURE PAGE FOLLOWS]

                                       18

<PAGE>

     IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.

                                        CATUITY, INC.

                                        By:
                                            ------------------------------------
                                        Name: John Racine
                                        Title: Chief Executive Officer

<PAGE>

                                                                       EXHIBIT A

                                 EXERCISE NOTICE
            TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
                        WARRANT TO PURCHASE COMMON STOCK

                                  CATUITY, INC.

     The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of Catuity,
Inc., a Delaware corporation (the "COMPANY"), evidenced by the attached Warrant
to Purchase Common Stock (the "WARRANT"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

     1. Form of Exercise Price. The Holder intends that payment of the Exercise
Price shall be made as:

                             a "Cash Exercise" with respect to _________________
                             Warrant Shares; and/or
          __________________

                             a "Cashless Exercise" with respect to
                             _______________ Warrant Shares.
          __________________

     2. Payment of Exercise Price. In the event that the holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.

     3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.

     4. Delivery of Warrant. The Registered Holder shall deliver the Warrant to
the Company.

Date: _______________ __, ______

Name of Registered Holder

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

                                       20

<PAGE>

                                 ACKNOWLEDGMENT

     The Company hereby acknowledges this Exercise Notice and hereby directs
Computershare Investor Services to issue the above indicated number of shares of
Common Stock in accordance with the Transfer Agent Instructions dated November
21, 2006 from the Company and acknowledged and agreed to by Computershare
Investor Services.

                                        CATUITY, INC.

                                        By:
                                            ------------------------------------
                                        Name: John Racine
                                        Title: Chief Executive Officer

                                       21<PAGE>

                                                                    Exhibit 10.4

                          REGISTRATION RIGHTS AGREEMENT

     REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of November 21,
2006, by and among Catuity, Inc., a Delaware corporation, with headquarters
located at 300 Preston Avenue, Suite 302, Charlottesville, VA 22902 (the
"COMPANY"), and the undersigned buyers (each, a "BUYER", and collectively, the
"BUYERS").

     WHEREAS:

     A. In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"), the
Company has agreed, upon the terms and subject to the conditions set forth in
the Securities Purchase Agreement, to issue and sell to each Buyer (i)
convertible notes of the Company (the "NOTES") which will, among other things,
be convertible into shares of the Company's common stock, par value $0.001 per
share (the "COMMON STOCK") (as converted, the "NOTE CONVERSION SHARES") in
accordance with the terms of the Notes, (ii) Series A Convertible Preferred
Stock (the "CONVERTIBLE PREFERRED STOCK") which shall be convertible into Common
Stock (the "PREFERRED STOCK CONVERSION SHARES"; together, with the Note
Conversion Shares, the "CONVERSION SHARES") and (iii) warrants (the "WARRANTS")
which will be exercisable to purchase a number of shares of Common Stock in
accordance with the terms of the Warrants (as exercised collectively, the
"WARRANT SHARES").

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

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

1. DEFINITIONS.

     Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings set forth in the Securities Purchase Agreement. As used
in this Agreement, the following terms shall have the following meanings:

     a. "BUSINESS DAY" means any day other than Saturday, Sunday or any other
day on which commercial banks in The City of New York are authorized or required
by law to remain closed.

     b. "CLOSING DATE" shall have the meaning set forth in the Securities
Purchase Agreement.

<PAGE>

     c. "EFFECTIVE DATE" means the date that the Registration Statement has been
declared effective by the SEC.

     d. "EFFECTIVENESS DEADLINE" means the date which is ninety (90) calendar
days after the Closing Date.

     e. "FILING DEADLINE" means the date three (3) calendar days after the
stockholder meeting date.

     f. "INVESTOR" means a Buyer or any transferee or assignee thereof to whom a
Buyer assigns its rights under this Agreement and who agrees to become bound by
the provisions of this Agreement in accordance with Section 9 and any transferee
or assignee thereof to whom a transferee or assignee assigns its rights under
this Agreement and who agrees to become bound by the provisions of this
Agreement in accordance with Section 9.

     g. "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.

     h. "PIGGYBACK REGISTRATION" means in any registration of common stock as
set forth in Section 2(g), the ability of Holders of common stock to include
certain securities in such registration.

     i. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing one or more Registration Statements (as defined
below) in compliance with the 1933 Act and pursuant to Rule 415 and the
declaration or ordering of effectiveness of such Registration Statement(s) by
the SEC.

     j. "REGISTRABLE SECURITIES" means (i) the Conversion Shares issued or
issuable upon conversion of the Notes and the Convertible Preferred Stock, and
(ii) any capital stock of the Company issued or issuable with respect to the
Conversion Shares, the Notes, and/or the Convertible Preferred Stock, as a
result of any stock split, stock dividend, recapitalization, exchange or similar
event or otherwise, without regard to any limitations on conversions of the
Notes or the Convertible Preferred Stock.

     k. "REGISTRATION STATEMENT" means a registration statement or registration
statements of the Company filed under the 1933 Act covering the Registrable
Securities.

     l. "REQUIRED HOLDERS" means the holders of at least a majority of the
Registrable Securities.

     m. "REQUIRED REGISTRATION AMOUNT" means the number of Conversion Shares
issued and issuable pursuant to the Notes and the Convertible Preferred Stock as
of the Trading Day immediately preceding the applicable date of determination,
all subject to adjustment as provided in Section 2(e) (without regard to any
limitations on conversion of the Notes or the Convertible Preferred Stock.

                                        2

<PAGE>

     n. "RULE 415" means Rule 415 under the 1933 Act or any successor rule
providing for offering securities on a continuous or delayed basis.

     o. "SEC" means the United States Securities and Exchange Commission.

2. REGISTRATION.

     a. Mandatory Registration. The Company shall prepare, and, as soon as
practicable, but in no event later than the Filing Deadline, file with the SEC
the Registration Statement on Form SB-2, or any other available form, covering
the resale of all of the Registrable Securities, subject to the provisions of
Section 2(d). The Registration Statement prepared pursuant hereto shall register
for resale at least the number of shares of Common Stock equal to the Required
Registration Amount as of date the Registration Statement is initially filed
with the SEC. The Company shall use its best efforts to have the Registration
Statement declared effective by the SEC as soon as practicable, but in no event
later than the Effectiveness Deadline. By 9:30 am on the Business Day following
the Effective Date, the Company shall file with the SEC in accordance with Rule
424 under the 1933 Act the final prospectus to be used in connection with sales
pursuant to such Registration Statement.

     b. Allocation of Registrable Securities. The initial number of Registrable
Securities included in any Registration Statement and any increase in the number
of Registrable Securities included therein shall be allocated pro rata among the
Investors based on the number of Registrable Securities held by each Investor at
the time the Registration Statement covering such initial number of Registrable
Securities or increase thereof is declared effective by the SEC. In the event
that an Investor sells or otherwise transfers any of such Investor's Registrable
Securities, each transferee shall be allocated a pro rata portion of the then
remaining number of Registrable Securities included in such Registration
Statement for such transferor. Any Shares of Common Stock included in a
Registration Statement and which remain allocated to any Person which ceases to
hold any Registrable Securities covered by such Registration Statement shall be
allocated to the remaining Investors, pro rata based on the number of
Registrable Securities then held by such Investors which are covered by such
Registration Statement. The Investors understand that the Company has
obligations with respect to other registration rights and that the Company may
include in the Registration Statement those securities set forth on Schedule
2(b) hereof with respect to which it has an existing obligation to register such
securities under the 1933 Act as of the date hereof.

     c. Legal Counsel. Subject to Section 5 hereof, the Required Holders shall
have the right to select one legal counsel to review and oversee any
registration pursuant to this Section 2 ("LEGAL COUNSEL"), which shall be
Gottbetter & Partners, LLP or such other counsel as thereafter designated by the
Required Holders. The Company and Legal Counsel shall reasonably cooperate with
each other in performing the Company's obligations under this Agreement.

     d. Ineligibility for Form SB-2. In the event that Form SB-2 is not
available for the registration of the resale of Registrable Securities
hereunder, the Company shall (i) register the resale of the Registrable
Securities on another appropriate form reasonably acceptable to the

                                        3

<PAGE>

Required Holders and (ii) undertake to register the Registrable Securities on
Form S-3 as soon as such form is available, provided that the Company shall
maintain the effectiveness of the Registration Statement then in effect until
such time as a Registration Statement on Form S-3 covering the Registrable
Securities has been declared effective by the SEC.

     e. Sufficient Number of Shares Registered. In the event the number of
shares available under a Registration Statement filed pursuant to Section 2(a)
is insufficient to cover all of the Registrable Securities required to be
covered by such Registration Statement or an Investor's allocated portion of the
Registrable Securities pursuant to Section 2(b), the Company shall amend the
applicable Registration Statement, or file a new Registration Statement (on the
shortest form available therefor, if applicable), or both, so as to cover at
least the Required Registration Amount as of the Trading Day immediately
preceding the date of the filing of such amendment or new Registration
Statement, in each case, as soon as practicable, but in any event not later than
forty-five (45) days after the necessity therefor arises. The Company shall use
its best efforts to cause such amendment and/or new Registration Statement to
become effective as soon as practicable following the filing thereof. For
purposes of the foregoing provision, the number of shares available under a
Registration Statement shall be deemed "insufficient to cover all of the
Registrable Securities" if at any time the number of shares of Common Stock
available for resale under the Registration Statement is less than the product
determined by multiplying (i) the Required Registration Amount as of such time
by (ii) 0.90. The calculation set forth in the foregoing sentence shall be made
without regard to any limitations on the conversion of the Notes or the exercise
of the Warrants and such calculation shall assume that the Notes and the
Convertible Preferred Stock, are then convertible into shares of Common Stock at
the then prevailing Conversion Rate (as defined in the Notes, and the
Convertible Preferred Stock respectively) and that the Warrants are then
exercisable for shares of Common Stock at the then prevailing Exercise Price (as
defined in the Warrants) and for the number of Warrant Shares covered thereby.

     f. Effect of Failure to File and Obtain and Maintain Effectiveness of
Registration Statement. If (i) a Registration Statement covering all of the
Registrable Securities required to be covered thereby and required to be filed
by the Company pursuant to this Agreement is (A) not filed with the SEC on or
before the respective Filing Deadline (a "FILING FAILURE") or (B) not declared
effective by the SEC on or before the respective Effectiveness Deadline (an
"EFFECTIVENESS FAILURE"); provided, however, that for thirty (30) days following
the Effective Deadline there will be no Effectiveness Failure if the SEC is
reviewing the Registration Statement and the Company is using its best efforts
to have the Registration Statement declared effective or (ii) on any day after
the Effective Date sales of all of the Registrable Securities required to be
included on such Registration Statement cannot be made (other than during an
Allowable Grace Period (as defined in Section 3(r)) pursuant to such
Registration Statement (including, without limitation, because of a failure to
keep such Registration Statement effective, to disclose such information as is
necessary for sales to be made pursuant to such Registration Statement or to
register a sufficient number of Shares of Common Stock) (a "MAINTENANCE
FAILURE") then, as partial relief for the damages to any holder by reason of any
Filing Failure, Effectiveness Failure or Maintenance Failure (which remedy shall
not be exclusive of any other remedies available at law or in equity), the
Company shall immediately reduce the exercise price of each of the Warrants by
ten percent (10%) of the then exercise price and be reduced by an

                                        4

<PAGE>

additional ten percent (10%) of the then exercise price for each subsequent
thirty (30) day period thereafter (each reduction as adjusted for stock splits,
stock dividends, stock combinations or other similar transactions) up to a
maximum aggregated reduction of thirty percent (30%). Any reductions pursuant to
Section 2(f) hereof shall survive the curing of any Filing Failure,
Effectiveness Failure or Maintenance Failure.

     g. Piggyback Registration. If the Company shall determine to register any
of its Common Stock, for its own account or for the account of others (other
than the Holders), other than (i) a registration relating solely to employee
benefit plans or securities issued or issuable to employees or consultants (to
the extent the securities owned or to be owned by such consultants could be
registered on Form S-8) or (ii) a registration relating solely to a Commission
Rule 145 transaction, a registration on Form S-4 in connection with a merger,
acquisition, divestiture, reorganization, or similar event, the Company shall
promptly give to the Holders written notice thereof (and in no event shall such
notice be given less than 20 calendar days prior to the filing of such
registration statement), and shall, subject to Section 3(c), include as a
Piggyback Registration all of the Warrants and any of the Registrable Securities
not previously registered with the SEC, if any (the "Piggyback Securities"),
specified in a written request delivered by the Holder within 10 calendar days
after receipt of such written notice from the Company. However, the Company may,
without the consent of the Holders, withdraw such registration statement prior
to its becoming effective if the Company or such other stockholders have elected
to abandon the proposal to register the securities proposed to be registered
thereby.

     h. Underwriting. If a Piggyback Registration is for a registered public
offering involving an underwriting, the Company shall so advise the Holders. In
such event, the right of any Holder to Piggyback Registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Piggyback Securities in the underwriting to the
extent provided herein. All Holders proposing to include the Piggyback
Securities they hold through such underwriting shall (together with the Company
and any other stockholders of the Company selling their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter selected for such underwriting by the Company or the selling
stockholders, as applicable. Notwithstanding any other provision of this
Section, if the underwriter or the Company determines that marketing factors
require a limitation of the number of shares of Common Stock or the amount of
other securities to be underwritten, the underwriter may exclude some or all
Piggyback Securities from such registration and underwriting. The Company shall
so advise all Holders (except those Holders who failed to timely elect to
include their Piggyback Securities through such underwriting or have indicated
to the Company their decision not to do so), and indicate to each such Holder
the number of shares of Piggyback Securities that may be included in the
registration and underwriting, if any. The number of shares of Piggyback
Securities to be included in such registration and underwriting shall be
allocated among such Holders as follows:

               (i) In the event of a Piggyback Registration that is initiated by
     the Company, the number of shares that may be included in the registration
     and underwriting shall be allocated first to the Company and then, subject
     to obligations and commitments existing as of the date hereof, to all
     selling stockholders, including the Holders, who have requested to sell in
     the registration on a pro rata basis according to the number of shares
     requested to be included; and

                                        5

<PAGE>

               (ii) In the event of a Piggyback Registration that is initiated
     by the exercise of demand registration rights by a stockholder or
     stockholders of the Company (other than the Holders), then the number of
     shares that may be included in the registration and underwriting shall be
     allocated first to such selling stockholders who exercised such demand and
     then, subject to obligations and commitments existing as of the date
     hereof, to all other selling stockholders, including the Holders, who have
     requested to sell in the registration, on a pro rata basis according to the
     number of shares requested to be included.

     No Piggyback Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. If
any Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw their Piggyback Securities therefrom by delivery of written
notice to the Company and the underwriter. The Piggyback Securities so withdrawn
from such underwriting shall also be withdrawn from such registration; provided,
however, that, if by the withdrawal of such Piggyback Securities a greater
number of Piggyback Securities held by other Holders may be included in such
registration (up to the maximum of any limitation imposed by the underwriters),
then the Company shall offer to all Holders who have included Piggyback
Securities in the registration the right to include additional Piggyback
Securities pursuant to the terms and limitations set forth herein in the same
proportion used above in determining the underwriter limitation.

3. RELATED OBLIGATIONS.

     At such time as the Company is obligated to file a Registration Statement
with the SEC pursuant to Section 2(a), 2(d) or 2(e), the Company will use its
best efforts to effect the registration of the Registrable Securities in
accordance with the intended method of disposition thereof and, pursuant
thereto, the Company shall have the following obligations:

     a. The Company shall promptly, but in no event later than the Filing
Deadline, prepare and file with the SEC a Registration Statement with respect to
the Registrable Securities and use its best efforts to cause such Registration
Statement relating to the Registrable Securities to become effective as soon as
practicable after such filing (but in no event later than the Effectiveness
Deadline). The Company shall keep each Registration Statement effective pursuant
to Rule 415 at all times until the earlier of (i) the date as of which the
Investors may sell all of the Registrable Securities covered by such
Registration Statement without restriction pursuant to Rule 144(k) (or any
successor thereto) promulgated under the 1933 Act or (ii) the date on which the
Investors shall have sold all of the Registrable Securities covered by such
Registration Statement (the "REGISTRATION PERIOD"). The Company shall ensure
that each Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein (in the case of
prospectuses, in the light of the circumstances in which they were made) not
misleading. The term "best efforts" shall mean, among other things, that the
Company shall submit to the SEC, within two (2) Business Days after the later of
the date that (i) the Company learns that no review of a particular Registration
Statement will be made by the staff of the SEC or that the staff has no further
comments on a particular Registration Statement, as the case may be, and (ii)
the approval of Legal Counsel pursuant to Section 3(c) (which approval is
immediately

                                        6

<PAGE>

sought), a request for acceleration of effectiveness of such Registration
Statement to a time and date not later than 48 hours after the submission of
such request.

     b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the 1933 Act, as may be necessary to keep such Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by such Registration Statement
until such time as all of such Registrable Securities shall have been disposed
of in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in such Registration Statement. In the case of
amendments and supplements to a Registration Statement which are required to be
filed pursuant to this Agreement (including pursuant to this Section 3(b)) by
reason of the Company filing a report on Form 10-Q or Form 10-QSB, Form 10-K or
Form 10-KSB or any analogous report under the Securities Exchange Act of 1934,
as amended (the "1934 ACT"), the Company shall have incorporated such report by
reference into such Registration Statement, if applicable, or shall file such
amendments or supplements with the SEC on the same day on which the 1934 Act
report is filed which created the requirement for the Company to amend or
supplement such Registration Statement.

     c. The Company shall (A) permit Legal Counsel to review and comment upon
(i) a Registration Statement at least five (5) Business Days prior to its filing
with the SEC and (ii) all amendments and supplements to all Registration
Statements (except for Annual Reports on Form 10-K or Form 10-KSB, and Reports
on Form 10-Q or Form 10-QSB and any similar or successor reports) within a
reasonable number of days prior to their filing with the SEC, and (B) not file
any Registration Statement or amendment or supplement thereto in a form to which
Legal Counsel reasonably objects. The Company shall not submit a request for
acceleration of the effectiveness of a Registration Statement or any amendment
or supplement thereto without the prior approval of Legal Counsel, which consent
shall not be unreasonably withheld. The Company shall furnish to Legal Counsel,
without charge, (i) copies of any correspondence from the SEC or the staff of
the SEC to the Company or its representatives relating to any Registration
Statement, (ii) promptly after the same is prepared and filed with the SEC, one
copy of any Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference, if requested by an Investor, and all exhibits and (iii) upon the
effectiveness of any Registration Statement, one copy of the prospectus included
in such Registration Statement and all amendments and supplements thereto. The
Company shall reasonably cooperate with Legal Counsel in performing the
Company's obligations pursuant to this Section 3.

     d. The Company shall furnish to each Investor whose Registrable Securities
are included in any Registration Statement, without charge, (i) if the Company
shall not have filed a final prospectus in accordance with Rule 424 per Section
2(a), upon the effectiveness of any Registration Statement, ten (10) copies of
the prospectus included in such Registration Statement and all amendments and
supplements thereto (or such other number of copies as such Investor may
reasonably request) and (ii) such other documents, including copies of any
preliminary or

                                        7

<PAGE>

final prospectus, as such Investor may reasonably request from time to time in
order to facilitate the disposition of the Registrable Securities owned by such
Investor.

     e. The Company shall use its best efforts to (i) register and qualify,
unless an exemption from registration and qualification applies, the resale by
Investors of the Registrable Securities covered by a Registration Statement
under such other securities or "blue sky" laws of all applicable jurisdictions
in the United States, (ii) prepare and file in those jurisdictions, such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (x) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(e), (y) subject itself to general taxation in any such
jurisdiction, or (z) file a general consent to service of process in any such
jurisdiction. The Company shall promptly notify Legal Counsel and each Investor
who holds Registrable Securities of the receipt by the Company of any
notification with respect to the suspension of the registration or qualification
of any of the Registrable Securities for sale under the securities or "blue sky"
laws of any jurisdiction in the United States or its receipt of actual notice of
the initiation or threatening of any proceeding for such purpose.

     f. The Company shall notify Legal Counsel and each Investor in writing of
the happening of any event, as promptly as practicable after becoming aware of
such event, as a result of which the prospectus included in a Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading (provided that in no event shall such notice contain
any material, nonpublic information), and, subject to Section 3(r), promptly
prepare a supplement or amendment to such Registration Statement to correct such
untrue statement or omission, and deliver ten (10) copies of such supplement or
amendment to Legal Counsel and each Investor (or such other number of copies as
Legal Counsel or such Investor may reasonably request). The Company shall also
promptly notify Legal Counsel and each Investor in writing (i) when a prospectus
or any prospectus supplement or post-effective amendment has been filed, and
when a Registration Statement or any post-effective amendment has become
effective (notification of such effectiveness shall be delivered to Legal
Counsel and each Investor by facsimile or e-mail on the same day of such
effectiveness and by overnight mail), (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or
related information, and (iii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.

     g. The Company shall use its best efforts to prevent the issuance of any
stop order or other suspension of effectiveness of a Registration Statement, or
the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction and, if such an order or suspension is issued, to
obtain the withdrawal of such order or suspension at the earliest possible
moment and to notify Legal Counsel and each Investor who holds Registrable
Securities

                                        8

<PAGE>

being sold of the issuance of such order and the resolution thereof or its
receipt of actual notice of the initiation or threat of any proceeding for such
purpose.

     h. At the reasonable request of any Investor, the Company shall furnish to
such Investor, on the date of the effectiveness of the Registration Statement
and thereafter from time to time on such dates as an Investor may reasonably
request (i) a letter, dated such date, from the Company's independent certified
public accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the Investors, and (ii) an opinion, dated as of such date, of
counsel representing the Company for purposes of such Registration Statement, in
form, scope and substance as is customarily given in an underwritten public
offering, addressed to the Investors.

     i. If any Investor may be required under applicable securities law to be
described in the Registration Statement as an underwriter, the Company shall
make available for inspection by (i) any Investor, (ii) Legal Counsel and (iii)
one firm of accountants or other agents retained by the Investors (collectively,
the "INSPECTORS"), all pertinent financial and other records, and pertinent
corporate documents and properties of the Company (collectively, the "RECORDS"),
as shall be reasonably deemed necessary by each Inspector, and cause the
Company's officers, directors and employees, counsel and the Company's
independent certified public accountants to supply all information which may be
necessary and any Inspector may reasonably request; provided, however, that each
Inspector shall agree to hold in strict confidence and shall not make any
disclosure (except to an Investor) or use of any Record or other information
which the Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (a) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in any
Registration Statement or is otherwise required under the 1933 Act, (b) the
release of such Records is ordered pursuant to a final, non-appealable subpoena
or order from a court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement of which
the Inspector has knowledge. Each Investor agrees that it shall, upon learning
that disclosure of such Records is sought in or by a court or governmental body
of competent jurisdiction or through other means, give prompt notice to the
Company and allow the Company, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, the Records
deemed confidential. Nothing herein (or in any other confidentiality agreement
between the Company and any Investor) shall be deemed to limit the Investors'
ability to sell Registrable Securities in a manner which is otherwise consistent
with applicable laws and regulations.

     j. The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i) disclosure
of such information is necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental

                                        9

<PAGE>

body of competent jurisdiction or through other means, give prompt written
notice to such Investor and allow such Investor, at the Investor's expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, such information.

     k. The Company shall use its best efforts either to (i) cause all of the
Registrable Securities covered by a Registration Statement to be listed on each
securities exchange on which securities of the same class or series issued by
the Company are then listed (which shall include the OTC Bulletin Board), if
any, if the listing of such Registrable Securities is then permitted under the
rules of such exchange, or (ii) secure designation and quotation of all of the
Registrable Securities covered by a Registration Statement on the Nasdaq
National Market, or (iii) if, despite the Company's commercially reasonable best
efforts to satisfy the preceding clauses (i) or (ii) the Company is unsuccessful
in satisfying the preceding clauses (i) or (ii), to secure the inclusion for
quotation on The Nasdaq Capital Market for such Registrable Securities and,
without limiting the generality of the foregoing, to use its commercially
reasonable best efforts to arrange for at least two market makers to register
with the National Association of Securities Dealers, Inc. ("NASD") as such with
respect to such Registrable Securities. The Company shall pay all fees and
expenses in connection with satisfying its obligation under this Section 3(k).

     l. The Company shall cooperate with the Investors who hold Registrable
Securities being offered and, to the extent applicable, facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legend)
representing the Registrable Securities to be offered pursuant to a Registration
Statement and enable such certificates to be in such denominations or amounts,
as the case may be, as the Investors may reasonably request and registered in
such names as the Investors may request.

     m. If requested by an Investor, the Company shall within ten (10) days of
receipt of notice from such Investor (i) incorporate in a prospectus supplement
or post-effective amendment such information as an Investor reasonably requests
to be included therein relating to the sale and distribution of Registrable
Securities, including, without limitation, information with respect to the
number of Registrable Securities being offered or sold, the purchase price being
paid therefor and any other terms of the offering of the Registrable Securities
to be sold in such offering; (ii) make all required filings of such prospectus
supplement or post-effective amendment after being notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment; and
(iii) supplement or make amendments to any Registration Statement if reasonably
requested by an Investor holding any Registrable Securities.

     n. The Company shall reasonably cooperate with the Investors as may be
necessary to consummate the disposition of such Registrable Securities.

     o. The Company shall make generally available to its security holders as
soon as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with, and in
the manner provided by, the provisions of Rule 158 under the 1933 Act) covering
a twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the effective date of the Registration Statement.

                                       10

<PAGE>

     p. The Company shall otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC in connection with any registration
hereunder.

     q. Within two (2) Business Days after a Registration Statement which covers
Registrable Securities is ordered effective by the SEC, the Company shall
deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by the
SEC in the form attached hereto as Exhibit A .

     r. Notwithstanding anything to the contrary herein, at any time after
Effective Date, the Company may delay the disclosure of material, non-public
information concerning the Company the disclosure of which at the time is not,
in the good faith opinion of the Board of Directors of the Company and its
counsel, in the best interest of the Company and, in the opinion of counsel to
the Company, otherwise required (a "GRACE PERIOD"); provided, that the Company
shall promptly (i) notify the Investors in writing of the existence of material,
non-public information giving rise to a Grace Period (provided that in each
notice the Company will not disclose the content of such material, non-public
information to the Investors) and the date on which the Grace Period will begin,
and (ii) notify the Investors in writing of the date on which the Grace Period
ends; and, provided further, that no Grace Period shall exceed ten (10)
consecutive days and during any three hundred sixty five (365) day period such
Grace Periods shall not exceed an aggregate of thirty (30) days and the first
day of any Grace Period must be at least two (2) Trading Days after the last day
of any prior Grace Period (each, an "ALLOWABLE GRACE PERIOD"). For purposes of
determining the length of a Grace Period above, the Grace Period shall begin on
and include the date the Investors receive the notice referred to in clause (i)
and shall end on and include the later of the date the Investors receive the
notice referred to in clause (ii) and the date referred to in such notice. The
provisions of Sections 2(f) and 3(g) hereof shall not be applicable during the
period of any Allowable Grace Period. Upon expiration of the Grace Period, the
Company shall again be bound by the first sentence of Section 3(f) with respect
to the information giving rise thereto unless such material, non-public
information is no longer applicable. Notwithstanding anything to the contrary,
the Company shall cause its transfer agent to deliver unlegended shares of
Common Stock to a transferee of an Investor in accordance with the terms of the
Securities Purchase Agreement in connection with any sale of Registrable
Securities with respect to which an Investor has entered into a contract for
sale, and delivered a copy of the prospectus included as part of the applicable
Registration Statement (unless an exemption from such prospectus delivery
requirement exists), prior to the Investor's receipt of the notice of a Grace
Period and for which the Investor has not yet settled.

     s. Notwithstanding the foregoing, if at any time or from time to time after
the date of effectiveness of the Registration Statement, the Company notifies
the Investor in writing of the existence of an event or circumstance that is not
disclosed in the Registration Statement and that may have a material effect on
the Company of its business (a "POTENTIAL MATERIAL EVENT") which requires the
Company to file a post-effective amendment or supplement to the Registration
Statement, the Investor shall not offer or sell any Registrable Securities, or
engage in any other transaction involving or relating to the Registrable
Securities, from the time of the

                                       11

<PAGE>

giving of notice with respect to a Potential Material Event until the Company
notifies the Investor that such Potential Material Event either has been added
to the Registration Statement by amendment or supplement or no longer
constitutes a Potential Material Event, including without limitation, a
post-effective amendment to add information contained in the Company's
subsequent Form 10-K or Form 10-KSB filings; provided, that the Company may not
so suspend the right of Investor for more than sixty (60) calendar days in the
aggregate per year.

4. OBLIGATIONS OF THE INVESTORS.

     a. At least ten (10) Business Days prior to the first anticipated filing
date of a Registration Statement, the Company shall notify each Investor in
writing of the information the Company requires from each such Investor if such
Investor elects to have any of such Investor's Registrable Securities included
in such Registration Statement. It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it, as shall be reasonably
required to effect and maintain the effectiveness of the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request.

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

     c. Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(g) or the first
sentence of 3(f), such Investor will immediately discontinue disposition of
Registrable Securities pursuant to any Registration Statement(s) covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(g) or the first
sentence of 3(f) or receipt of notice that no supplement or amendment is
required. Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor's receipt of
a notice from the Company of the happening of any event of the kind described in
Section 3(g) or the first sentence of 3(f) and for which the Investor has not
yet settled.

     d. Each Investor covenants and agrees that it will comply with any
applicable prospectus delivery requirements of the 1933 Act as applicable to or
an exemption therefrom it in connection with sales of Registrable Securities
pursuant to the Registration Statement.

                                       12

<PAGE>

5. EXPENSES OF REGISTRATION.

All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, and fees and disbursements of
counsel for the Company related to registrations shall be paid by the Company.

6. INDEMNIFICATION.

     In the event any Registrable Securities are included in a Registration
Statement under this Agreement:

     a. To the fullest extent permitted by law, the Company will, and hereby
does, indemnify, hold harmless and defend each Investor, the directors,
officers, members, managers, partners, employees, stockholders, agents,
representatives of, and each Person, if any, who controls any Investor within
the meaning of the 1933 Act or the 1934 Act (each, an "INDEMNIFIED PERSON"),
against any losses, claims, damages, liabilities, judgments, fines, penalties,
charges, costs, reasonable attorneys' fees, amounts paid in settlement or
expenses, joint or several, (collectively, "CLAIMS") incurred in investigating,
preparing or defending any action, claim, suit, inquiry, proceeding,
investigation or appeal taken from the foregoing by or before any court or
governmental, administrative or other regulatory agency, body or the SEC,
whether pending or threatened, whether or not an indemnified party is or may be
a party thereto ("INDEMNIFIED DAMAGES"), to which any of them may become subject
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
"blue sky" laws of any jurisdiction in which Registrable Securities are offered
("BLUE SKY FILING"), or the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading, (iii) any violation or alleged violation by the Company of
the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities pursuant to a Registration Statement or
(iv) any violation of this Agreement (the matters in the foregoing clauses (i)
through (iv) being, collectively, "VIOLATIONS"). Subject to Section 6(c), the
Company shall reimburse the Indemnified Persons, promptly as such expenses are
incurred and are due and payable, for any legal fees or other reasonable
expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall not apply to
a Claim by an Indemnified Person arising out of or based upon a Violation which
occurs in

                                       13

<PAGE>

reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person for such Indemnified Person expressly for use
in connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(d) and (ii) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.

     b. In connection with any Registration Statement in which an Investor is
participating, each such Investor agrees to severally and not jointly indemnify,
hold harmless and defend, to the same extent and in the same manner as is set
forth in Section 6(a), the Company, each of its directors, each of its officers
who signs the Registration Statement and each Person, if any, who controls the
Company within the meaning of the 1933 Act or the 1934 Act (each, an
"INDEMNIFIED PARTY"), against any Claim or Indemnified Damages to which any of
them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar
as such Claim or Indemnified Damages arise out of or are based upon any
Violation, in each case to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement; and, subject to Section 6(c), such Investor will
reimburse any legal or other expenses reasonably incurred by an Indemnified
Party in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 6(b) and the
agreement with respect to contribution contained in Section 7 shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Investor, which consent shall not be
unreasonably withheld or delayed; provided, further, however, that the Investor
shall be liable under this Section 6(b) or Section 7 for only that amount of a
Claim or Indemnified Damages as does not exceed the net proceeds to such
Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.

     c. Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action or proceeding
(including any governmental action or proceeding) involving a Claim, such
Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is
to be made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an

                                       14

<PAGE>

Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding at least a majority in
interest of the Registrable Securities included in the Registration Statement to
which the Claim relates. The Indemnified Party or Indemnified Person shall
cooperate reasonably with the indemnifying party in connection with any
negotiation or defense of any such action or Claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the Indemnified Party or Indemnified Person which relates to such action or
Claim. The indemnifying party shall keep the Indemnified Party or Indemnified
Person fully apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. No indemnifying party shall be
liable for any settlement of any action, claim or proceeding affected without
its prior written consent, provided, however, that the indemnifying party shall
not unreasonably withhold, delay or condition its consent. No indemnifying party
shall, without the prior written consent of the Indemnified Party or Indemnified
Person, consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party or Indemnified Person of a
release from all liability in respect to such Claim or litigation. Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is materially prejudiced in its ability to
defend such action.

     d. The indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as and when bills are received or Indemnified Damages are incurred.

     e. The indemnity agreements contained herein shall be in addition to (i)
any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.

7. CONTRIBUTION.

     To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided, however, that: (i) no Person
involved in the sale of Registrable Securities which

                                       15

<PAGE>

Person is guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) in connection with such sale shall be entitled to
contribution from any Person involved in such sale of Registrable Securities who
was not guilty of fraudulent misrepresentation; and (ii) contribution by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities
pursuant to such Registration Statement.

8. REPORTS UNDER THE 1934 ACT.

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

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

     b. file with the SEC in a timely manner all reports and other documents
required of the Company under the 1933 Act and the 1934 Act so long as the
Company remains subject to such requirements (it being understood that nothing
herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and

     c. furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company, if
true, that it has complied with the reporting requirements of Rule 144, the 1933
Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.

9. ASSIGNMENT OF REGISTRATION RIGHTS.

     The rights under this Agreement shall be automatically assignable by an
Investor to any transferee of all or any portion of such Investor's Registrable
Securities if: (i) such Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act and applicable state securities laws; (iv) at or
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein; and (v) such
transfer shall have been made in accordance with the applicable requirements of
the Securities Purchase Agreement.

                                       16

<PAGE>

10. AMENDMENT OF REGISTRATION RIGHTS.

     Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company and the Required
Holders. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Registrable Securities. No consideration shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of any of this
Agreement unless the same consideration also is offered to all of the parties to
this Agreement.

11. MISCELLANEOUS.

     a. A Person is deemed to be a holder of Registrable Securities whenever
such Person owns or is deemed to own of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more Persons with respect to the same Registrable Securities, the Company shall
act upon the basis of instructions, notice or election received from such record
owner of such Registrable Securities.

     b. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one Business Day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:

          If to the Company:   Catuity, Inc.
                               300 Preston Ave.
                               Suite 302
                               Charlottesville, VA 22902
                               Telephone: (434) 979-0724
                               Facsimile: (734) 293-4213
                               Attention: John Racine, CEO

          If to Legal Counsel: Jaffe, Raitt, Heuer & Weiss, P.C.
                               27777 Franklin Road, Suite 2500
                               Southfield, MI 48034-8214
                               Telephone: (248) 727-1463
                               Facsimile: (248) 351-3082
                               Attention: David D. Warner, Esq.

If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers attached hereto, with copies to such Buyer's representatives as set forth
on the Schedule of Buyers, or to such other address and/or facsimile number
and/or to the attention of such other Person as the recipient party has
specified by written notice given to each other party five (5) days prior to the

                                       17

<PAGE>

effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

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

     d. All questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in The City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.

     e. This Agreement, the other Transaction Documents (as defined in the
Securities Purchase Agreement) and the instruments referenced herein and therein
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the other Transaction Documents and the instruments
referenced herein and therein supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.

                                       18

<PAGE>

     f. Subject to the requirements of Section 9, this Agreement shall inure to
the benefit of and be binding upon the permitted successors and assigns of each
of the parties hereto.

     g. The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.

     h. This Agreement may be executed in identical counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same
agreement. This Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission of a copy of this Agreement bearing
the signature of the party so delivering this Agreement.

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

     j. All consents and other determinations required to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by the Required Holders.

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

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

     m. The obligations of each Buyer hereunder are several and not joint with
the obligations of any other Buyer, and no provision of this Agreement is
intended to confer any obligations on any Buyer vis-a-vis any other Buyer.
Nothing contained herein, and no action taken by any Buyer pursuant hereto,
shall be deemed to constitute the Buyers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Buyers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated herein.

                                       19

<PAGE>

     IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Registration Rights Agreement to be duly executed as of
the date first written above.

                                        COMPANY:

                                        CATUITY, INC.

                                        By:
                                            ------------------------------------
                                        Name: John Racine
                                        Title: Chief Executive Officer

     IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Registration Rights Agreement to be duly executed as of
the date first written above.

                                        BUYER:

                                        GOTTBETTER CAPITAL MASTER, LTD.

                                        By:
                                            ------------------------------------
                                        Name: Adam S. Gottbetter
                                        Title: Director

                                        BRIDGEPOINTE MASTER FUND LTD.

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

                                       20

<PAGE>

                               SCHEDULE OF BUYERS

<TABLE>
<CAPTION>
                                                                           Buyer's Representative's
Buyer                             Buyer Address and Facsimile Number      Address and Facsimile Number
-----                             ----------------------------------      ----------------------------
<S>                               <C>                                  <C>
Gottbetter Capital Master, Ltd.   488 Madison Avenue, 12th Floor       Gottbetter & Partners, LLP
                                  New York, NY 10022                   488 Madison Avenue, 12th Floor
                                  Facsimile: 212.400.6999              New York, NY 10022
                                  Attention: Adam S. Gottbetter        Facsimile: 212.400.6901
                                                                       Attention: Jason M. Rimland

BridgePointe Master Fund Ltd.     1125 Sanctuary Parkway, Suite 275    P. Bradford Hathorn, Esq.
                                  Alpharetta, GA 30004                 Roswell Capital Partners, LLC
                                  Facsimile: 770.777.5844              1125 Sanctuary Parkway, Suite 275
                                  Attention: Eric Swartz               Alpharetta, GA 30004
                                                                       Facsimile: 770-777-5844
</TABLE>

                                       21

<PAGE>

                                    EXHIBIT A
                         FORM OF NOTICE OF EFFECTIVENESS
                            OF REGISTRATION STATEMENT

[_______________]

          Re: Catuity, Inc.

Ladies and Gentlemen:

     [We are][I am] counsel to Catuity, Inc., a Delaware corporation (the
"Company"), and have represented the Company in connection with that certain
Securities Purchase Agreement (the "Securities Purchase Agreement") entered into
by and among the Company and the buyers named therein (collectively, the
"Holders") pursuant to which the Company issued to the Holders shares of its
Series A Convertible Preferred Stock (the "Preferred Stock") and subordinated
secured convertible notes (the "Notes") both convertible into the Company's
common stock, $0.001 par value (the "Common Stock"), warrants exercisable for
shares of Common Stock (the "Warrants"). Pursuant to the Securities Purchase
Agreement, the Company also has entered into a Registration Rights Agreement
with the Holders (the " Registration Rights Agreement ") pursuant to which the
Company agreed, among other things, to register the Registrable Securities (as
defined in the Registration Rights Agreement), including the shares of Common
Stock issuable upon conversion of the Notes and the Preferred Stock and the
shares of Common Stock issuable upon exercise of the Warrants, under the
Securities Act of 1933, as amended (the "1933 Act"). In connection with the
Company's obligations under the Registration Rights Agreement, on ___, 200_, the
Company filed a Registration Statement on Form S-3 (File No. 333-___) (the "
Registration Statement ") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities which names each of the Holders as
a selling stockholder thereunder.

     In connection with the foregoing, [we][I] advise you that a member of the
SEC's staff has advised [us][me] by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ ENTER
TIME OF EFFECTIVENESS ] on [ ENTER DATE OF EFFECTIVENESS ] and [we][I] have no
knowledge, after telephonic inquiry of a member of the SEC's staff, that any
stop order suspending its effectiveness has been issued or that any proceedings
for that purpose are pending before, or threatened by, the SEC and the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.

                                       22

<PAGE>

     This letter shall serve as our standing opinion to you that the shares of
Common Stock are freely transferable by the Holders pursuant to the Registration
Statement. You need not require further letters from us to effect any future
legend-free issuance or reissuance of shares of Common Stock to the Holders as
contemplated by the Power of Attorney (as defined in the Securities Purchase
Agreement) dated November [___], 2006. This letter shall serve as our standing
opinion with regard to this matter.

Very truly yours,

-------------------------------------
[ISSUER'S COUNSEL]

CC: [LIST NAMES OF HOLDERS]

                                       23

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