Document:

<Page>

                                                                 EXHIBIT 10.47
                            COMBINATORX, INCORPORATED

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

             SERIES E CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT

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

                           DATED AS OF OCTOBER 3, 2005

<Page>

EXHIBITS

Exhibit A:        Fifth Amended and Restated Certificate of Incorporation
Exhibit B:        Legal Opinion of Ropes & Gray LLP

<Page>

                            COMBINATORX, INCORPORATED

             SERIES E CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT

     This Series E Convertible Preferred Stock Purchase Agreement (the
"Agreement") is made as of the 3rd day of October, 2005 by and among
CombinatoRx, Incorporated, a Delaware corporation (the "Company"), and Angiotech
Pharmaceuticals, Inc., a corporation organized under the laws of British
Columbia, Canada (the "Investor"). In consideration of the mutual promises and
covenants contained in this Agreement, the parties hereto agree as follows:

1. AUTHORIZATION; PURCHASE AND SALE OF SHARES

     1.1 AUTHORIZATION OF STOCK. The Company has, or before the Closing Date (as
defined below) will have, duly authorized the issuance, pursuant to the terms of
this Agreement of up to 1,363,636 shares of Series E Convertible Preferred
Stock, $0.001 par value per share (the "Series E Preferred Stock"), having the
rights, privileges, preferences and restrictions set forth in the Fifth Amended
and Restated Certificate of Incorporation attached hereto as EXHIBIT A (the
"Amendment"). The 1,363,636 shares of Series E Preferred Stock to be issued to
the Investor are sometimes referred to herein as the "Shares." The Company has,
or before the Closing, will have, adopted and filed the Amendment with the
Secretary of State of the State of Delaware.

     1.2 PURCHASE PRICE AND CLOSING. At the Closing (as defined below) and
subject to the terms and conditions of this Agreement, the Company will issue
and sell to the Investor the Shares and the Investor will purchase the Shares
for the aggregate cash purchase price of Fifteen Million Dollars ($15,000,000)
(the "Purchase Price"). Subject to the terms and conditions of this Agreement,
the closing of the purchase and sale of the Shares to be acquired by the
Investor from the Company under this Agreement (the "Closing") shall take place
at the offices of Ropes & Gray LLP, One International Place, Boston, MA 02110,
at 10:00 a.m. local time on October 5, 2005 assuming that all of the
conditions set forth in Section 4 have been satisfied or duly waived or at such
other time and place as the parties hereto may mutually agree (the "Closing
Date"). At the Closing, the Company shall deliver to the Investor duly executed
certificates representing the Shares and the Investor shall deliver payment of
the Purchase Price therefor to the Company by check or wire transfer in
immediately available funds.

     1.3 CLOSING DELIVERABLES. Subject to the terms and conditions of this
Agreement, at the Closing:

          (A) the Company shall deliver to the Investor certificates, as of the
     most recent practicable dates, (i) as to the corporate good standing of the
     Company issued by the Secretary of State of the State of Delaware and (ii)
     as to the due qualification of the Company as a foreign corporation issued
     by the Secretary of State of The Commonwealth of Massachusetts and any
     other states where a failure to be so qualified would result in a Company
     Material Adverse Effect (as defined below);

          (B) the Company shall deliver to the Investor the Certificate of
     Incorporation of the Company, as amended and in effect as of the Closing
     Date, certified by the Secretary of State of the State of Delaware;

                                       1
<Page>

          (C) the Company shall deliver to the Investor a Certificate of the
     Secretary of the Company attesting as to (i) the By-laws of the Company;
     (ii) the Certificate of Incorporation of the Company; (iii) the signatures
     and titles of the officers of the Company executing this Agreement or any
     of the other agreements to be executed and delivered by the Company at the
     Closing; and (iv) resolutions of the Board of Directors and stockholders of
     the Company, authorizing and approving all matters in connection with this
     Agreement and the transactions contemplated hereby; and

          (D) Ropes & Gray LLP, counsel for the Company, shall deliver to the
     Investor an opinion, dated the Closing Date, in substantially the form
     attached hereto as EXHIBIT B.

     2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investor that as of the Closing Date, except as
set forth on the Schedule of Exceptions attached to this Agreement and updated
prior to the Closing (the "Schedule of Exceptions"), which Schedule of
Exceptions shall correspond to the numbered and lettered sections and
subsections of this Section 2 and shall only qualify those representations or
warranties contained in the sections and subsections of this Section 2:

     2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and each of the Company's subsidiaries is duly
organized and validly existing under the laws of its state or jurisdiction of
formation. The Company and each of its subsidiaries has all requisite corporate
power and authority to carry on its business as now conducted and as proposed to
be conducted by it. The Company is duly qualified to transact business and is in
good standing in the State of Delaware and The Commonwealth of Massachusetts.
The Company is duly qualified to transact business and is in good standing, and
each of the Company's subsidiaries is duly qualified to transact business, in
any and all other jurisdictions which it is required to be so qualified except
where the failure to so qualify would not have a material adverse effect on its
business, prospects, condition (financial or otherwise), assets or properties of
the Company and its subsidiaries taken together (a "Company Material Adverse
Effect"). The Company has furnished to the Investor complete and accurate copies
of its Certificate of Incorporation and By-Laws, each as amended to date and
presently in effect. The Company has at all times complied with all provisions
of its Certificate of Incorporation and By-laws and is not in default under, or
in violation of any such provision.

     2.2 CAPITALIZATION AND VOTING RIGHTS.

          (A) Immediately prior to the Closing, the authorized capital of the
     Company consists of:

               (x) 22,703,152 shares of Preferred Stock (the "Preferred Stock"),
          of which 503,400 shares have been designated Series A Preferred Stock,
          $0.001 par value per share, (the "Series A Preferred Stock"), all of
          which are issued and outstanding, 3,364,250 shares have been
          designated Series B Preferred Stock, $0.001 par value per share, (the
          "Series B Preferred Stock") all of which are issued and outstanding,
          10,795,666 shares have been designated Series C Preferred Stock,
          $0.001 par value per share (the "Series C Preferred

                                       2
<Page>

          Stock") 10,746,666 of which are issued and outstanding, 8,483,320
          shares have been designated Series D Preferred Stock, $0.001 par value
          per share (the "Series D Preferred Stock"), 8,292,699 of which are
          issued and outstanding and 1,363,636 shares have been designated as
          Series E Preferred Stock, none of which are issued and outstanding.
          The number of shares of Common Stock issuable upon conversion of the
          outstanding shares of Series A Preferred Stock, Series B Preferred
          Stock, Series C Preferred Stock and Series D Preferred Stock is
          13,366,644, of which 346,738 shares are reserved for issuance upon
          conversion of the Series A Preferred Stock, 2,140,269 shares are
          reserved for issuance upon conversion of the Series B Preferred Stock,
          6,140,954 shares are reserved for issuance upon conversion of the
          Series C Preferred Stock and 4,738,683 shares are reserved for
          issuance upon conversion of the Series D Preferred Stock. Pursuant to
          the Swap Up Agreement among CombinatoRx (Singapore) Pte Ltd ("CRx
          SG"), BioMedical Sciences Investment Fund Pte Ltd ("BMSIF") and the
          Company dated August 30, 2005, assuming a conversion on or prior to
          December 31, 2009 and each note subject to conversion is funded on its
          targeted milestone date (as set forth in Schedule 3 of the
          Subscription and Shareholders Agreement among CRx SG, BMSIF and the
          Company dated August 19, 2005), BMSIF may acquire up to 2,465,000
          shares of Series E Preferred Stock. The consummation of the
          transactions contemplated hereby will not result in a "Deemed
          Liquidation Event" or similar transaction under the Company's
          Certificate of Incorporation. The rights, privileges and preferences
          of the Preferred Stock are as stated in the Amendment. The Schedule of
          Exceptions includes a complete and accurate list of all of the holders
          of Preferred Stock of the Company, showing the number of shares of
          Preferred Stock, the series of such Preferred Stock held by each
          holder of Preferred Stock and the number of shares of Common Stock
          into which such Preferred Stock are convertible, both immediately
          prior to and immediately after the Closing.

               (y) 30,373,908 shares of common stock, $0.001 par value per
          share, ("Common Stock"), of which 1,006,180 shares are issued and
          outstanding. The Schedule of Exceptions includes a complete and
          accurate list of all of the holders of Common Stock of the Company,
          showing the number of shares of Common Stock held by each stockholder
          and all Common Stock which is subject to restrictions on transfer or
          that are otherwise subject to a repurchase or redemption right
          (including any vesting schedule for such Common Stock and the
          repurchase price payable by the Company).

          (B) The Schedule of Exceptions includes a complete and accurate list,
     as of the date of this Agreement and the Closing Date of: (i) all stock
     option plans and other stock or equity-related plans of the Company (the
     "Company Stock Plans"), indicating for each Company Stock Plan the number
     of shares of Common Stock issued to date under such Plan, the number of
     shares subject to outstanding options under such Plan (such stock issued to
     date and shares subject to outstanding options, the "Company Stock
     Options") and the number of shares reserved for future issuance under such
     Plan and (ii) all holders of convertible notes, warrants or other rights
     (other than Company Stock Options and convertible preferred stock) to
     purchase or acquire shares of capital stock of the Company ("Company
     Warrants"), indicating with respect to each Company Warrant the number of
     shares of capital stock, and the class or series of such shares, subject to
     such Company Warrant and the exercise price thereof. Each Company Stock
     Plan and all Company Warrants are filed as exhibits to the Company's
     Registration Statement on Form S-1 (Registration No. 333-121173), as
     amended up to and including Amendment 6 thereto

                                       3
<Page>

     (the "IPO Registration Statement"). All of the shares of capital stock of
     the Company subject to Company Stock Options and Company Warrants will be,
     upon issuance pursuant to the exercise of such instruments, duly
     authorized, validly issued, fully paid and nonassessable. The consummation
     of the transactions contemplated hereby will not result in any acceleration
     of, vesting or lapse of any repurchase option of any Company Stock Options
     held by any of Alexis Borisy, Jan Lessem, R. Eric McAllister, Robert
     Forrester or Curtis Keith.

          (C) Except as described in the IPO Registration Statement, (i) no
     subscription, warrant, option, convertible security or other right
     (contingent or otherwise) to purchase or acquire any shares of capital
     stock of the Company is authorized or outstanding, (ii) the Company has no
     obligation (contingent or otherwise) to issue any subscription, warrant,
     option, convertible security or other such right, or to issue or distribute
     to holders of any shares of its capital stock any evidences of indebtedness
     or assets of the Company, (iii) the Company has no obligation (contingent
     or otherwise) to purchase, redeem or otherwise acquire any shares of its
     capital stock or any interest therein or to pay any dividend or to make any
     other distribution in respect thereof, and (iv) there are no outstanding or
     authorized stock appreciation, phantom stock or similar rights with respect
     to the Company.

          (D) The issued and outstanding shares of Common Stock, Series A
     Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
     Series D Preferred Stock are all duly and validly authorized and issued,
     fully paid and nonassessable, and all issued and outstanding shares of
     Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
     Preferred Stock and Series D Preferred Stock were offered, issued and sold
     by the Company in accordance with, and pursuant to valid exemptions from,
     the registration or qualification provisions of the Securities Act of 1933,
     as amended (the "Act"), and any other relevant federal and state securities
     laws.

     2.3 SUBSIDIARIES. All subsidiaries of the Company are identified in Exhibit
21.1 to the IPO Registration Statement.

     2.4 AUTHORIZATION. All necessary corporate action on the part of the
Company, its officers, directors and stockholders necessary for the due and
valid authorization, execution and delivery by the Company of this Agreement,
the performance of all obligations of the Company hereunder and the
authorization, issuance (or reservation for issuance), sale and delivery of the
Shares being sold hereunder, and the shares of Common Stock issuable upon
conversion of the Series E Preferred Stock, has been taken or will be taken
prior to the Closing, and this Agreement constitutes a valid and legally binding
obligation of the Company, enforceable in accordance with its terms, except (a)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, (b) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, and (c) to the
extent the indemnification provisions contained herein may be limited by
applicable federal or state securities laws. The execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby and the
compliance with their respective provisions by the Company will not (a) conflict
with or violate any provision of the Certificate of Incorporation or By-laws of
the Company, (b) require on the part of the Company any filing with, or any
permit, order, authorization, consent or approval of, any court, arbitrational
tribunal, administrative

                                       4
<Page>

agency or commission or other governmental or regulatory authority or agency
(each of the foregoing is hereafter referred to as a "Governmental Entity"), (c)
conflict with, result in a breach of, constitute (with or without due notice or
lapse of time or both) a default under, result in the acceleration of
obligations under, create in any party the right to accelerate, terminate,
modify or cancel, or require any notice, consent or waiver under, any contract,
lease, sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest (as
defined below) or other arrangement to which the Company is a party or by which
the Company is bound or to which its assets are subject, (d) result in the
imposition of any Security Interest upon any assets of the Company or (e)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or any of its properties or assets. For purposes of
this Agreement, "Security Interest" means any mortgage, pledge, security
interest, encumbrance, charge, or other lien (whether arising by contract or by
operation of law).

     2.5 VALID ISSUANCE OF PREFERRED AND COMMON STOCK. The issuance, sale and
delivery of the Shares in accordance with this Agreement and the issuance and
delivery of the Common Stock issuable upon conversion of the Shares, have been,
or will be prior to the Closing, duly authorized by all necessary corporate
action on the part of the Company, and all such shares have been duly reserved
for issuance as applicable. The Shares, when issued, sold and delivered in
accordance with the terms of this Agreement for the consideration expressed
herein, will be duly and validly issued, fully paid, and nonassessable, and will
be free of restrictions on transfer other than restrictions on transfer under
applicable state and federal securities laws. The Common Stock issuable upon
conversion of the Shares has been duly and validly reserved for issuance and,
upon issuance in accordance with the terms of the Amendment, will be duly and
validly issued, fully paid, and nonassessable and will be free of restrictions
on transfer other than restrictions on transfer under applicable state and
federal securities laws. The sale and issuance of the Shares and the subsequent
conversion of the Shares into Common Stock, as applicable, are not and will not
be subject to any preemptive rights that have not been properly waived or
complied with.

     2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with, any
federal, state or local Governmental Entity on the part of the Company is
required in connection with the execution and delivery of this Agreement, the
offer, issuance and delivery of the Shares (excepting such filings as shall have
been made prior to and shall be effective on and as of the Closing and such
filings required to be made after the Closing under applicable federal and state
securities laws, all of which filings are set forth on the Schedule of
Exceptions) or the consummation of the transactions contemplated by this
Agreement.

     2.7 OFFERING. Subject to the truth and accuracy of the Investor's
representations set forth in Section 3 of this Agreement, the offer, sale,
issuance and delivery of the Shares as contemplated by this Agreement will be in
compliance with applicable federal and state securities laws and the Shares are
exempt from the registration requirements of the Act and applicable state
securities laws, and neither the Company nor any authorized agent acting on its
behalf will take any action hereafter that would cause the loss of such
exemption. The Common Stock issuable upon conversion of the Series E Preferred
Stock when issued will be issued in compliance with applicable federal and state
securities laws and such shares of Common Stock

                                       5
<Page>

will be exempt from the registration requirements of the Act and applicable
state securities laws, and neither the Company nor any authorized agent acting
on its behalf will take any action hereafter that would cause the loss of such
exemption.

     2.8 LITIGATION. There is no action, suit, proceeding, governmental inquiry
or investigation pending or, to the Company's knowledge, any such action, suit,
proceeding, inquiry or investigation currently threatened against the Company or
any basis therefore, that questions the validity of this Agreement, or the right
of the Company to enter into, such agreements, or to consummate the transactions
contemplated hereby or thereby, or that is required to be disclosed in the IPO
Registration Statement that is not so disclosed. The Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or that the Company
intends to initiate.

     2.9 PROPRIETARY INFORMATION AND INVENTION ASSIGNMENT AGREEMENTS. Each
employee, officer, consultant and advisor (other than external legal counsel and
accountants) of the Company has executed a proprietary information, invention
assignment and non-competition agreement substantially in the form customarily
used by the Company, a copy of which has been provided to the Investor prior to
the Closing (a "Proprietary Agreement"). No employee, officer, consultant or
advisor of the Company has taken any exception to his or her Proprietary
Agreement with the Company with respect to any Proprietary Right (as defined
below) used by the Company in the conduct of its business as it is currently
conducted and as proposed to be conducted. The Company, after reasonable
investigation, is not aware that any of the Company's employees, officers,
consultants or advisors is in violation thereof and the Company will use its
best efforts to prevent any such violation. In addition, the Company will cause
each employee, officer, consultant and advisor of the Company hired or engaged
at any time after the date hereof to sign a Proprietary Agreement.

     2.10 PROPRIETARY RIGHTS.

          (A) The Schedule of Exceptions sets forth a true, correct and complete
     list of all patents, patent applications, trademarks, trademark
     applications, mask work registrations or applications therefore, service
     marks, service mark applications, trade names, copyright registration or
     any applications therefor, domain name registration or application
     therefor, copyrights, information, proprietary rights and processes
     (collectively, "Proprietary Rights") owned by the Company or licensed to
     the Company pursuant to an enforceable license. Any Proprietary Rights not
     owned by the Company used by the Company is being used pursuant to a valid
     and enforceable license. The Schedule of Exceptions sets forth a true,
     correct and complete list of all agreements pursuant to which the Company
     licenses, distributes and grants any and all other rights with respect to
     any Proprietary Right to any third party, and except as set forth therein,
     no other person or entity has any rights to any Proprietary Rights and
     except as further set forth therein, the Company has not agreed to
     indemnify any person or entity against any infringement, violation or
     misappropriation of any Proprietary Rights. The Company owns, free and
     clear of any lien, encumbrance or other restriction, or licenses (pursuant
     to a valid and enforceable license) all of the Intellectual Property Rights
     (as defined below) necessary to conduct its business as it is currently
     conducted and as proposed to be conducted without any conflict with, or
     infringement of, the rights of others. There are no outstanding options,
     licenses,

                                       6
<Page>

     or agreements of any kind relating to the foregoing, nor is the
     Company bound by or a party to any options, licenses or agreements of any
     kind with respect to the Intellectual Property Rights and processes of any
     other person or entity. The Company has not violated, infringed, or, by
     conducting its business as proposed to be conducted, would violate or
     infringe any of the Intellectual Property Rights of any other person or
     entity. The Company has the exclusive right to file, prosecute and maintain
     all applications and registrations with respect to its Proprietary Rights
     (other than those subject to a license from a third party which is included
     in the Schedule of Exceptions). There is neither pending nor, to the best
     of the Company's knowledge, any basis for or any threatened claim, action
     or litigation against the Company asserting the invalidity, misuse,
     unenforceability or the lack of ownership of any Proprietary Right or
     Intellectual Property Rights of the Company or the invalidity, misuse or
     unenforceability of any license pursuant to which the Company uses the
     Proprietary Rights or Intellectual Property Rights of another person or
     entity, nor is the Company aware of any basis therefor and the Company has
     not received any notice of infringement upon or conflict with any asserted
     right of others. To the best of the Company's knowledge, no person or
     entity is infringing or violating any of the Company's Proprietary Rights
     or Intellectual Property Rights or breaching any agreement pursuant to
     which the Company granted a license with respect to the Proprietary Rights
     or Intellectual Property. The Company has taken all reasonably necessary
     and desirable actions to maintain and protect each Proprietary Right and
     Intellectual Property Right that it owns or uses. There is not pending or
     threatened any loss or expiration of any Proprietary Right or Intellectual
     Property Right owned or used by the Company.

          (B) The Company has taken in the past and will take in the future
     reasonable security measures to protect the secrecy, confidentiality and
     value of all of its Proprietary Rights and Intellectual Property Rights.
     The Company is not aware that any of its employees, consultants or advisors
     is obligated under any contract (including licenses, covenants or
     commitments of any nature) or other agreement, or subject to any judgment,
     decree or order of any court or administrative agency, that would interfere
     with the use of his or her best efforts to promote the interests of the
     Company or that would conflict with the Company's business as proposed to
     be conducted. Neither the execution nor delivery of this Agreement, nor the
     carrying on of the Company's business as it is currently conducted, nor the
     conduct of the Company's business as proposed to be conducted, will, to the
     Company's knowledge, conflict with or result in a breach of the terms,
     conditions or provisions of, or constitute a default under, any contract,
     covenant or instrument under which any employee, consultant or advisor is
     now obligated. The Company does not believe it is or will be necessary to
     utilize any inventions of any of its employees, consultants or advisors (or
     people it currently intends to hire) made prior to their relationship with
     the Company other than Proprietary Rights or Intellectual Property Rights
     which have been duly transferred to the Company and which transfers have
     vested legal right, title and interest to such Proprietary Rights or
     Intellectual Property Rights in the Company.

          (C) All of the patentable and copyrightable materials incorporated in
     or bundled with any product created and manufactured by the Company have
     been created by employees of the Company within the scope of their
     employment by the Company and are owned by, and are the exclusive property
     of, the Company or by independent contractors of the Company who have
     executed agreements expressly assigning all right, title and interest in
     such patentable or copyrightable materials to the Company. No portion of
     such patentable or copyrightable materials was jointly developed with any
     third party.

                                       7
<Page>

          (D) All of the Company's products distributed for use are free from
     significant defects or errors and conform in all material respects to the
     written documentation and specifications therefor.

          (E) "Intellectual Property" shall mean all: (i) patents, patent
     applications, patent disclosures and all related continuation,
     continuation-in-part, divisional, reissue, reexamination, utility model,
     certificate of invention and design patents, patent applications,
     registrations and applications for registrations; (ii) trademarks, service
     marks, trade dress, Internet domain names, logos, trade names and corporate
     names and registrations and applications for registration thereof; (iii)
     copyrights and registrations and applications for registration thereof;
     (iv) mask works and registrations and applications for registration
     thereof; (v) computer software, data and documentation; (vi) inventions,
     trade secrets and confidential business information, whether patentable or
     nonpatentable and whether or not reduced to practice, know-how,
     manufacturing and product processes and techniques, research and
     development information, copyrightable works, financial, marketing and
     business data, pricing and cost information, business and marketing plans
     and customer and supplier lists and information; (vii) other proprietary
     rights relating to any of the foregoing (including remedies against
     infringements thereof and rights of protection of interest therein under
     the laws of all jurisdictions); and (viii) copies and tangible embodiments
     thereof.

     2.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in material
violation or default of any provision of the Certificate of Incorporation or its
Bylaws, or of any instrument, judgment, order, writ, decree or contract to which
it is a party or by which it is bound, or of any provision of any federal or
state statute, rule or regulation applicable to the Company.

     2.12 AGREEMENTS; ACTION.

          (A) Except for agreements explicitly contemplated hereby, and as set
     forth on the Schedule of Exceptions or in the IPO Registration Statement,
     there are no agreements, understandings or proposed transactions between
     the Company and any of its officers, directors, affiliates or any affiliate
     thereof.

          (B) All agreements to which the Company is a party and which are
     required to be filed as an exhibit to the IPO Registration Statement have
     been so filed. To the Company's knowledge, all of such agreements and
     contracts are valid, binding and in full force and effect. Neither the
     Company, nor, to the best of the Company's knowledge, any other party
     thereto, is in default of any of its obligations under any of such
     agreements or contracts filed as an exhibit to the IPO Registration
     Statement.

          (C) The Company has not (i) declared or paid any dividends or
     authorized or made any distribution upon or with respect to any class or
     series of its capital stock (other than a stock dividend declared on
     September 17, 2001 of forty-nine (49) shares for each share then
     outstanding on all classes and series of the Company's capital stock), (ii)
     declared or authorized any stock split with respect to any class or series
     of its capital stock (other than a four-for-seven reverse split of the
     Common Stock effected on February 11, 2005), (iii) incurred any
     indebtedness for money borrowed or any other liabilities individually in
     excess of $25,000 or, in the case of indebtedness and/or liabilities
     individually less than $25,000, in excess of $50,000 in

                                       8
<Page>

     the aggregate that is not disclosed in the IPO Registration Statement, (iv)
     made any loans or advances to any person, other than ordinary advances for
     travel expenses, or (v) sold, exchanged or otherwise disposed of any of its
     assets or rights, other than the sale of its inventory in the ordinary
     course of business.

          (D) For the purposes of subsections (b) and (c) above, all
     indebtedness, liabilities, agreements, understandings, instruments,
     contracts and proposed transactions involving the same person or entity
     (including persons or entities the Company has reason to believe are
     affiliated therewith) shall be aggregated for the purpose of meeting the
     individual minimum dollar amounts of such subsections.

          (E) The Company has not engaged in the past six (6) months in any
     discussion (i) with any representative of any corporation or other entity
     regarding the consolidation or merger of the Company with or into any such
     corporation or other entity, (ii) with any corporation, partnership,
     association or other entity or any individual regarding the sale,
     conveyance or disposition of all or substantially all of the assets of the
     Company or a transaction or series of related transactions in which more
     than fifty percent (50%) of the voting power of the Company is disposed of,
     or (iii) regarding any other form of acquisition, liquidation, dissolution
     or winding up of the Company.

     2.13 RELATED-PARTY TRANSACTIONS. No employee, officer, or director of the
Company or member of his or her immediate family is indebted to the Company, nor
is the Company indebted (or committed to make loans or extend or guarantee
credit) to any of them. To the best of the Company's knowledge, none of such
persons has any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation that competes with the Company, except
that employees, officers, or directors of the Company and members of their
immediate families may be passive investors in publicly traded companies that
may compete with the Company. Except as set forth on the Schedule of Exceptions,
no member of the immediate family of any officer or director of the Company is
directly or indirectly interested in any material contract with the Company.

     2.14 PERMITS. The Schedule of Exceptions lists all franchises, permits,
licenses, registrations, certificates, orders, approvals held by the Company
(the "Permits"). Such Permits are the only Permits necessary for the Company to
conduct its business as now being conducted by it, the lack of which could have
a Company Material Adverse Effect, and the Company believes it can obtain,
without undue burden or expense, any similar authority for the conduct of its
business as planned to be conducted. The Company is not in default under any of
such Permits.

     2.15 ENVIRONMENTAL AND SAFETY LAWS.

          (A) The Company, to its knowledge after due inquiry, has complied with
     all applicable Environmental Laws (as defined below) and occupational
     health and safety laws. There is no pending or, to the best of the
     Company's knowledge, threatened civil or criminal litigation, written
     notice of violation, formal administrative proceeding, or investigation,
     inquiry or information request by any Governmental Entity, relating to any
     Environmental Law or

                                       9
<Page>

     occupational health and safety law involving the Company. For purposes of
     this Agreement, "Environmental Law" shall mean any federal, state or local
     law, statute, rule or regulation or the common law relating to the
     environment or occupational health and safety, including any statute,
     regulation, administrative decision or order pertaining to (i) treatment,
     storage, disposal, generation and transportation of industrial, toxic or
     hazardous materials or substances or solid or hazardous waste; (ii) air,
     water and noise pollution; (iii) groundwater and soil contamination; (iv)
     the release or threatened release into the environment of industrial, toxic
     or hazardous materials or substances, or solid or hazardous waste,
     including emissions, discharges, injections, spills, escapes or dumping of
     pollutants, contaminants or chemicals; (v) the protection of wild life,
     marine life and wetlands, including all endangered and threatened species;
     (vi) storage tanks, vessels, containers, abandoned or discarded barrels and
     other closed receptacles; (vii) health and safety of employees and other
     persons; and (viii) manufacturing, processing, using, distributing,
     treating, storing, disposing, transporting or handling of materials
     regulated under any law as pollutants, contaminants, toxic or hazardous
     materials or substances or oil or petroleum products or solid or hazardous
     waste. As used above, the terms "release" and "environment" shall have the
     meaning set forth in the federal Comprehensive Environmental Response,
     Compensation and Liability Act of 1980, as amended ("CERCLA").

          (B) The Company has no liabilities or obligations arising from the
     release of any Materials of Environmental Concern (as defined below) into
     the environment. For purposes of this Agreement, "Materials of
     Environmental Concern" shall mean any chemicals, pollutants or
     contaminants, hazardous substances (as such term is defined under CERCLA),
     solid wastes and hazardous wastes (as such terms are defined under the
     Resource Conservation and Recovery Act), toxic materials, oil or petroleum
     and petroleum products or any other material subject to regulation under
     any Environmental Law.

          (C) The Company is not a party to or bound by any court order,
     administrative order, consent order or other agreement between the Company
     and any Governmental Entity entered into in connection with any legal
     obligation or liability arising under any Environmental Law.

          (D) The Company is not aware of any material environmental liability
     of any solid or hazardous waste transporter or treatment, storage or
     disposal facility that has been used by the Company.

          (E) Set forth in the Schedule of Exceptions is a list of all documents
     (whether in hard copy or electronic form) that contain any environmental
     reports, investigations and audits relating to premises currently or
     previously owned or operated by the Company (whether conducted by or on
     behalf of the Company or a third party, and whether done at the initiative
     of the Company or directed by a Governmental Entity or other third party)
     which the Company has possession of or access to. A complete and accurate
     copy of each such document has been provided to the Investor.

     2.16 MANUFACTURING AND MARKETING RIGHTS. The Company has not granted rights
to manufacture, produce assemble, license, market or sell its products to any
other person and is not bound by any agreement that affects the Company's
exclusive right to develop, manufacture, assemble, distribute, market or sell
its products currently being sold. Any materials used by the

                                       10
<Page>

Company (or approved by the Company for another party's use) to market any
products currently sold or licensed by the Company do not infringe or violate
any rights, including Intellectual Property Rights of any other party.

     2.17 DISCLOSURE. Neither this Agreement (nor any Exhibit hereto) nor any
other statements or certificates made or delivered in connection herewith or
therewith, when read individually or together, contains or will contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements herein or therein not misleading.

     2.18 REGISTRATION RIGHTS. Except as provided in the Second Amended and
Restated Investors' Rights Agreement, dated as of February 18, 2004, by and
between the Company and the investors named therein, as amended, and the
Registration Rights Agreement dated as of August 30, 2005 by and among the
Company and BioMedical Sciences Investment Fund Pte Ltd., the Company has not
granted or agreed to grant any registration rights, including but not limited to
piggyback rights, to any person or entity.

     2.19 TITLE TO PROPERTY AND ASSETS. The Company owns all its property and
assets, including but not limited to all properties and assets reflected in the
most recent balance sheet of the Company included in the IPO Registration
Statement, free and clear of all mortgages, liens, loans and encumbrances,
except such encumbrances and liens that arise in the ordinary course of
business. With respect to the property and assets it leases, the Company is in
compliance with such leases and holds a valid leasehold interest free of any
liens, claims or encumbrances.

     2.20 MINUTE BOOKS. The minute books of the Company provided to the Investor
contain an accurate summary of all matters that have been voted upon by the
directors and stockholders since the time of incorporation. The stock ledger of
the Company provided to the Investor is complete and accurate and reflects all
issuances, transfers, repurchases and cancellations of shares of capital stock
of the Company as of the Closing Date.

     2.21 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or subject
to (and none of its assets or properties is bound by or subject to) any written
or oral, express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested or, to the best of the Company's
knowledge, has sought to represent any of the employees, representatives or
agents of the Company. There is no strike or other labor dispute involving the
Company pending, or to the best of the Company's knowledge, threatened, that
could have an adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The Company is not
aware that any officer, employee, consultant or advisor intends to terminate his
or her relationship with the Company, nor does the Company have a present
intention to terminate the relationship of any of the foregoing. Except as set
forth on the Schedule of Exceptions, the employment of each officer, employee,
consultant or advisor of the Company is terminable at the will of the Company
and no severance or other similar payment would be required in connection with
any termination of such relationship. To the best of the Company's knowledge,
the Company has complied with all applicable state and federal equal employment
opportunity and other laws related to employment.

                                       11
<Page>

     2.22 FINANCIAL STATEMENTS. The Financial Statements contained in the IPO
Registration Statement (the "Financial Statements") are in accordance with the
books and records of the Company, present fairly the financial condition and
results of operations of the Company, at the dates and for the periods
indicated, and have been prepared in accordance with U.S. generally accepted
accounting principles ("GAAP") consistently applied, except that the unaudited
Financial Statements may not be in accordance with GAAP because of the absence
of footnotes normally contained therein and are subject to normal year-end audit
adjustments which in the aggregate will not be material.

     2.23 ABSENCE OF CHANGES. Except as contemplated by this Agreement or as
described in the IPO Registration Statement, since June 30, 2005 (the "Balance
Sheet Date"): (a) the Company has not entered into any transaction which was not
in the ordinary course of business, (b) there has been no material adverse
change in the condition (financial or otherwise) of the business, prospects,
property, assets or liabilities of the Company, (c) there has been no material
damage to, destruction of or loss of physical property (whether or not covered
by insurance) adversely affecting the assets, financial condition, operating
results, business, prospects or operations of the Company, (d) the Company has
not declared or paid any dividend or made any distribution on its stock, or
redeemed, purchased or otherwise acquired any of its stock, (e) the Company has
not changed any compensation arrangement or agreement with any of its key
employees or executive officers, or changed the rate of pay of its employees as
a group, (f) the Company has not received notice that there has been a
cancellation of an order for the Company's products or a loss of a customer of
the Company, the cancellation or loss of which would result in a Company
Material Adverse Effect, (g) the Company has not changed or amended any contract
filed as an exhibit to the IPO Registration Statement, (h) there has been no
resignation or termination of employment of any key officer or key employee of
the Company and the Company does not know of any impending resignation or
termination of employment of any such officer or employee that if consummated
would result in a Company Material Adverse Effect, (i) there has been no labor
dispute involving the Company or its employees and none is pending or, to the
best of the Company's knowledge, threatened, (j) there has been no change,
except in the ordinary course of business, in the material contingent
obligations of the Company by way of guaranty, endorsement, indemnity, warranty
or otherwise, (k) there have been no loans made by the Company to any of its
employees, officers or directors other than travel advances and other advances
made in the ordinary course of business, (l) there has been no waiver by the
Company of a valuable right or of a debt owing to it, and (m) there has not been
any satisfaction or discharge of any lien, claims or encumbrance or any payment
of any obligation by the Company, except in the ordinary course of business and
which is not material to the assets, properties, financial condition, operating
results or business of the Company.

     2.24 LIABILITIES. The Company has no liabilities or obligations, absolute
or contingent (whether known or unknown and whether absolute or contingent) not
disclosed in the Financial Statements or the IPO Registration Statement, except
current liabilities incurred in the ordinary course of business subsequent to
the Balance Sheet Date, the aggregate of which does not exceed $50,000.

     2.25 TAXES. The Company has filed all tax returns and reports that are
required to have been filed with appropriate federal, state, county and local
governmental agencies or instrumentalities, except where the failure to do so
would not have a Company Material Adverse

                                       12
<Page>

Effect. The Company has paid or established reserves (which are reflected in the
Financial Statements) for all material income, franchise and other taxes,
assessments, governmental charges, penalties, interest and fines due and payable
by them on or before the Closing. The Company has not elected pursuant to the
Internal Revenue Code of 1986, as amended (the "Code"), to be treated as an S
Corporation or a collapsible corporation pursuant to Section 341(f) or Section
1362(a) of the Code, nor has it made any other elections pursuant to the Code
(other than elections which relate solely to methods of accounting, depreciation
or amortization) which would have a Company Material Adverse Effect. There is no
pending dispute with any taxing authority relating to any of such returns and
the Company has no knowledge of any proposed liability for any tax to be imposed
upon the properties or assets of the Company for which there is not an adequate
reserve reflected in the Financial Statements or, which if adversely determined
against the Company, would have a Company Material Adverse Effect. The Company
has never had any tax deficiency proposed or assessed against it and has not
executed any waiver of any statute of limitations on the assessment or
collection of any tax or governmental charge. The Company has withheld or
collected from each payment made to each of its employees, the amount of all
taxes (including, but not limited to, federal income taxes, Federal Insurance
Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be
withheld or collected therefrom, and has paid the same to the proper tax
receiving officers or authorized depositories. The Company has filed or has
obtained presently effective extensions with respect to all federal, state,
county, local and foreign tax returns which are required to be filed by it, such
returns are complete and accurate and all taxes shown thereon to be due have
been timely paid with exceptions not material to the Company. Federal income tax
returns of the Company have not been audited by the Internal Revenue Service.

     2.26 INSURANCE. The Company has valid general commercial, fire, workers
compensation, public liability, theft insurance policies and insurance policies
with respect to its property and business of the kinds and in the amounts
customary for companies similarly situated to the Company. The Company shall
maintain in effect, a directors' and officers' insurance policy with coverage
satisfactory to the member of the Company's board of directors representing the
Series D Preferred Stock who is elected pursuant to the Voting Agreement.

     2.27 COMPLIANCE. The Company has, in all material respects, complied with
all laws, regulations and orders applicable to its present and proposed business
and has all material permits and licenses required thereby. There is no term or
provision of any mortgage, indenture, contract, agreement or instrument to which
the Company is a party or by which it is bound, or, to the best of the Company's
knowledge, of any provision of any state or federal judgment, decree, order,
statute, rule or regulation applicable to or binding upon the Company, which
materially adversely affects or, so far as the Company may now foresee, in the
future is reasonably likely to result in or have a Company Material Adverse
Effect. To the best of the Company's knowledge, after reasonable inquiry, no
employee of the Company is in violation of any term of any contract or covenant
(either with the Company or with another entity) relating to employment,
patents, assignment of inventions, proprietary information disclosure,
non-competition or non-solicitation.

     2.28 ERISA. The Company does not have or otherwise contribute to or
participate in any employee benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended.

                                       13
<Page>

     2.29 REAL PROPERTY HOLDING CORPORATION. The Company is not a real property
holding corporation within the meaning of Code Section 897(c)(2) and any
regulations promulgated thereunder.

     2.30 REGULATORY MATTERS. All preclinical and clinical studies undertaken by
or on behalf of the Company have been and are being conducted by the Company, or
to the Company's knowledge by third parties, in compliance in all material
respects with all applicable federal, state or foreign laws, rules, orders or
regulations. No filing or submission to the United States Food and Drug
Administration (the "FDA") or any other federal, state or foreign regulatory
body contains any material omission or material false information. The studies,
tests and preclinical or clinical trials, if any, conducted by or on behalf of
the Company that are described in the IPO Registration Statement were and, if
still pending, are being, conducted in all material respects in accordance with
experimental protocols, procedures and controls pursuant to, where applicable,
accepted professional scientific standards; the descriptions of the results of
such studies, tests and trials contained in the IPO Registration Statement are
accurate in all material respects; and the Company has not received any notices
or correspondence from the FDA or any foreign, state or local governmental body
exercising comparable authority requiring the termination, suspension or
material modification of any studies, tests, or preclinical or clinical trials
conducted by or on behalf of the Company.

     2.31 DISCLAIMER OF ADDITIONAL REPRESENTATIONS AND WARRANTIES. Except as
expressly set forth in this Section 2 of this Agreement but without limiting the
representations and warranties herein (including, without limitation, those
contained in Section 2.17), the Company does not make any representation or
warranty, express or implied, at law or in equity, in respect of the Company or
any of its assets, liabilities, operations or prospects.

     2.32 KNOWLEDGE. The term "knowledge," as used in this Agreement, shall mean
the actual knowledge of the persons listed as executive officers of the Company
in the IPO Registration Statement after reasonable investigation with regard to
the matter relating thereto.

3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.

     3.1 AUTHORIZATION. The Investor hereby represents and warrants, as of the
Closing, to the Company that the Investor has full power and authority to enter
into this Agreement, and this Agreement constitutes its valid and legally
binding obligation, enforceable in accordance with its terms except (a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, (b) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, and (c) to the
extent the indemnification provisions contained herein may be limited by
applicable federal or state securities laws.

     3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Investor hereby represents and
warrants, as of the Closing, to the Company that this Agreement is made with the
Investor in reliance upon the Investor's representation to the Company, which by
the Investor's execution of this Agreement the Investor hereby confirms, that
the Shares to be received by the Investor and the Common Stock issuable upon
conversion thereof, as applicable, (collectively, the "Securities") will be
acquired for investment for the Investor's own account, not as a nominee or

                                       14
<Page>

agent, and not with a view to the resale or distribution of any part thereof,
and that the Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, the Investor further represents that the Investor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Securities.

     3.3 INVESTMENT EXPERIENCE. The Investor hereby represents and warrants, as
of the Closing, to the Company that the Investor is an investor in securities of
companies in the development stage and acknowledges that it is able to bear the
economic risk of full loss of the value of the Shares, and has such knowledge
and experience in financial or business matters that it is capable of evaluating
the merits and risks of the investment in the Shares. The Investor also
represents it has not been organized for the purpose of acquiring the Shares.

     3.4 ACCREDITED INVESTOR. The Investor hereby represents and warrants, as of
the Closing, to the Company that the Investor is an "accredited investor" within
the meaning of Securities and Exchange Commission ("SEC") Rule 501 of Regulation
D, as presently in effect.

     3.5 LEGENDS. It is understood that the certificates evidencing the Shares
may bear one or all of the following legends:

          (A) "These securities have not been registered under the Securities
     Act of 1933, as amended. They may not be sold, offered for sale, pledged or
     hypothecated in the absence of a registration statement in effect with
     respect to the securities under such Act or an opinion of counsel
     satisfactory to the Company that such registration is not required or
     unless sold pursuant to Rule 144 of such Act."

          (B) Any legend required by law or applicable securities laws,
     including, without limitation, any legend required by the General
     Corporation Law of the State of Delaware.

     3.6 NON-U.S. INVESTOR. The Investor hereby represents and warrants, as of
the Closing, to the Company that the Investor is not a "U.S. Person" within the
meaning of SEC Rule 902(k) of Regulation S ("U.S. Person") and is not acquiring
the Shares for the account or benefit of any U.S. Person who purchased
securities in a transaction that did not require registration under the Act.

     3.7 FOREIGN INVESTOR LEGENDS. It is understood that the certificates
evidencing the Shares issued to the Investor may bear the following legends:

          (A) "These securities may not be sold, offered for sale, pledged,
     hypothecated or otherwise transferred except in accordance with the
     provisions of Regulation S under the Securities Act of 1933, as amended,
     pursuant to registration under the Securities Act of 1933, as amended, or
     pursuant to an available exemption from registration. Hedging transactions
     involving these securities may not be conducted unless in compliance with
     the Securities Act of 1933, as amended."

                                       15
<Page>

4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of the
Investor to purchase the Shares are subject to the fulfillment or waiver on or
before the Closing of each of the following conditions:

     4.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company contained in Section 2 shall be true, correct and complete on and as
of the Closing.

     4.2 PERFORMANCE. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.

     4.3 COMPLIANCE CERTIFICATE. The President of the Company shall deliver to
the Investor at the Closing a certificate stating that the conditions specified
in Sections 4.1 and 4.2 have been fulfilled. The Company shall deliver to the
Investor copies of the following:

          (A) The Certificate of Incorporation of the Company, as in effect as
     of the Closing, certified by the Secretary of State of the State of
     Delaware;

          (B) Certificates, as of the most recent practicable dates prior to the
     Closing, as to the corporate good standing of the Company issued by the
     Secretary of State of the State of Delaware and the Secretary of State of
     the Commonwealth of Massachusetts;

          (C) By-laws of the Company, as amended to date, certified by the
     Secretary of the Company as of the Closing Date; and

          (D) Resolutions of the Board of Directors and stockholders of the
     Company, authorizing and approving all matters in connection with this
     Agreement and the transactions contemplated hereby, certified by the
     Secretary of the Company as of the Closing Date.

     4.4 QUALIFICATIONS. All authorizations, consents, approvals, and permits,
if any, of any governmental authority or regulatory body of the United States,
of any state or of any other person or entity that are required in connection
with the execution and delivery of this Agreement, and the performance of the
Company's obligations hereunder and the issuance and sale of the Shares pursuant
to this Agreement and the shares of Common Stock upon conversion of the Shares
shall be duly obtained and effective.

     4.5 OPINION OF COUNSEL. The Investor shall have received an opinion from
the Company's legal counsel, dated the date of the Closing, in the form attached
hereto as EXHIBIT B.

     4.6 PROCEEDINGS SATISFACTORY. All proceedings taken in connection with the
issuance and sale of the Shares and all documents and papers relating thereto
shall be satisfactory in form and substance to Investor. The Investor shall have
received copies of such documents and papers as the Investor may reasonably
request in connection with this Agreement.

5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of the
Company to the Investor under this Agreement are subject to the fulfillment on
or before the Closing of each of the following conditions by the Investor:

                                       16
<Page>

     5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Investor contained in Section 3 shall be true, correct and complete on and
as of the Closing.

     5.2 PAYMENT OF PURCHASE PRICE. The Investor shall have delivered the
Purchase Price specified in Section 1.2 by check or wire transfer.

6. REGISTRATION RIGHTS.

     6.1 DEMAND RIGHTS. The Company shall, as promptly as possible upon request
by the Investor on the first day after (the "Eligible Filing Date") the period
ending (i) nine months after the closing of the Company's initial public
offering of its Common Stock under the Act (the "IPO"), if the Company has
closed the IPO on or before March 31, 2006, or (ii) six months after the closing
of the IPO, if the Company has closed the IPO after March 31, 2006:

          (A) prepare and file with the SEC a registration statement on Form S-3
     (the "Registration Statement"), to enable, subject to the limitations of
     Section 7.3, the resale of the shares of Common Stock issuable upon
     conversion of the Shares (the "Registrable Shares") held by the Investor
     from time to time and use commercially reasonable efforts to cause such
     Registration Statement to be declared effective as promptly as possible
     after filing, but in any event, within ninety (90) days following the such
     filing or, in the event of a review of the Registration Statement by the
     SEC, within one hundred twenty (120) days following such filing (such date
     as is applicable the "Required Registration Date"), and to remain
     continuously effective until the earlier of (1) the second anniversary of
     the effective date of the Registration Statement (subject to Section
     6.5(h)), (2) the date on which all Registrable Shares have been sold
     thereunder or (3) the date on which all of the Registrable Shares can be
     sold by the Investor pursuant to Rule 144(k) promulgated under the Act (the
     "REGISTRATION PERIOD"). In the event the Registration Statement cannot be
     kept effective for such period, the Company shall use best efforts to
     prepare and file with the SEC and have declared effective as promptly as
     possible another registration statement on the same terms as the initial
     Registration Statement and such registration statement shall be considered
     the Registration Statement for the purposes hereof. In the event that the
     Company does not meet the requirements for the use of Form S-3, the Company
     shall use such other form as is available for such a registration, and
     shall convert such other form to Form S-3, or file a replacement
     registration statement on Form S-3, as promptly as practicable after the
     first date on which it meets such requirements;

          (B) prepare and file with the SEC such amendments (including
     post-effective amendments) and supplements to the Registration Statement
     and the prospectus included in the Registration Statement (the
     "PROSPECTUS", as amended or supplemented by any prospectus supplement and
     by all other amendments thereto and all material incorporated by reference
     in such Prospectus) used in connection therewith as may be necessary to
     keep the Registration Statement effective and to comply with the provisions
     of the Act with respect to the disposition of all securities covered by
     such Registration Statement at all times until the end of the Registration
     Period;

          (C) furnish to the Investor with respect to the Registrable Shares
     registered under the Registration Statement such reasonable number of
     copies of such Registration Statement and any Prospectus in conformity with
     the requirements of the Act, each amendment

                                       17
<Page>

     and supplement thereto and any documents incorporated by reference therein
     and such other documents as the Investor may reasonably request in order to
     facilitate the public sale or other disposition of all or any of the
     Registrable Shares (and the Company hereby consents to the Investor's use
     of the Prospectus in such sale or other disposition);

          (D) use its commercially reasonable efforts to register or qualify the
     Registrable Shares under such other securities or blue sky laws is such
     jurisdictions as are specified in writing by the Investor; use its
     commercially reasonable efforts to keep each such registration or
     qualification (or exemption therefrom) effective during the Registration
     Period and take any other action that may be reasonably necessary to enable
     the Investor to consummate the disposition in such jurisdiction of the
     Registrable Shares; provided, however, that the Company shall not be
     required to qualify to do business or consent to service of process in any
     jurisdiction in which it is not now so qualified or has not so consented;

          (E) take all such action as is required of it to cause the Registrable
     Shares to be listed on the national securities exchange or automated
     quotation system on which the Common Stock is then traded;

          (F) promptly notify the Investor in writing (i) when the Registration
     Statement, a Prospectus or any supplement or amendment to either of them
     has been filed and, with respect to the Registration Statement or any
     post-effective amendment thereto, when the same has been declared effective
     and (ii) of the issuance by any state securities or other regulatory
     authority of any order suspending the qualification or exemption from
     qualification of any of the Registrable Shares under state securities or
     "blue sky" laws or the initiation of any proceedings for that purpose;

          (G) promptly notify the Investor in writing of the existence of any
     fact or the happening of any event, during the Registration Period (but not
     as to the substance of any such fact or event), that makes any statement of
     a material fact made in the Registration Statement, the Prospectus, any
     amendment or supplement thereto, or any document incorporated by reference
     therein untrue, or that requires the making of any additions to or changes
     in the Registration Statement or the Prospectus in order to make the
     statements therein not misleading (PROVIDED, HOWEVER, that no notice by the
     Company shall be required pursuant to this subsection (g) in the event that
     the Company either contemporaneously files a prospectus supplement to
     update the Prospectus or a Form 8-K or other appropriate Securities
     Exchange Act of 1934 (the "Exchange Act") report that is incorporated by
     reference into the Registration Statement, which, in either case, contains
     the requisite information with respect to such material event that results
     in such Registration Statement no longer containing any such untrue or
     misleading statements). Any such notification shall be subject to the
     obligations set forth in Sections 6.5(b) and 6.5(c);

          (H) furnish to the Investor upon written request, from the date of
     this Agreement until the end of the Registration Period, one copy of its
     periodic reports filed with the SEC pursuant to the Exchange Act and the
     rules and regulations promulgated thereunder;

          (I) cooperate with the Investor to facilitate the timely preparation
     and delivery of certificates (which shall not bear any restrictive legends
     unless required under applicable law) representing securities sold under
     any Registration Statement, and enable such securities to be in

                                       18
<Page>

     such denominations and registered in such names as the Investor may request
     and keep available and make available to the Company's transfer agent prior
     to the effectiveness of such registration statement a supply of such
     certificates;

          (J) provide a transfer agent and registrar for all Registrable Shares
     registered hereunder and provide a CUSIP number for the Registrable Shares
     included in any Registration Statement not later than the effective date of
     such Registration Statement;

          (K) cooperate with the Investor and its counsel in connection with any
     filings required to be made with the National Association of Securities
     Dealers, Inc.;

          (L) promptly file all documents required to be filed with the SEC
     pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act;

          (M) following the effectiveness of such Registration Statement, notify
     the Investor promptly of any request by the SEC for the amending or
     supplementing of such Registration Statement or Prospectus or for
     additional information;

          (N) prepare and file with the SEC promptly any amendments or
     supplements to such Registration Statement or Prospectus which, in the
     reasonable opinion of counsel for the Company, is required in connection
     with the distribution of the Registrable Shares;

          (O) if the Investor intends to distribute the Registrable Securities
     covered by its request by means of an underwriting, it shall so advise the
     Company as a part of its request made pursuant to this Section, and the
     underwriter will be selected by the Investor and shall be subject to the
     approval of the Company, which approval shall be in the reasonable
     discretion of the Company, and the Company shall enter into and perform its
     obligations under an underwriting agreement, in usual and customary form,
     with the managing underwriter of such offering. The Investor shall also
     enter into and perform its obligations under such an agreement;

          (P) obtain a "cold comfort" letter from the Company's independent
     public accountants in customary form and covering such matters of the type
     customarily covered by "cold comfort" letters and obtain a customary
     opinion of legal counsel for the Company, as the Investor may reasonably
     request;

          (Q) Make available for inspection by the Investor, any managing
     underwriter participating in any disposition pursuant to such registration
     statement, and any attorney or accountant or other agent retained by any
     such underwriter or selected by the Investor , all financial and other
     records, pertinent corporate documents and properties of the Company and
     cause the Company's officers, directors, employees and independent accounts
     to supply all information reasonably requested by the Investor,
     underwriter, attorney, accountant or agent in connection with such
     registration statement;

          (R) advise the Investor, promptly after the Company shall receive
     notice or obtain knowledge thereof, of the issuance of any stop order by
     the SEC suspending the effectiveness of such Registration Statement or the
     initiation or threatening of any proceeding for such purpose and promptly
     use its commercially reasonable efforts to prevent the issuance of any

                                       19
<Page>

     stop order or to obtain its withdrawal at the earliest possible moment if
     such stop order should be issued; and

          (S) bear all expenses in connection with the procedures described in
     paragraphs (a) through (r) of this Section 6.1 and the registration of the
     Registrable Shares pursuant to the Registration Statement other than fees
     and expenses, if any, of legal counsel or other advisers to the Investor or
     underwriting discounts, brokerage fees and commissions incurred by the
     Investor, if any.

     6.2 PIGGYBACK OFFERINGS.

          (A) In the event that the Company shall seek to undertake an offering
     of registered shares of Common Stock of the Company (whether for the
     account of the Company or the account of any securityholder of the Company
     other than an offering pursuant to the Registration Rights Agreement dated
     as of August 30, 2005 by and among the Company and BMSIF) after the
     Eligible Filing Date and on or before the third anniversary of the Eligible
     Filing Date, except in the case of an offering registered on Form S-4 or
     S-8 (or any successor form) for the registration of securities to be
     offered in a transaction of the type referred to in Rule 145 promulgated
     under the Act or to be offered to employees of and/or consultants to the
     Company or subsidiaries thereof, the Company shall first give written
     notice thereof (the "Company Notice") to the Investor, which Company Notice
     shall be given not less than fifteen (15) Business Days prior to the
     anticipated initiation of the registration statement related to such
     offering and shall offer the Investor the opportunity to include any or all
     of its Registrable Shares in the registration statement related to such
     offering, subject to the limitations contained in Section 6.2(c) hereof.

          (B) The Investor shall advise the Company in writing within ten (10)
     business days after the date of receipt of the Company Notice, specifying
     the number of Registrable Shares, if any, the Investor seeks to include in
     the registration statement related to such offering The Company shall
     thereupon include in the registration statement related to such offering
     the number of Registrable Shares so requested by the Investor to be
     included, subject to Section 6.2(c) hereof, and, if required shall use
     commercially reasonable efforts to effect registration of such Registrable
     Shares under the Act; provided, however, that the Company may at any time
     withdraw or cease proceeding with the registration statement related to
     such offering of the Investor's Registrable Shares if it shall at the same
     time withdraw or cease proceeding with the registration statement related
     to the offering of all other shares of Common Stock of the Company
     originally proposed to be registered.

          (C) If the managing underwriter of an underwritten offering pursuant
     to which Registrable Shares are included pursuant to this Section 6.2 shall
     advise the Investor and the Company in writing that, in its opinion, the
     number of securities requested to be included in such underwritten offering
     (including securities to be sold by the Company or by other persons not
     holding Registrable Shares) exceeds the number which can be sold in such
     underwritten offering within an acceptable price range, the Company will
     include in such underwritten offering, to the extent of the number which
     the Company is so advised can be sold in such underwritten offering, (i)
     first, securities of the Company that the Company proposes to sell and (ii)
     second, securities of the Company held by other persons having registration
     rights proposed to be included in such

                                       20
<Page>

     registration by the holders thereof and the Registrable Shares proposed to
     be included in such registration by the Investor shall be included pro rata
     based on the number of shares sought to be included in such registration
     statement by the holders with rights to include shares in such registration
     statement.

          (D) The Company shall bear all expenses in connection with the
     procedures described in paragraphs (a) through (c) of this Section 6.2 and
     the registration of the Registrable Shares pursuant to Section 6.2(b) other
     than fees and expenses, if any, of legal counsel or other advisers to the
     Investor or underwriting discounts, brokerage fees and commissions incurred
     by the Investor, if any.

     6.3 CONDITIONS TO REGISTRATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 6 with
respect to Registrable Shares held by the Investor that:

          (A) the Investor shall timely furnish to the Company a completed
     Registration Statement questionnaire on or before the Eligible Filing Date
     and such other written information regarding itself, the Registrable Shares
     and the intended method of disposition of the Registrable Shares as shall
     reasonably be required to effect the registration of the Registrable Shares
     and as shall be reasonably be requested by the Company in advance or from
     time to time; and

          (B) the Investor is unable otherwise to sell in a single transaction
     the Registrable Shares eligible to be sold without registration of such
     Registrable Shares. For purposes of this Section 6.3, the sale of
     Registrable Shares without registration shall mean that the Registrable
     Shares may be sold by the Investor pursuant to Regulation S or Rule 144
     under the Act or any other applicable provisions of the Act pursuant to
     which the subsequent sale by the purchaser of such securities would not be
     subject to registration. In the event of a disagreement as to the
     salability of the Registrable Shares without registration as described in
     this Section 6.3(b), or as to the salability of the Registrable Shares by
     nonaffiliates of the Company pursuant to Rule 144(k) promulgated under the
     Act as described in Section 6.1(a), the Company shall be entitled to rely
     on the opinion of Ropes & Gray LLP or any other recognized United States
     securities law counsel, provided, however, that if, in the opinion of a
     recognized United States securities law counsel to the Investor such
     Registrable Shares are not so salable without registration, the Parties
     shall resolve such dispute on the basis of a legal opinion of a mutually
     acceptable recognized United States securities law counsel.

     6.4 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. The Company acknowledges
and agrees that the Company will not grant or allow any other persons any
registration rights with respect to any securities of the Company which conflict
with or violate the provisions of this Agreement.

     6.5 TRANSFER OF REGISTRABLE SHARES AFTER REGISTRATION; SUSPENSION.

          (A) The Investor agrees that it will not offer to sell or make any
     sale, assignment, pledge, hypothecation or other transfer with respect to
     the Registrable Shares that would constitute a sale within the meaning of
     the Act except pursuant to an effective registration statement under the
     Act or pursuant to an available exemption therefrom.

                                       21
<Page>

          (B) In addition to any suspension rights under subsection (c) below,
     if (i) an event has occurred and is continuing as a result of which any
     such Registration Statement or Prospectus would, in the Company's
     reasonable judgment, contain an untrue statement of a material fact or omit
     to state a material fact required to be stated therein or necessary to make
     the statements therein not misleading or (ii) if the Company notifies the
     Investor that any filing of any Registration Statement pursuant to this
     Agreement, any filing of any amendment thereto, any furnishing of any
     supplement to a Prospectus included in a Registration Statement pursuant to
     Section 6.1(g) hereof, any other filing with the SEC, the effectiveness of
     any Registration Statement or other filing with the SEC, or any similar
     action would, in the good faith judgment of outside counsel to the Company,
     require the disclosure of material non-public information which the Company
     has a bona fide business purpose for preserving as confidential and which
     the Company would not otherwise be required to disclose, then the Company
     may, on not more than two (2) non-consecutive occasions for not more than
     thirty (30) days on each such occasion, (x) refrain from filing any
     Registration Statement pursuant to this Agreement, filing any amendment
     thereto, furnishing any supplement to a Prospectus included in a
     Registration Statement pursuant to Section 6.1(g) hereof, making any other
     filing with the SEC otherwise required by this Agreement, causing the
     effectiveness of any Registration Statement or other filing with the SEC,
     or taking any similar action and (y) suspend use of the Prospectus, on
     written notice to the Investor (which notice will not disclose the content
     of any material non-public information and will indicate the date of the
     beginning and end of the intended period of suspension, if known), in which
     case the Investor shall discontinue disposition of Registrable Shares
     covered by the Registration Statement or Prospectus until copies of a
     supplemented or amended Prospectus are distributed to the Investor or until
     the Investor are advised in writing by the Company that sales of
     Registrable Shares under the applicable Prospectus may be resumed and have
     received copies of any additional or supplemental filings that are
     incorporated or deemed incorporated by reference in any such Prospectus.
     The suspension and notice thereof described in clause (y) of this
     subsection (b) shall be held in strictest confidence and shall not be
     disclosed by the Investor.

          (C) Subject to subsection (d) below, in the event of: (1) any request
     by the SEC or any other federal or state governmental authority during the
     period of effectiveness of the Registration Statement for amendments or
     supplements to a Registration Statement or related prospectus or for
     additional information, (2) the issuance by the SEC or any other federal or
     state governmental authority of any stop order suspending the effectiveness
     of a Registration Statement or the initiation of any proceedings for that
     purpose, (3) the receipt by the Company of any notification suspending the
     qualification or exemption from qualification of any of the Registrable
     Shares for sale in any jurisdiction or the initiation of any proceeding for
     such purpose, or (4) any event or circumstance which necessitates the
     making of any changes in the Registration Statement or Prospectus, or any
     document incorporated or deemed to be incorporated therein by reference, so
     that, in the case of the Registration Statement, it will not contain any
     untrue statement of a material fact or any omission to state a material
     fact required to be stated therein or necessary to make the statements
     therein not misleading, and that in the case of the Prospectus, it will not
     contain any untrue statement of a material fact or any omission to state a
     material fact required to be stated therein or necessary to make the
     statements therein, in the light of the circumstances under which they were
     made, not misleading, then the Company shall deliver a certificate in
     writing to the Investor (the "Suspension Notice") to the effect of the
     foregoing (which notice will not disclose the content of any material
     non-public information and

                                       22
<Page>

     will indicate the date of the beginning and end of the intended period of
     suspension, if known), and, upon receipt of such Suspension Notice, the
     Investor will discontinue disposition of Registrable Shares covered by to
     the Registration Statement or Prospectus (a "Suspension") until the
     Investor's receipt of copies of a supplemented or amended Prospectus
     prepared and filed by the Company, or until the Investor are advised in
     writing by the Company that the current Prospectus may be used, and have
     received copies of any additional or supplemental filings that are
     incorporated or deemed incorporated by reference in any such prospectus. In
     the event of any Suspension, the Company will use its reasonable best
     efforts to cause the use of the Prospectus so suspended to be resumed as
     soon as possible after delivery of a Suspension Notice to the Investor.

          (D) Provided that a suspension is not then in effect, the Investor may
     sell Registrable Shares under the Registration Statement, provided that the
     selling Investor arranges for delivery of a current Prospectus to the
     transferee of such Registrable Shares to the extent such delivery is
     required by applicable law.

          (E) In the event of a sale of Registrable Shares by the Investor, the
     Investor must also deliver to the Company's transfer agent, with a copy to
     the Company, a certificate of subsequent sale reasonably satisfactory to
     the Company, so that ownership of the Registrable Shares may be properly
     transferred. The Company will cooperate to facilitate the timely
     preparation and delivery of certificates (unless otherwise required by
     applicable law) representing Registrable Shares sold.

          (F) For the purpose of determining the Registration Period pursuant to
     Section 6.1, the occurrence of any Suspension pursuant to subsection (c) or
     the non-effectiveness of the Registration Statement during any period
     during which such effectiveness is required pursuant to the terms of
     Section 6.1(a) shall cause the second anniversary of the effective date of
     the Registration Statement to be deemed extended by a number of days
     equivalent to the duration of any Suspension or the number of days of such
     non-effectiveness.

     6.6 INDEMNIFICATION.

     For the purpose of this Section 6.6, the term "REGISTRATION STATEMENT"
shall include any preliminary or final Prospectus, exhibit, supplement or
amendment included in or relating to the Registration Statement referred to in
Section 6.1, together with any document incorporated by reference into any of
the same.

          (A) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
     and hold harmless each of the Investor, and each of its employees,
     advisors, agents, representatives, partners, officers and directors, and
     each person, if any, who controls the Investor within the meaning of the
     Act or the Exchange Act (all such persons together, the "Investor
     Indemnitees"), to the fullest extent permitted by law, against any and all
     losses, claims, damages, liabilities or expenses, joint or several to which
     the Investor or such controlling person may become subject, under the Act,
     the Exchange Act or any other federal or state statutory law or regulation,
     or at common law or otherwise (including in settlement of any litigation,
     if such settlement is effected with the written consent of the Company,
     which consent shall not be unreasonably withheld) (including, without
     limitation, attorneys' fees and disbursements), insofar

                                       23
<Page>

     as such losses, claims, damages, liabilities or expenses (or actions in
     respect thereof as contemplated below) arise out of, are based upon, relate
     to or result from any untrue statement or alleged untrue statement of any
     material fact contained in the Registration Statement, any preliminary
     prospectus, the Prospectus, or any amendment or supplement thereto, or
     arise out of, are based upon, relate to or result from the omission or
     alleged omission to state in any of them a material fact required to be
     stated therein or necessary to make the statements in any of them, in light
     of the circumstances under which they were made, not misleading, and will
     reimburse the Investor Indemnitees for any reasonable legal and other
     expenses as such reasonable expenses are incurred by the Investor
     Indemnitees in connection with investigating, defending (or preparing to
     defend), settling, compromising or paying any such loss, claim, damage,
     liability, expense or action; PROVIDED, HOWEVER, that the Company will not
     be liable in any such case to the extent that any such loss, claim, damage,
     liability, expense or action arises out of, is based upon, relates to or
     results from (1) an untrue statement or alleged untrue statement or
     omission or alleged omission made in the Registration Statement, the
     Prospectus or any amendment to or supplement of the Registration Statement
     or Prospectus made in reliance upon and in conformity with information
     furnished to the Company by or on behalf of the Investor in writing
     expressly for use in the Registration Statement or the Prospectus, (2) the
     failure of the Investor to comply with the covenants and agreements
     contained in this Agreement respecting sale of the Registrable Shares, or
     (3) any untrue statement or omission of a material fact required to make
     such statement not misleading in any Prospectus that is corrected in any
     subsequent Prospectus that was delivered to the Investor before the
     pertinent sale or sales by the Investor.

          (B) INDEMNIFICATION BY THE INVESTOR. The Investor will indemnify and
     hold harmless the Company, each of its directors, each of its officers who
     signed the Registration Statement and each person, if any, who controls the
     Company within the meaning of the Act, against any losses, claims, damages,
     liabilities or expenses to which the Company, its directors, its officers
     who signed the Registration Statement and any controlling persons may
     become subject, under the Act, the Exchange Act, or any other federal or
     state statutory law or regulation, or at common law or otherwise (including
     in settlement of any litigation, if such settlement is effected with the
     written consent of the Investor, which consent shall not be unreasonably
     withheld) insofar as such losses, claims, damages, liabilities or expenses
     (or actions in respect thereof as contemplated below) arise out of, are
     based upon, relate to or result from any untrue statement or alleged untrue
     statement of any material fact contained in the Registration Statement, any
     preliminary prospectus, the Prospectus, or any amendment or supplement to
     the Registration Statement or Prospectus, or arise out of, are based upon,
     relate to or result from the omission or alleged omission to state therein
     a material fact required to be stated therein or necessary to make the
     statements therein not misleading, in each case to the extent, but only to
     the extent, that such untrue statement or alleged untrue statement or
     omission or alleged omission was made in the Registration Statement, any
     preliminary prospectus, the Prospectus, or any amendment or supplement
     thereto, solely in reliance upon and in conformity with written information
     furnished to the Company by or on behalf of the Investor expressly for use
     therein, and the Investor will reimburse the Company, each of its
     directors, each of its officers who signed the Registration Statement, and
     any controlling persons for any reasonable legal and other expense incurred
     by the Company, its directors, its officers who signed the Registration
     Statement, and any controlling persons, in connection with investigating,
     defending (or preparing to defend), settling, compromising or paying any
     such loss, claim, damage, liability, expense or action; PROVIDED, HOWEVER,
     that the Investor shall not be liable for any such untrue statement or

                                       24
<Page>

     alleged untrue statement or omission or alleged omission with respect to
     which the Investor has delivered to the Company in writing a correction
     before the occurrence of the event from which such loss was incurred.
     Notwithstanding the provisions of this Section 6.6, the Investor shall not
     be liable for any indemnification obligation under this Agreement in excess
     of the aggregate amount of net proceeds received by the Investor from the
     sale of the Registrable Shares pursuant to the Registration Statement.

          (C) INDEMNIFICATION PROCEDURE. Promptly after receipt by an
     indemnified party under this Section 4 of notice of the threat or
     commencement of any action, such indemnified party will, if a claim in
     respect thereof is to be made against an indemnifying party under this
     Section 6.6, promptly notify the indemnifying party in writing of the
     claim; but the omission so to notify the indemnifying party will not
     relieve it from any liability which it may have to any indemnified party
     for contribution or otherwise under the indemnity agreement contained in
     this Section 4 or otherwise, to the extent it is not prejudiced as a result
     of such failure. The reasonable fees and expenses of counsel for the
     indemnified party shall be at the expense of the indemnifying party. The
     indemnified party shall be entitled to select its own counsel.

     6.7 RULE 144 INFORMATION.

     Until the expiration of the Registration Period, the Company shall (i) make
and keep public information available, as those terms are defined in Rule 144
under the Act, at all times after the effective date that the Company becomes
subject to the reporting requirements of the Act or the Exchange Act; (ii) file
in a timely manner all reports required to be filed by it under the Act and the
Exchange Act and the rules and regulations promulgated thereunder; (iii) furnish
to Investor, so long as Investor owns any Registrable Shares upon request by
Investor, (a) a written statement by the Company that it has complied with the
reporting requirements of Rule 144 and of the Act and the Exchange Act, (b) a
copy of the most recent annual or quarterly report of the Company and (c) such
other publicly available reports and documents of the Company and other publicly
available information in the possession of or reasonably obtainable by the
Company as the Investor may reasonably request in availing itself of any rule or
regulation of the SEC allowing the Investor to sell any such securities without
registration; and (iv) take such further action to the extent required to enable
the Investor to sell the Registrable Shares pursuant to Rule 144 under the Act
(as such rule may be amended from time to time).

7. MISCELLANEOUS.

     7.1 SURVIVAL OF WARRANTIES. Section 7.2 of this Agreement and the
warranties and representations of the Company and Investor contained in or made
pursuant to this Agreement shall survive the execution and delivery of this
Agreement and the Closing of the transactions contemplated hereby.

     7.2 INDEMNIFICATION. The Company agrees to indemnify and save harmless the
Investor (and its directors, officers, affiliates, successors and assigns) from
and against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorneys' fees, charges and
disbursements) incurred by the Investor as a result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Company
herein.

                                       25
<Page>

7.3 TRANSFER OF SHARES; ACQUISITION OF SHARES.

          (A) Investor hereby agrees that for the period beginning on the
     Closing Date and ending on March 31, 2006 (the "Initial Lock-up Period"),
     the Investor will not offer, sell, contract to sell, pledge or otherwise
     dispose of, directly or indirectly, any Shares purchased pursuant to this
     Agreement or any securities convertible into or exchangeable or exercisable
     for any such Shares, enter into a transaction which would have the same
     effect, or enter into any swap, hedge or other arrangement that transfers,
     in whole or in part, any of the economic consequences of ownership of the
     Shares, whether any such aforementioned transaction is to be settled by
     delivery of the Shares or such other securities, in cash or otherwise, or
     publicly disclose the intention to make any such offer, sale, pledge or
     disposition, or to enter into any such transaction, swap, hedge or other
     arrangement (a "Disposition"), without, in each case, the prior written
     consent of the Company, except (a) to corporations, partnerships, limited
     liability companies or other entities to the extent that such entities are
     wholly owned by the Investor, or (b) by distribution to partners, members
     or stockholders of the Investor (each, a "Permitted Disposition");
     provided, however, that in the case of any Permitted Disposition, it shall
     be a condition to the Permitted Disposition that such Permitted Disposition
     shall not involve a disposition for value and that the transferee agrees to
     be bound in writing by the terms of this Section 7.3 prior to such
     transfer.

          (B) If the IPO closes on or before March 31, 2006, then for the period
     beginning on the effective date of such registration statement and ending
     on the first anniversary of the closing of the Company's initial public
     offering (the "Second Lock-up Period"), the Investor agrees that it will
     not engage in any Disposition other than a Permitted Disposition; provided,
     however, that in the case of any Permitted Disposition, it shall be a
     condition to the Permitted Disposition that such Permitted Disposition
     shall not involve a disposition for value and that the transferee agrees to
     be bound in writing by the terms of this Section 7.3 prior to such
     transfer.

          (C) If the IPO closes on or before March 31, 2006, then for a period
     beginning upon the expiration of the Second Lock-up Period and ending on
     the second anniversary of the expiration of the Second Lock-up Period, the
     Investor agrees that it will not engage in any Disposition or series of
     Dispositions other than (1) through a nationally recognized brokerage or
     underwriting firm, (2) through a brokerage or underwriting with recognized
     experience in working with biotechnology companies, (3) any brokerage or
     underwriting firm currently serving as a "market maker" or serving in a
     similar capacity for the Company's Common Stock, or (4) in a private,
     non-brokered transaction subject to compliance with applicable securities
     laws; PROVIDED, HOWEVER, that in the case of a Disposition pursuant to
     clause (4), the transferee agrees in writing, in form reasonably
     satisfactory to the Company, to be bound by the terms of this Section 7.3,
     a copy of which will be delivered to the Company. Any brokerage or
     underwriting firm to be used pursuant to clauses (1) through (3) in the
     prior sentence shall be subject to the reasonable, good faith approval of
     the Company, with such approval not to be unreasonably withheld or delayed.
     If the Investor provides notice to the Company of Investor's intent to use
     one or more brokerage or underwriting firms, the Company's approval shall
     be deemed granted

                                       26
<Page>

     if the Company does not respond within five business days of such notice
     being provided. Such approval shall only be required once with respect to
     any particular underwriting or brokerage firm(s) and NOT on a transaction
     by transaction basis (i.e., an approval permits sales through such firm(s)
     at any time and from time to time as determined by Investor, and approval
     is not required before any particular Disposition); provided, however, that
     the Company's approval with respect to any brokerage or underwriting firm
     shall expire three months after the Company approves or is deemed to have
     approved such brokerage or underwriting firm.

          (D) If the IPO does NOT close on or before March 31, 2006, then
     Investor agrees that in connection with the initial public offering of the
     Company's equity securities under the Act effected after such date and upon
     request of the Company or the underwriters managing such offering of the
     Company's securities, shall agree not to consummate a Disposition of the
     Registrable Shares without the prior written consent of the Company or such
     underwriters, as the case may be, for such period of time (not to exceed
     180 days, but subject to such extension or extensions as may be required by
     the underwriters in order to publish research reports while complying with
     the Rule 2711 of the National Association of Securities Dealers, Inc.) from
     the effective date of such registration as may be requested by the Company
     or such managing underwriters and to execute an agreement reflecting the
     foregoing as may be requested by the underwriters at the time of such
     initial public offering.

          (E) For the Initial Lock-up Period and, if the IPO closes on or before
     March 31, 2006, for the Second Lock-up Period, unless specifically invited
     in writing by the Company to do so, neither the Investor nor any of its
     directors, officers, employees or subsidiaries shall, directly or
     indirectly: (i) acquire, offer to acquire, or agree to acquire, directly or
     indirectly, by purchase, exchange or otherwise, any securities (including
     beneficial ownership thereof) or direct or indirect rights to acquire
     securities (including beneficial ownership thereof) of the Company or any
     of its assets; (ii) make, or in any way participate, directly or
     indirectly, in any "solicitation" of "proxies" to vote (as such terms are
     used in the rules of the Securities and Exchange Commission), or seek to
     advise or influence any person or entity with respect to the voting of, any
     securities of the Company, or otherwise seek to control or influence (other
     than in the normal and usual course of business) the management, Board of
     Directors or policies of the Company; (iii) seek to effect, or participate
     in, any recapitalization, restructuring, liquidation, dissolution or other
     extraordinary transaction with respect to the Company; (iv) make any public
     announcement with respect to, or submit a proposal for, or offer to engage
     in, in each case, with or without conditions, any business combination
     transaction (including, without limitation, any transaction of the nature
     described in clause (i), (ii) or (iii) above) involving the Company or any
     of its securities or assets, or take any action that might require the
     Company to make a public announcement regarding any of the transactions
     prohibited hereby; (v) form, join or in any way participate in a "group" as
     defined in Section 13(d)(3) of the Exchange Act in connection with any of
     the foregoing; or (vi) request the Company directly or indirectly to amend
     or waive any provision of this Section. The foregoing restrictions shall
     not apply, however, if during the Initial Lock-up Period or Second Lock-up
     Period, a third party shall have publicly offered to purchase substantially
     all of the equity securities or assets of the other party or to enter into
     a merger or other business combination transaction or restructuring,
     exchange offer or similar extraordinary transaction with the other party,
     or a third party shall have solicited proxies to vote (or seeks to advise
     or influence any person or entity with respect to the voting of) any voting
     securities of the Company with respect to a change of control transaction
     or similar extraordinary

                                       27
<Page>

     transaction (including, without limitation, transactions of a type
     described in clauses (i) through (iv) by any party other than the Investor)
     with the Company. Notwithstanding anything to the contrary in the
     foregoing, nothing in this Agreement shall prohibit the Investor and its
     directors, officers, employees and subsidiaries from acquiring, offering to
     acquire, or agreeing to acquire, directly or indirectly, by purchase,
     exchange or otherwise, any debt and up to an aggregate not in excess of
     15.0% of the outstanding shares of Common Stock following the IPO (unless
     Investor owns in excess of such 15.0% threshold solely as a result of
     conversion of the Shares into Common Stock in the IPO). If the IPO does not
     close on or before March 31, 2006, then this Section 7.3(c) shall
     automatically expire. During the thirty days prior to March 31, 2006, the
     Chief Financial Officers of both the Company and the Investor agree to
     confer regarding the potential extension of the applicability of
     provisions of Section 7.3(e) if the IPO closes after March 31, 2006, but if
     no agreement regarding extension of the applicability of the provisions of
     Section 7.3(e) is agreed in writing on or prior to March 31, 2006, then
     this provision shall automatically expire; provided, however, this
     sentence. shall not create an express or implied obligation to negotiate
     about or to agree to any such extension beyond March 31, 2006 and the
     parties sole obligation shall be to confer as provided herein.

     7.4 VOTING OF SHARES. Until the termination of the Second Amended and
Restated Voting Agreement dated as of February 18, 2004 among the Company and
the other parties thereto (as such Agreement may be amended from time to time,
the "Voting Agreement"), the Investor agrees to hold all shares of voting
capital stock of the Company registered in its name or beneficially owned by it
as of the date hereof and any and all other securities of the Company legally or
beneficially acquired by the Investor after the date hereof (collectively, the
"Subject Shares") subject to, and to vote all such shares in accordance with,
the provisions of the Voting Agreement related solely to the election of
directors. The Investor agrees that all certificates representing the Subject
Shares shall, until the termination of the Voting Agreement, bear the following
restrictive legend:

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS OF CERTAIN PROVISIONS OF A VOTING AGREEMENT WHICH PLACES CERTAIN
RESTRICTIONS ON THE VOTING OF THE SHARES REPRESENTED HEREBY. ANY PERSON
ACCEPTING ANY INTEREST IN SUCH SHARES SHALL BE DEEMED TO AGREE TO AND SHALL
BECOME BOUND BY ALL OF THE RELEVANT PROVISIONS OF SUCH AGREEMENT. A COPY OF SUCH
VOTING AGREEMENT WILL BE FURNISHED TO THE RECORD HOLDER OF THIS CERTIFICATE
WITHOUT CHARGE UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF
BUSINESS.

     7.5 DELIVERY OF FINANCIAL STATEMENTS AND OTHER INFORMATION. So long as the
Investor continues to hold not less than 50% of the Shares acquired pursuant to
this Agreement, the Company shall deliver to the Investor:

               (A) as soon as practicable, but in any event within ninety (90)
          days after the end of each fiscal year of the Company, a cash flow
          statement for such fiscal year, an income statement for such fiscal
          year, a balance sheet of the Company and statement of stockholder's
          equity as of the end of such year (all on a consolidated basis), and a
          schedule as to the sources and applications of funds for such year,
          such year-end financial reports to be in reasonable detail,

                                       28
<Page>

          prepared in accordance with U.S. generally accepted accounting
          principles ("GAAP") consistently applied, including all footnotes, and
          audited and certified by independent public accountants of nationally
          recognized standing selected by the Company, together with a
          capitalization table and a list of the Company's stockholders and all
          holders of the Company's outstanding options, warrants, notes and/or
          other securities as of the end of such fiscal year;

               (B) within 30 days after the end of each month (other than the
          last month of any fiscal year), an unaudited balance sheet of the
          Company as at the end of such month and unaudited statements of income
          and of cash flows of the Company for such month and for the current
          fiscal year to the end of such month, setting forth in comparative
          form the Company's projected financial statements for the
          corresponding periods for the current fiscal year prepared in
          accordance with U.S. generally accepted accounting principles,
          consistently applied; and

               (C) as soon as practicable, but in any event thirty (30) days
          prior to the end of each fiscal year, a budget for the next fiscal
          year (prepared on a monthly basis) approved by the Company's Board of
          Directors and, as soon as prepared, any other budgets or revised
          budgets prepared by the Company.

               (D) The Company shall provide such other information relating to
          the financial condition, business, prospects or corporate affairs of
          the Company as such Investor may from time to time reasonably request,
          including, without limitation, a capitalization table and a list of
          the Company's stockholders and all holders of the Company's
          outstanding options, warrants or other securities. The Company shall
          permit Investor, at such Investor's expense, to visit and inspect the
          Company's properties, to examine its books of account and records and
          to discuss the Company's affairs, finances and accounts with its
          officers, all at such reasonable times as may be requested by such
          Investor for purposes solely of monitoring its investment in the
          Company and meeting U.S. GAAP accounting requirements with respect to
          Investor's investment in the Company.

               (E) All rights of the Investor under this Section 7.5 shall
          terminate upon an initial public offering of the Company's Common
          Stock that results in the conversion of all outstanding shares of
          Preferred Stock of the Company.

     7.6 SUCCESSORS. Except as otherwise provided herein, this Agreement shall
inure to the benefit of and be binding upon the respective successors and
assigns of the Investor and such successors and assigns shall be deemed to be an
"Investor" for the purposes of this Agreement. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.

     7.7 GOVERNING LAW. This Agreement shall be governed by and construed under
the laws of the State of New York without regard to the principles of conflicts
of law.

     7.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument.

     7.9 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.

                                       29
<Page>

     7.10 NOTICES. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be deemed delivered (i) three
business days after being sent by registered or certified mail, return receipt
requested, postage prepaid, (ii) one business day after being sent via a
reputable nationwide overnight courier service guaranteeing next business day
delivery or (iii) in the case of the Investor with an address located outside
the United States, three business days after being sent via a reputable
international courier service guaranteeing three business day delivery, in each
case to the intended recipient as set forth below:

If to the Company, at 650 Albany Street, Boston, MA 02118, Attention: President,
or at such other address as may have been furnished in writing by the Company to
the other parties hereto, with a copy to Ropes & Gray LLP, One International
Place, Boston, MA 02110, Attention: Marc Rubenstein, Esq.; or

If to the Investor, at Angiotech Pharmaceuticals, Inc., 1618 Station Street,
Vancouver, B.C., Canada, V6A 1B6, Attention: Vice President of Business
Development, with a copy to Angiotech Pharmaceuticals, Inc., 1618 Station
Street, Vancouver, B.C., Canada, V6A 1B6, Attention: General Counsel or at such
other address as may have been furnished in writing by the Investor to the other
parties hereto, provided, however, that registered or certified mail shall not
be used to provide notice to any the Investor with an address located outside of
the United States.

     Any party may change the address to which notices, requests, consents or
other communications hereunder are to be delivered by giving the other parties
notice in the manner set forth in this Section 7.10.

     7.11 FINDER'S FEE. Except as set forth in the Schedule of Exceptions, each
party represents that it neither is nor will be obligated for any finders' fee
or commission in connection with this transaction. The Investor agrees to
indemnify and to hold harmless the Company from any liability for any commission
or compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Investor
or any of its officers, partners, employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless the Investor from any
liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.

     7.12 EXPENSES. Each party hereto shall be responsible for all expenses
incurred by such party in connection with the negotiation, execution, delivery
and performance of this Agreement.

     7.13 AMENDMENTS OR WAIVERS. Any provision of this Agreement may be amended
or the observance thereof may be waived (either generally or specifically and
either retroactively or prospectively) or terminated, only by an instrument in
writing executed by (a) the Company and the Investor. No waivers of or
exceptions to any term, condition or provision of this Agreement, in any one or
more instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision.

                                       30
<Page>

     7.14 SEVERABILITY. In the event that one or more of the provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.

     7.15 WAIVER. No waivers of any breach of this Agreement extended by any
party hereto to any other party shall be construed as a waiver of any rights or
remedies of any other party hereto or with respect to any subsequent breach.

     7.16 ENTIRE AGREEMENT. This Agreement (and exhibits hereto) and the
documents referred to herein constitute the entire agreement among the parties
regarding the subject matters hereof and thereof and supersedes all prior
agreements and understandings relating to such subject matter.

     7.17 SPECIFIC PERFORMANCE. In addition to any and all other remedies that
may be available at law in the event of any breach of this Agreement, the
Investor shall be entitled to specific performance of the agreements and
obligations of the Company hereunder and to such other injunctive or other
equitable relief as may be granted by a court of competent jurisdiction.

     7.18 DISPUTE RESOLUTION. In any action between the parties arising out of
or relating to this Agreement or any of the transactions contemplated by this
Agreement: (a) each of the parties irrevocably and unconditionally consents and
submits to the exclusive jurisdiction and venue of the state and federal courts
located in New York, New York; (b) if any such action is commenced in a state
court, then, subject to applicable law, no party shall object to the removal of
such action to any federal court located in the Southern District of New York;
(c) each of the parties irrevocably waives the right to trial by jury; and (d)
each of the parties irrevocably consents to service of process by first class
certified mail, return receipt requested, postage prepaid, to the address at
which such party is to receive notice in accordance with Section 7.10.

     7.19 COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original, and
all of which shall constitute one and the same document. This Agreement may be
executed by facsimile signatures.

                [Remainder of the page intentionally left blank.]

                                       31
<Page>

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

                                             COMPANY:

                                               COMBINATORX, INCORPORATED

                                               By: /s/ ALEXIS BORISY
                                                  ----------------------------
                                                  Name:    Alexis Borisy
                                                  Title:   President and Chief
                                                           Executive Officer,
                                                           hereunder duly
                                                           authorized

                                                  Address:  650 Albany Street
                                                            Boston, MA 02118

                                             INVESTOR:

                                                ANGIOTECH PHARMACEUTICALS, INC.

                                               By: /s/ K. THOMAS BAILEY
                                                  ----------------------------
                                                  Name:    K. Thomas Bailey
                                                  Title:   Vice President of
                                                           Business Development

                                                  Address: 1618 Station Street
                                                           Vancouver, B.C.
                                                           Canada V6A 1B6

   [SIGNATURE PAGE TO SERIES E CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT]<PAGE>

                                                                 Exhibit 4.1

                                                           EXECUTION VERSION

                         LOAN AND WARRANT AGREEMENT

         This Loan and Warrant Agreement is entered into and dated as of
September 29, 2005 (as amended, supplemented or otherwise modified from time
to time, together with the Disclosure Schedule, this "AGREEMENT"), among
Zoltek Companies, Inc., a Missouri corporation (the "BORROWER"), the Lenders
identified on the signature pages hereto (each, a "LENDER" and collectively,
the "LENDERS"), and Omicron Master Trust, a Bermuda business trust ("OMT"),
as administrative agent for the Lenders (in such capacity, the
"ADMINISTRATIVE AGENT").

         WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Borrower desires to borrow certain sums from each of the
Lenders and, in consideration thereof issue certain notes and warrants to
each of the Lenders, and each Lender, severally and not jointly, desires to
make a loan to the Borrower and accept such notes and warrants from the
Borrower, all pursuant to the terms set forth herein.

         NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained
in this Agreement, and for other good and valuable consideration the receipt
and adequacy of which are hereby acknowledged, the Borrower and the Lenders
agree as follows:

                                  ARTICLE I.

                                 DEFINITIONS

         1.1.     Definitions. In addition to the terms defined elsewhere in
                  -----------
this Agreement, when used herein the following terms shall have the meanings
set forth in this Section 1.1:

                  "ACTION" means any action, suit, inquiry, notice of
         violation, proceeding (including any partial proceeding such as a
         deposition) or investigation pending or threatened in writing
         against or affecting the Borrower, any Subsidiary or any property
         of the Borrower or any Subsidiary before or by any court,
         arbitrator, governmental or administrative agency, regulatory
         authority (federal, state, county, local or foreign), stock market,
         stock exchange or trading facility.

                  "AFFILIATE" means, with respect to any Person, any other
         Person that, directly or indirectly through one or more
         intermediaries, controls or is controlled by or is under common
         control with such Person, as such terms are used in and construed
         under Rule 144.

                  "BORROWER COUNSEL" means Thompson Coburn LLP.

                  "BUSINESS DAY" means any day except Saturday, Sunday and
         any day that is a federal legal holiday or a day on which banking
         institutions in the State of New York are authorized or required by
         law or other governmental action to close.

                  "CAPITAL LEASE OBLIGATIONS" of any Person shall mean the
         obligations of such Person to pay rent or other amounts under any
         lease of (or other arrangement conveying

<PAGE>
<PAGE>

         the right to use) real or personal property, or a combination
         thereof, which obligations are required to be classified and
         accounted for as capital leases on a balance sheet of such Person
         under GAAP and, for the purposes of this Agreement, the amount of
         such obligations at any time shall be the capitalized amount
         thereof at such time determined in accordance with GAAP.

                  "CASH EQUIVALENTS" means:

                  (a) investments in Debt obligations maturing within one
year from the date of acquisition thereof to the extent the principal
thereof and interest thereon is backed by the full faith and credit of the
United States of America;

                  (b) investments in commercial paper maturing within 180 days
or less from the date of acquisition thereof and having, at such date of
acquisition, the highest credit rating obtainable from Standard & Poor's
Ratings Services, a division of The McGraw Hill Companies, or any successor
thereto, or from Moody's Investors Service, Inc. or any successor thereto;

                  (c) investments in certificates of deposit, banker's
acceptances and time deposits maturing within 180 days from the date of
acquisition thereof issued or guaranteed by or placed with, and money market
deposit accounts issued or offered by, any domestic office of any commercial
bank organized under the laws of the United States of America or any State
thereof that has a combined capital and surplus and undivided profits of not
less than $500,000,000, in each case denominated in dollars; and

                  (d) money market mutual funds, at least 90% of the
investments of which are in cash or investments contemplated by clauses (a),
(b) and (c) of this definition.

                  "CLOSING" means the First Closing, Second Closing, Third
Closing and/or Fourth Closing, as applicable.

                  "CLOSING DATE" means the with respect to the First
         Closing, the date of the First Closing; with respect to the Second
         Closing, the date of the Second Closing; with respect to the Third
         Closing, the date of the Third Closing; and with respect to the
         Fourth Closing, the date of the Fourth Closing.

                  "COMMISSION" means the U.S. Securities and Exchange
         Commission.

                  "COMMON STOCK" means the common stock of the Borrower,
         $0.01 par value per share, and any securities into which such
         common stock may hereafter be reclassified.

                  "COMMON STOCK EQUIVALENTS" means any securities of the
         Borrower or any Subsidiary which entitle the holder thereof to
         acquire Common Stock at any time, including without limitation, any
         Debt, preferred stock, rights, options, warrants or other
         instrument that is at any time convertible into or exchangeable
         for, or otherwise entitles the holder thereof to receive, Common
         Stock or other securities that entitle the holder to receive,
         directly or indirectly, Common Stock.

                                     2

<PAGE>
<PAGE>

                  "CONTINGENT OBLIGATION" with respect to any Person, any
         obligation of such Person arising from any guaranty, indemnity or
         other assurance of payment or performance of any Debt, lease,
         dividend or other obligation ("primary obligations") of any other
         Person (the "primary obligor") in any manner, whether directly or
         indirectly, including (i) the direct or indirect guaranty,
         endorsement (other than for collection or deposit in the ordinary
         course of business), co-making, discounting with recourse or sale
         with recourse by such Person of the obligation of a primary
         obligor, (ii) the obligation to make take or pay or similar
         payments, if required, regardless of nonperformance by any other
         party or parties to an agreement, (iii) any obligation of such
         Person, whether or not contingent, (A) to purchase any such primary
         obligation or any property constituting direct or indirect security
         therefor, (B) to advance or supply funds (1) for the purchase or
         payment of any such primary obligations or (2) to maintain working
         capital or equity capital of the primary obligor or otherwise to
         maintain the net worth or solvency of the primary obligor, (C) to
         purchase property, securities or services primarily for the purpose
         of assuring the owner of any such primary obligation of the ability
         of the primary obligor to make payment of such primary obligation
         or (D) otherwise to assure or hold harmless the holder of such
         primary obligation against loss in respect thereof; provided,
         however, that the term "Contingent Obligation" shall not include
         (i) any product warranties extended in the ordinary course of
         business, (ii) indemnities made to officers and directors of any
         such Person whether pursuant to the governing organizational
         documents of such Person or otherwise and (iii) any environmental
         indemnities. The amount of any Contingent Obligation shall be
         deemed to be an amount equal to the stated or determinable amount
         of the primary obligation with respect to which such Contingent
         Obligation is made (or, if less, the maximum amount of such primary
         obligation for which such Person may be liable pursuant to the
         terms of the instrument evidencing such Contingent Obligation) or,
         if not stated or determinable, the maximum reasonably anticipated
         liability with respect thereto (assuming such Person is required to
         perform thereunder), as determined by such Person in good faith.

                  "DEBT" as applied to a Person means, without duplication:
         (i) all items which in accordance with GAAP would be included in
         determining total liabilities as shown on the liability side of a
         balance sheet of such Person as of the date as of which Debt is to
         be determined, including Capital Lease Obligations; (ii) all
         Contingent Obligations of such Person; (iii) all reimbursement
         obligations in connection with letters of credit or letter of
         credit guaranties issued for the account of such Person; and (iv)
         in the case of Borrower (without duplication), the Notes. The Debt
         of a Person shall include any recourse Debt of any partnership or
         joint venture in which such Person is a general partner or joint
         venturer.

                  "DISCLOSURE SCHEDULE" means the Disclosure Schedule
         attached to this Agreement.

                  "DOLLARS" means U.S. dollars.

                  "EFFECTIVE DATE" means the date that a Registration
         Statement is first declared effective by the Commission.

                                     3

<PAGE>
<PAGE>

                  "ELIGIBLE MARKET" means any of the New York Stock
         Exchange, the American Stock Exchange, the Nasdaq National Market
         or the Nasdaq SmallCap Market.

                  "EQUITY INTEREST" means (i) shares of corporate stock,
         partnership interests, membership interests and any other interest
         that confers on a Person the right to receive a share of the
         profits and losses of, or a distribution of the assets of, the
         issuing Person and (ii) all warrants, options or other rights to
         acquire any Equity Interest set forth in clause (i) of this defined
         term.

                  "EXCHANGE ACT" means the U.S. Securities Exchange Act of
         1934, as amended.

                  "EVENT OF DEFAULT" has the meaning assigned to such term
         in the Notes.

                  "FIRST CLOSING" means the closing of the purchase and sale
         of the Notes and Warrants pursuant to Section 2.1.

                  "FIRST CLOSING DATE" means the date of the First Closing.

                  "FIRST CLOSING NOTES" means the Notes issued on the First
         Closing Date.

                  "FOURTH CLOSING" means the closing of the purchase and
         sale of the Notes and Warrants pursuant to Section 2.4.

                  "FOURTH CLOSING NOTES" means the Notes issued on the Fourth
         Closing Date.

                  "GAAP" means U.S. generally accepted accounting principles
         as in effect from time to time applied on a consistent basis during
         the periods involved.

                  "LENDER PERCENTAGE" means, with respect to any Lender as
         of any date, the percentage equal to a fraction the numerator of
         which shall be the outstanding principal balance of such Lender's
         Notes and the denominator of which shall be the aggregate
         outstanding principal balance of all Notes.

                  "LIEN" means (a) any lien, charge, claim, security
         interest, encumbrance, right of first refusal or other restriction,
         wherever created or charged, (b) with respect to any property, the
         interest of a vendor or a lessor under any conditional sale
         agreement, capital lease or title retention agreement relating to
         such property, and (c) in the case of securities, any purchase
         option, call or similar right of a third party with respect to such
         securities.

                  "LOAN" means each advance made to the Borrower by a Lender
         on a Closing Date, which such advance shall be evidenced by a Note.

                  "LOAN AMOUNT" means, for each Closing and with respect to
         each Lender, the principal amount of the Notes purchased at such
         Closing by such Lender as set forth in Schedule A.

                                     4

<PAGE>
<PAGE>

                  "NOTES" means (i) with respect to the First Closing,
         collectively, each of the senior convertible promissory notes, due
         on the date that is 42 months after the First Closing Date, (ii)
         with respect to the Second Closing, collectively, each of the
         senior convertible promissory notes, due on the date that is 42
         months after the Second Closing Date, (iii) with respect to the
         Third Closing, collectively, each of the senior convertible
         promissory notes, due on the date that is 42 months after the Third
         Closing Date, and (iv) with respect to the Fourth Closing,
         collectively, each of the senior convertible promissory notes, due
         on the date that is 42 months after the Fourth Closing Date, each
         issuable by the Borrower to one of the Lenders pursuant to the
         terms hereof, in the form of Exhibit A hereto.
                                      ---------

                  "OPCO" means Zoltek Vegyipari Reszvenytarsasag, a
         corporation formed under the laws of the Republic of Hungary, whose
         registered office is at H-2537 Nyergesujfalu, Varga Jozsef ter 1.,
         registered by the Court of Komarom-Esztergom county acting as Court
         of Registration under registration No. 11-10-001447.

                  "PERMITTED LIENS" means: (a) liens for taxes, assessments
         or governmental charges not delinquent or being contested in good
         faith and by appropriate proceedings and for which adequate
         reserves in accordance with GAAP are maintained on the books of the
         Borrower or the applicable Subsidiary; (b) liens arising out of
         deposits in connection with workers' compensation, unemployment
         insurance, old age pensions or other social security or retirement
         benefits legislation; (c) deposits or pledges to secure bids,
         tenders, contracts (other than contracts for the payment of money),
         leases, statutory obligations, surety and appeal bonds, and other
         obligations of like nature arising in the ordinary course of
         business of the Borrower or a Subsidiary; (d) liens imposed by law,
         such as mechanics', workers', materialmens', carriers' or other
         like liens arising in the ordinary course of business of the
         Borrower or a Subsidiary which secure the payment of obligations
         which are not past due or which are being diligently contested in
         good faith by appropriate proceedings and for which adequate
         reserves in accordance with GAAP are maintained on the books of the
         Borrower or the applicable Subsidiary; (e) liens existing on the
         First Closing Date and disclosed in Section 1.1 of the Disclosure
         Schedule, and any extensions, renewals or replacements thereof,
         provided that no additional property shall be encumbered by such
         liens and the unpaid principal amount of the Debt secured thereby
         shall not be increased on or after the date of any such extension,
         renewal or replacement; (f) purchase money security interests or
         liens for the purchase of fixed assets to be used in the business
         of the Borrower or a Subsidiary, securing solely the fixed assets
         so purchased and the proceeds thereof; (g) capitalized leases which
         do not violate any provision of this Agreement; (h) liens of
         commercial depository institutions, arising in the ordinary course
         of business, constituting a statutory or common law right of setoff
         against amounts on deposit with such institution; (i) liens in
         favor of the Administrative Agent and the Lenders pursuant to the
         Transaction Documents; and (j) rights of way, zoning restrictions,
         easements and similar encumbrances affecting the Borrowers' real
         property which do not materially interfere with the use of such
         property.

                  "PERSON" means an individual or corporation, partnership,
         trust, incorporated or unincorporated association, joint venture,
         limited liability company, joint stock company, government (or an
         agency or subdivision thereof) or other entity of any kind.

                                     5

<PAGE>
<PAGE>

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

                  "REGISTRATION STATEMENT" means one or more registration
         statements meeting the requirements of the Registration Rights
         Agreement and covering the resale of Underlying Shares by the
         Lenders who shall be named "selling shareholders" thereunder.

                  "REGISTRATION RIGHTS AGREEMENT" means the Registration
         Rights Agreement, dated as of the date of this Agreement, among the
         Borrower and the Lenders, in the form of Exhibit B hereto.
                                                  ---------

                  "RELATED PARTIES" means, with respect to any specified
         Person, such Person's Affiliates and the respective directors,
         officers, employees, agents and advisors of such Person and such
         Person's Affiliates.

                  "REQUIRED LENDERS" means collectively one or more Lenders
         that made one or more Loans in an initial principal amount
         representing greater than 50% of the aggregate initial principal
         amount of all Loans.

                  "REQUIRED MINIMUM" means, as of any date, the maximum
         aggregate number of shares of Common Stock then issued or
         potentially issuable in the future pursuant to the Transaction
         Documents that the Borrower is obligated to issue, whether
         contingently or otherwise, including, without limitation, any
         Underlying Shares issuable upon exercise or conversion (as
         applicable) in full of all Warrants and Notes and assuming that any
         previously unconverted Notes are held until the maturity date
         thereof, and all interest on the Notes is paid with shares of
         Common Stock.

                  "RESTRICTED PAYMENT" means, as to any Person, (a) any
         dividend or other distribution by such Person (whether in cash,
         securities or other property) with respect to any Equity Interests
         of such Person, (b) any payment (whether in cash, securities or
         other property), including any sinking fund or similar deposit, on
         account of the purchase, redemption, retirement, acquisition,
         cancellation or termination of any such Equity Interest, (c) the
         acquisition for value by such Person of any Equity Interests issued
         by such Person or any other Person that controls such Person and
         (d) any payment by such Person to its officers or directors other
         than (i) in compliance with existing Borrower stock option plans,
         (ii) salaries in the ordinary course of business, and (iii)
         payments required by the terms of the 2003 Debentures (as defined
         in the Notes), the 2004 Debentures (as defined in the Notes), the
         2004 Notes (as defined in the Notes), the 2005 Notes (as defined in
         the Notes) and the Notes, in each case to the extent held by such
         officers and directors.

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

                                     6

<PAGE>
<PAGE>

                  "SECOND CLOSING" means the closing of the purchase and
         sale of the Notes and Warrants pursuant to Section 2.2.

                  "SECOND CLOSING NOTES" means the Notes issued on the Second
         Closing Date.

                  "SECURITIES" means the Notes, the Warrants and the
         Underlying Shares issuable under the Notes and the Warrants.

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

                  "SECURITY AGREEMENT" has the meaning set forth in Section
         2.6(a)(v).

                  "SHAREHOLDER AGREEMENT" has the meaning set forth in
         Section 2.6(a)(iv).

                  "STRATEGIC TRANSACTION" means a transaction or
         relationship in which (1) the Borrower issues shares of Common
         Stock to a Person which the Board of Directors of the Borrower
         determines in good faith is, itself or through its Subsidiaries, an
         operating company in a business synergistic with the business of
         the Borrower and (2) the Borrower expects to receive benefits in
         addition to the investment of funds, but shall not include a
         transaction in which the Borrower issues securities primarily for
         the purpose of raising capital or to an entity whose primary
         business is investing in securities.

                  "SUBSIDIARY" means, with respect to any Person (the
         "PARENT") at any date, any corporation, limited liability company,
         partnership, association or other entity the accounts of which
         would be consolidated with those of the parent in the parent's
         consolidated financial statements if such financial statements were
         prepared in accordance with GAAP as of such date, as well as any
         other corporation, limited liability company, partnership,
         association or other entity of which securities or other ownership
         interests representing 50% or more of the equity or 50% or more of
         the ordinary voting power is or, in the case of a partnership, 50%
         or more of the general partnership interests are, as of such date,
         owned, controlled or held by the parent or one or more subsidiaries
         of the parent. Unless otherwise expressly provided, "Subsidiary"
         shall mean a Subsidiary of the Borrower.

                  "THIRD CLOSING" means the closing of the purchase and sale
         of the Notes and Warrants pursuant to Section 2.3.

                  "THIRD CLOSING NOTES" means the Notes issued on the Third
         Closing Date.

                  "TRADING DAY" means (i) a day on which the Common Stock is
         traded on a Trading Market (other than the OTC Bulletin Board), or
         (ii) if the Common Stock is not traded on a Trading Market (other
         than the OTC Bulletin Board), a day on which the Common Stock is
         traded in the over the counter market, as reported by the OTC
         Bulletin Board, or (iii) if the Common Stock is not traded on any
         Trading Market and not quoted on the OTC Bulletin Board, a day on
         which the Common Stock is quoted in the over the counter market as
         reported by the National Quotation Bureau Incorporated (or any
         similar organization or agency succeeding to its functions of
         reporting prices); provided, that in

                                     7

<PAGE>
<PAGE>

         the event that the Common Stock is not listed or quoted as set forth
         in (i), (ii) and (iii) hereof, then Trading Day shall mean a
         Business Day.

                  "TRADING MARKET" means Nasdaq National Market or any
         Eligible Market on which the Common Stock is then listed or quoted.

                  "TRANSACTION DOCUMENTS" means this Agreement, the Notes,
         the Warrants, the Registration Rights Agreement, Security
         Agreement, Mortgage and Guarantee Agreement and any other documents
         or agreements executed or delivered in connection with the
         transactions contemplated hereunder.

                  "UNDERLYING SHARES" means the shares of Common Stock
         issuable upon conversion of the Notes, as payment of interest
         thereunder, and upon exercise of the Warrants, and in satisfaction
         of any other obligation of the Borrower to issue shares of Common
         Stock pursuant to the Transaction Documents.

                  "VWAP" means, with respect to any date of determination,
         the daily volume weighted average price (as reported by Bloomberg
         using the VAP function) of the Common Stock on such date of
         determination, or if there is no such price on such date of
         determination, then the daily volume weighted average price on the
         date nearest preceding such date.

                  "WARRANTS" means collectively, the Common Stock purchase
         warrants in the form of Exhibit C, issuable pursuant to Sections
                                 ---------
         2.1, 2.2, 2.3 and 2.4.

                                 ARTICLE II.

                           LOAN; PURCHASE AND SALE

         2.1.     First Closing.
                  -------------

                  (a) The purchase and sale of the First Closing Notes
pursuant to the terms of this Section 2.1 shall take place at the offices of
Proskauer Rose LLP, 1585 Broadway, New York, NY 10036 on the date this
Agreement is executed and delivered by the parties or at such other location
or time as the parties may agree.

                  (b) Subject to the terms and conditions of this Agreement,
each Lender agrees, severally and not jointly, to purchase at the First
Closing and the Borrower agrees to sell and issue to each Lender at the
First Closing, that aggregate principal amount of Notes set forth opposite
such Lender's name on Schedule A hereto under the heading "First Closing
Notes" and a Warrant, for the aggregate purchase price ("FIRST CLOSING
PURCHASE PRICE") set forth opposite such Lender's name on Schedule A hereto
under the heading "First Closing Purchase Price".

         2.2.     Second Closing.
                  --------------

                  (a) The Company may following the date (the "SECOND
CLOSING TRIGGER DATE") on which each of the Borrower Second Closing
Deliverables pursuant to Section 2.7 can be delivered to each Lender require
a Second Closing to occur by delivering a written notice to

                                     8

<PAGE>
<PAGE>

each Lender within five (5) Trading Days of the Second Closing Trigger Date
(the "SECOND CLOSING NOTICE") indicating the Borrower's exercise of its
rights under this Section 2.2 and the date of the Second Closing which date
shall be the 10th Trading Day following the Second Closing Notice (the
"SECOND CLOSING DATE"). The purchase and sale of the Second Closing Notes
pursuant to the terms of this Section 2.2 shall take place at the offices of
Proskauer Rose LLP, 1585 Broadway, New York, NY 10036, unless the
requirement to deliver the Second Closing Deliverables or any portion
thereof, as applicable, has been waived by the Required Lenders.

                  (b) Subject to the terms and conditions of this Agreement,
each Lender agrees, severally and not jointly, to purchase at the Second
Closing and the Borrower agrees to sell and issue to each Lender at the
Second Closing, that aggregate principal amount of Notes set forth opposite
such Lender's name on Schedule A hereto under the heading "Second Closing
Notes" and a Warrant, for the aggregate purchase price ("SECOND CLOSING
PURCHASE PRICE") set forth opposite such Lender's name on Schedule A hereto
under the heading "Second Closing Purchase Price".

         2.3.     Third Closing.
                  -------------

                  (a) At any time after the later of occur of (i) the day
following the date the Registration Statement(s) covering the resale of the
Underlying Shares issued at the First Closing and the Second Closing shall
become effective and (ii) the 120th day following the First Closing Date
(the "THIRD CLOSING TRIGGER DATE"), the Borrower may, at its option, require
a Third Closing to occur by delivering an irrevocable written notice to each
Lender within thirty (30) days of the Third Closing Trigger Date (the "THIRD
CLOSING NOTICE") indicating the Borrower's exercise of its rights under this
Section 2.2 and the date of the Third Closing, which date shall be the 10th
Trading Day following the Third Closing Notice (the "THIRD CLOSING DATE").
The purchase and sale of the Third Closing Notes pursuant to the terms of
this Section 2.3 shall take place at the offices of Proskauer Rose LLP, 1585
Broadway, New York, NY 10036.

                  (b) Subject to the terms and conditions of this Agreement,
including without limitation Sections 2.3(c) and 2.5 hereof, each Lender
agrees, severally and not jointly, to purchase at the Third Closing and the
Borrower agrees to sell and issue to each Lender at the Third Closing, that
aggregate principal amount of Notes set forth opposite such Lender's name on
Schedule A hereto under the heading "Third Closing Notes" and a Warrant for
the aggregate purchase price (the "THIRD CLOSING PURCHASE PRICE") set forth
opposite such Lender's name on Schedule A hereto under the heading "Third
Closing Purchase Price".

                  (c) The Conversion Price for the Third Closing Notes shall
be equal to 100% of the arithmetic average of the VWAP of the Borrower's
Common Stock for the 10 Trading Days immediately preceding the Third Closing
Date.

         2.4.     Fourth Closing.
                  --------------

                  (a) At any time after the later to occur of (i) the 120th
day following the Third Closing or (ii) 120th day following the date the
Registration Statement covering the resale of the Underlying Shares issued
at the Third Closing shall become effective (the "FOURTH CLOSING

                                     9

<PAGE>
<PAGE>

TRIGGER DATE"), the Borrower may, at its option, require a Fourth Closing to
occur by delivering an irrevocable written notice to each Lender within
thirty (30) days of the Fourth Closing Trigger Date (the "FOURTH CLOSING
NOTICE") indicating the Borrower's exercise of its rights under this Section
2.3 and the date of the Fourth Closing, which date shall be the 10th Trading
Day following the Fourth Closing Notice (the "FOURTH CLOSING DATE"). The
purchase and sale of the Fourth Closing Notes pursuant to the terms of this
Section 2.4 shall take place at the offices of Proskauer Rose LLP, 1585
Broadway, New York, NY 10036.

                  (b) Subject to the terms and conditions of this Agreement,
including without limitation Sections 2.4(c) and 2.5 hereof, each Lender
agrees, severally and not jointly, to purchase at the Fourth Closing and the
Borrower agrees to sell and issue to each Lender at the Fourth Closing, that
aggregate principal amount of Notes set forth opposite such Lender's name on
Schedule A hereto under the heading "Fourth Closing Notes" and a Warrant for
the aggregate purchase price (the "FOURTH CLOSING PURCHASE PRICE") set forth
opposite such Lender's name on Schedule A hereto under the heading "Fourth
Closing Purchase Price".

                  (c) Notwithstanding anything to the contrary, the Borrower
may only issue a Fourth Closing Notice or require a Fourth Closing (and any
Fourth Closing Notice issued otherwise will be void) if the arithmetic
average of the Closing Prices of the Borrower's Common Stock for each of the
thirty (30) Trading Days immediately preceding the Fourth Closing Date shall
equal or exceed $16.00 per share (as adjusted for stock splits, stock
dividends, stock combinations and other similar events).

                  (d) The Conversion Price for the Fourth Closing Notes
shall be equal to 110% of the arithmetic average of the VWAP of the
Borrower's Common Stock for the 10 Trading Days immediately preceding the
Fourth Closing Date.

         2.5.     Lender's Closing Right.
                  ----------------------

                  (a) Notwithstanding anything to the contrary, from the
Effective Date until the one year anniversary of the Effective Date, in the
event the Borrower has not exercised its right to cause a Third Closing or a
Fourth Closing to occur, each Lender shall have the right to require such
Third Closing or Fourth Closing, at any time and from time to time, by
delivering a written notice to the Borrower within thirty (30) days of the
Third Closing Trigger Date or the Fourth Closing Trigger Date, as
applicable, (the "LENDER CLOSING NOTICE") indicating such Lender's exercise
of its rights under this Section 2.5 and the date of the applicable Closing,
which date shall be no later than 10 Trading Days following delivery of the
Lender Closing Notice (such date, the "THIRD CLOSING DATE" or "FOURTH
CLOSING DATE", as the case may be).

                  (b) Notwithstanding anything to the contrary, the
conversion price for the Notes issuable under this Section 2.5 shall be
equal to 110% of the arithmetic average of the VWAP of the Borrower's Common
Stock for the 10 Trading Days immediately preceding the Third Closing Date
or Fourth Closing Date, as the case may be, but in no event shall such 10
Trading Day arithmetic average of the Closing Prices be less than $14.00 per
share (as adjusted for stock splits, stock dividends, stock combinations and
other similar events).

                                     10

<PAGE>
<PAGE>

         2.6.     First Closing Deliveries.
                  ------------------------

                  (a) At the First Closing, the Borrower shall deliver or
cause to be delivered to each Lender the following, appropriately dated (the
"BORROWER FIRST CLOSING DELIVERABLES"):

                      (i)      a Note, in the aggregate principal amount of the
         First Closing Purchase Price indicated opposite such Lender's name
         on Schedule A registered in the name of such Lender;

                      (ii)     a Warrant, duly executed by the Borrower and
         registered in the name of such Lender, pursuant to which such
         Lender shall have the right to acquire the number of shares of
         Common Stock indicated opposite such Lender's name on Schedule A
         under the heading "First Closing - Warrant Shares";

                      (iii)    the Registration Rights Agreement, duly executed
         by the Borrower;

                      (iv)     a letter agreement, duly executed by Zsolt Rumy,
         Chief Executive Officer of the Borrower, in his individual
         capacity, and accepted and agreed to by the Borrower (as amended,
         supplemented or otherwise modified from time to time, the
         "SHAREHOLDER AGREEMENT");

                      (v)      evidence of proper applications made to, and
         approvals received from, each Trading Market with respect to the
         trading of Underlying Securities thereon;

                      (vi)     the legal opinion of Borrower Counsel, in
         agreed form, addressed to the Administrative Agent and such Lender;

                      (vii)    an officer's certificate reasonably satisfactory
         to the Lenders from an officer of the Borrower that each of the
         conditions set forth in Section 6.1 hereof has been satisfied; and

                      (viii)   any other document reasonably requested by the
         Administrative Agent or such Lender.

                  (b) At the First Closing, each Lender shall deliver or
cause to be delivered to the Borrower the following:

                      (i)      the First Closing Purchase Price, in United
         States dollars and in immediately available funds, by wire transfer
         to an account designated in writing by the Borrower for such
         purpose; and

                      (ii)     the Registration Rights Agreement, duly
         executed by such Lender.

                                     11

<PAGE>
<PAGE>

         2.7.     Second Closing Deliveries.
                  -------------------------

                  (a) At the Second Closing, the Borrower shall deliver or
cause to be delivered to each Lender the following, appropriately dated (the
"BORROWER SECOND CLOSING DELIVERABLES"):

                      (i)      a Note, in the aggregate principal amount of
         the Second Closing Purchase Price indicated opposite such Lender's
         name on Schedule A registered in the name of such Lender;

                      (ii)     a Warrant, duly executed by the Borrower and
         registered in the name of such Lender, pursuant to which such
         Lender shall have the right to acquire the number of shares of
         Common Stock indicated opposite such Lender's name on Schedule A
         under the heading "Second Closing - Warrant Shares";

                      (iii)    a security agreement, duly executed by Opco,
         the Administrative Agent and each other Lender, in the form
         attached hereto as Exhibit F (as amended, supplemented or otherwise
         modified from time to time, the "SECURITY AGREEMENT");

                      (iv)     a mortgage agreement, duly executed by Opco,
         the Administrative Agent and each other Lender, in the form
         attached hereto as Exhibit D (as amended, supplemented or otherwise
         modified from time to time, the "MORTGAGE");

                      (v)      a guarantee agreement, duly executed by Opco,
         the Borrower and each other Lender, in the form attached hereto a
         Exhibit E (as amended, supplemented or otherwise modified from time
         to time, the "GUARANTEE AGREEMENT");

                      (vi)     evidence of proper applications made to, and
         approvals received from, each Trading Market with respect to the
         trading of Underlying Securities thereon;

                      (vii)    the legal opinion of Borrower Counsel, in
         agreed form, addressed to the Administrative Agent and such Lender;

                      (viii)   a legal opinion of Hungarian counsel to the
         Borrower and Opco as to certain matters (including, without
         limitation, perfection, tax and qualification matters) arising
         under the Guarantee Agreement and the Security Agreement, all in
         form and substance reasonably satisfactory to the Administrative
         Agent and such Lender;

                      (ix)     any and all consents from all Persons that
         are necessary or reasonably required by the Administrative Agent or
         such Lender in connection with the Transaction Documents,
         including, without limitation (1) the consents and certificate
         referred to in Section 6.1(g), and (2) relating to the Republic of
         Hungary or any local governmental authority contained therein;

                      (x)      an officer's certificate reasonably satisfactory
         to the Lenders from an officer of the Borrower that each of the
         conditions set forth in Section 6.1 hereof has been satisfied;

                                     12

<PAGE>
<PAGE>

                      (xi)     appropriate lien and record search reports
         showing that there are no liens on the collateral security granted
         under the Mortgage and the Security Agreement, other than Liens
         expressly permitted thereby; and

                      (xii)    any other document reasonably requested by the
         Administrative Agent or such Lender.

                  (b) At the Second Closing, each Lender shall deliver or
cause to be delivered to the Borrower the following:

                      (i)      the Second Closing Purchase Price, in United
         States dollars and in immediately available funds, by wire transfer
         to an account designated in writing by the Borrower for such
         purpose;

                      (ii)     the Mortgage, duly executed by such Lender;

                      (iii)    the Guarantee Agreement, duly executed by such
         Lender; and

                      (iv)     the Security Agreement, duly executed by such
         Lender.

         2.8.     Third Closing Deliveries.
                  ------------------------

                  (a) At the Third Closing, the Borrower shall deliver or
cause to be delivered to each Lender the following, appropriately dated (the
"BORROWER THIRD CLOSING DELIVERABLES"):

                      (i)      a Note, in the aggregate principal amount of
         the Fourth Closing Purchase Price indicated opposite such Lender's
         name in Schedule, registered in the name of such Lender;

                      (ii)     a Warrant, duly executed by the Borrower and
         registered in the name of such Lender, pursuant to which such
         Lender shall have the right to acquire the number of shares of
         Common Stock indicated opposite such Lender's name on Schedule A
         hereto under the heading "Third Closing - Warrant Shares";

                      (iii)    evidence of proper applications made to, and
         approvals received from, each Trading Market with respect to the
         trading of Underlying Securities thereon;

                      (iv)     the legal opinion of Borrower Counsel, in
         agreed form, addressed to the Administrative Agent and such Lender;

                      (v)      an officer's certificate reasonably satisfactory
         to the Lenders from an officer of the Borrower that each of the
         conditions set forth in Section 6.1 hereof has been satisfied.

                                     13

<PAGE>
<PAGE>

                      (vi)     any other document reasonably requested by the
         Administrative Agent or such Lender.

                  (b) At the Third Closing, each Lender shall deliver or cause
to be delivered to the Borrower the Third Closing Purchase Price, in United
States dollars and in immediately available funds, by wire transfer to an
account designated in writing by the Borrower for such purpose.

         2.9.     Fourth Closing Deliveries.
                  -------------------------

                  (a) At the Fourth Closing, the Borrower shall deliver or
cause to be delivered to each Lender the following, appropriately dated (the
"BORROWER FOURTH CLOSING DELIVERABLES" and together with the Borrower First
Closing Deliverables, Borrower Second Closing Deliverables and the Borrower
Third Closing Deliverables, the "BORROWER DELIVERABLES"):

                      (i)      a Note, in the aggregate principal amount of
         the Fourth Closing Purchase Price indicated opposite such Lender's
         name in Schedule, registered in the name of such Lender;

                      (ii)     a Warrant, duly executed by the Borrower and
         registered in the name of such Lender, pursuant to which such
         Lender shall have the right to acquire the number of shares of
         Common Stock indicated opposite such Lender's name on Schedule A
         hereto under the heading "Fourth Closing - Warrant Shares";

                      (iii)    evidence of proper applications made to, and
         approvals received from, each Trading Market with respect to the
         trading of Underlying Securities thereon;

                      (iv)     an officer's certificate reasonably satisfactory
         to the Lenders from an officer of the Borrower that each of the
         conditions set forth in Section 6.1 hereof has been satisfied.

                      (v)      the legal opinion of Borrower Counsel, in
         agreed form, addressed to the Administrative Agent and such Lender;
         and

                      (vi)     any other document reasonably requested by the
         Administrative Agent or such Lender.

                  (b) At the Fourth Closing, each Lender shall deliver or
cause to be delivered to the Borrower the Fourth Closing Purchase Price, in
United States dollars and in immediately available funds, by wire transfer
to an account designated in writing by the Borrower for such purpose.

                                     14

<PAGE>
<PAGE>

                                 ARTICLE III.

                       REPRESENTATIONS AND WARRANTIES

         3.1.     Representations and Warranties of the Borrower. Subject to
                  ----------------------------------------------
the qualifications and disclosures set forth beside the specific reference to
this Agreement in the Disclosure Schedule (the parties hereto agreeing that
a reference in the Disclosure Schedule to a particular Section shall only
apply to the representation in such Section), the Borrower hereby makes the
following representations and warranties to the Administrative Agent and
each Lender:

                  (a) Subsidiaries. The Borrower does not directly or
                      ------------
indirectly control or own any Equity Interest in any Subsidiary, other than
as listed in Section 3.1(a) of the Disclosure Schedule. Except as disclosed
in Section 3.1(a) of the Disclosure Schedule, the Borrower owns, directly or
indirectly, all of the Equity Interests of each Subsidiary free and clear of
any Lien, and all the issued and outstanding Equity Interests of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights.

                  (b) Organization and Qualification. Each of the Borrower
                      ------------------------------
and each Subsidiary is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation or organization (as applicable), with the requisite power
and authority to own and use its properties and assets and to carry on its
business as currently conducted. Neither the Borrower nor any Subsidiary is
in violation of any of the provisions of its respective certificate or
articles of incorporation, bylaws or other organizational or charter
documents. Each of the Borrower and each Subsidiary is duly qualified to
conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could
not, individually or in the aggregate, have or reasonably be expected to
result in (i) an adverse effect on the legality, validity or enforceability
of any Transaction Document, (ii) a material and adverse effect on the
results of operations, assets, prospects, business or condition (financial
or otherwise) of the Borrower and the Subsidiaries, taken as a whole, or
(iii) an adverse impairment to the Borrower's ability to perform on a timely
basis its obligations under any Transaction Document (any of (i), (ii) or
(iii), a "MATERIAL ADVERSE EFFECT").

                  (c) Authorization; Enforcement. The Borrower and each
                      --------------------------
Subsidiary party to a Transaction Document has the requisite power and
authority to enter into and to consummate the transactions contemplated by
each of the Transaction Documents and otherwise to carry out its obligations
thereunder. The execution and delivery by the Borrower and each Subsidiary
party to a Transaction Document of each of the Transaction Documents to
which it is a party and the consummation by it of the transactions
contemplated thereunder have been duly authorized by all necessary action on
the part of the Borrower or such Subsidiary, as the case may be, and no
further consent or action is required by the Borrower, such Subsidiary, or
their respective Boards of Directors, members, partners, managers or
shareholders, as applicable. Each of the Transaction Documents to which the
Borrower or any Subsidiary is a party has been (or upon delivery will be)
duly executed by the Borrower or such Subsidiary, as the case may be, and,
when delivered in accordance with the terms hereof, will constitute the
valid and binding obligation of the Borrower and such Subsidiary, to the
extent a party thereto, enforceable against

                                     15

<PAGE>
<PAGE>

the Borrower or such Subsidiary, as the case may be, in accordance with its
terms except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating
to, or affecting generally the enforcement of, creditors' rights and
remedies or by equitable principles of general application.

                  (d) No Conflicts. The execution, delivery and performance
                      ------------
of the Transaction Documents by the Borrower and each Subsidiary party to a
Transaction Document and the consummation by the Borrower and such
Subsidiaries of the transactions contemplated thereby do not and will not
(i) conflict with or violate any provision of the Borrower's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become
a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both)
of, any agreement, contract, credit facility, Debt or other instrument
(evidencing Debt of the Borrower or a Subsidiary or otherwise) or other
understanding to which the Borrower or any Subsidiary is a party or by which
any property or asset of the Borrower or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Borrower or any Subsidiary is subject
(including federal and state securities laws and regulations) and the rules
and regulations of any self-regulatory organization to which the Borrower or
its securities are subject, or by which any property or asset of the
Borrower or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect.
Payments of cash on account of principal of or interest under the Notes,
upon any Event of Default under the Notes upon a Buy-In under and as such
term is defined in a Warrant will not require the consent of, any payment
to, or the springing of any Lien in favor of any lender to or creditor of
the Borrower or any Subsidiary (under a credit facility, loan agreement or
otherwise) and will not result in a default under any such credit
facilities, loans or other agreements.

                  (e) Filings, Consents and Approvals. Neither the Borrower
                      -------------------------------
nor any Subsidiary is required to obtain any consent, waiver, authorization
or order of, give any notice to, or make any filing or registration with,
any court or other federal, state, local or other governmental authority or
other Person in connection with the execution, delivery and performance by
it of any Transaction Document to which it is a party, other than (i) the
filing with the Commission of one or more Registration Statements in
accordance with the requirements of the Registration Rights Agreement, (ii)
the application(s) to the Trading Market on which the Common Stock is listed
for trading for the listing of the Underlying Shares for trading thereon in
the time and manner required thereby which have been made and obtained prior
to the applicable Closing Date, and (iii) the requirements, disclosed in
Section 3.1(e) of the Disclosure Schedule, if any.

                  (f) Issuance of the Securities. Each of the Securities
                      --------------------------
have been duly authorized and, when issued and paid for in accordance with
the Transaction Documents or otherwise, have been or, when issued, will be
duly and validly issued, fully paid and nonassessable, free and clear of all
Liens. The Borrower has reserved from its duly authorized capital stock a
number of shares of Common Stock issuable upon conversion of the Notes (as

                                     16

<PAGE>
<PAGE>

may be issued on account of interest thereunder) and exercise of the
Warrants, which number of reserved shares is not less than the Required
Minimum calculated as of the date hereof.

                  (g) Capitalization. The number of shares and type of all
                      --------------
authorized, issued and outstanding capital stock of the Borrower, and all
shares of Common Stock reserved for issuance under the Borrower's various
option and incentive plans and all warrants, debentures and Common Stock
Equivalents (on a pro forma basis immediately after giving effect to the
transactions contemplated by the Transaction Documents), is set forth in
Section 3.1(g) of the Disclosure Schedule. Except as set forth in Section
3.1(g) of the Disclosure Schedule, no securities of the Borrower are
entitled to preemptive or similar rights, and no Person has any right of
first refusal, preemptive right, right of participation, or any similar
right to participate in the transactions contemplated by the Transaction
Documents. Except as a result of the purchase and sale of the Securities and
except as set forth in Section 3.1(g) of the Disclosure Schedule, there are
no outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights
or obligations convertible into or exchangeable for, or giving any Person
any right to subscribe for or acquire, any shares of Common Stock, or any
contract, commitment, understanding or arrangement by which the Borrower is
or may become bound to issue additional shares of Common Stock or Common
Stock Equivalents. The issue and sale of the Securities will not,
immediately or with the passage of time, obligate the Borrower to issue
shares of Common Stock or other securities to any Person (other than the
Lenders) and will not result in a right of any holder of Borrower securities
to adjust the exercise, conversion, exchange or reset price under such
securities.

                  (h) SEC Reports; Financial Statements. The Borrower has
                      ---------------------------------
filed all reports required to be filed by it under the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the twelve months
preceding the date hereof (or such shorter period as the Borrower was
required by law to file such material) (the foregoing materials being
collectively referred to herein as the "SEC REPORTS" and, together with this
Agreement and Section 3.1(h) of the Disclosure Schedule to this Agreement,
the "DISCLOSURE MATERIALS") on a timely basis or has timely filed a valid
extension of such time of filing and has filed any such SEC Reports prior to
the expiration of any such extension. Except as set forth in Section 3.1(h)
of the Disclosure Schedule, as of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities
Act and the Exchange Act and the rules and regulations of the Commission
promulgated thereunder, and none of the SEC Reports, when filed, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except as set forth in Section 3.1(h) of the Disclosure
Schedule, the financial statements of the Borrower included in the SEC
Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Except as set forth in Section
3.1(h) of the Disclosure Schedule, such financial statements have been
prepared in accordance GAAP, except as may be otherwise specified in such
financial statements or the notes thereto, and fairly present in all
material respects the financial position of the Borrower and its
consolidated Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case
of unaudited statements, to normal, immaterial, year-end audit adjustments
and the absence of footnotes. All material agreements to which the Borrower
or any Subsidiary is a party or to which the property or assets of the

                                     17

<PAGE>
<PAGE>

Borrower or any Subsidiary are subject are included as part of or
specifically identified in the SEC Reports.

                  (i) Press Releases. The press releases disseminated by the
                      --------------
Borrower during the two (2) years preceding the date of this Agreement taken
as a whole do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading.

                  (j) Material Changes. Since the date of the latest audited
                      ----------------
financial statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Borrower has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice
and (B) liabilities not required to be reflected in the Borrower's financial
statements pursuant to GAAP or not required to be disclosed in filings made
with the Commission, (iii) the Borrower has not altered its method of
accounting or the identity of its auditors, (iv) the Borrower has not
declared or made any dividend or distribution of cash or other property to
its shareholders or purchased, redeemed or made any agreements to purchase
or redeem any shares of its capital stock, and (v) the Borrower has not
issued any equity securities to any officer, director or Affiliate, except
pursuant to existing Borrower stock incentive plans. Except as noted in the
Borrower's SEC Reports, the Borrower does not have pending before the
Commission any request for confidential treatment of information.

                  (k) Litigation. Except as set forth in Section 3.1(k) of
                      ----------
the Disclosure Schedule, there is no Action which (i) adversely affects or
challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) except as otherwise set
forth in the SEC Reports, would reasonably be expected, individually or in
the aggregate, to result in a Material Adverse Effect. Neither the Borrower
nor any Subsidiary, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty.
There has not been, and to the knowledge of the Borrower, there is not
pending or contemplated, any investigation by the Commission involving the
Borrower or any current or former director or officer of the Borrower. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Borrower or any
Subsidiary under the Exchange Act or the Securities Act.

                  (l) Labor Relations. No material labor dispute exists or,
                      ---------------
to the knowledge of the Borrower, is imminent with respect to any of the
employees of the Borrower or any Subsidiary.

                  (m) Compliance. Except as set forth in Section 3.1(m) of
                      ----------
the Disclosure Schedule, neither the Borrower nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Borrower or any Subsidiary under), nor has the Borrower or
any Subsidiary received notice of a claim that it is in default under or
that it is in violation of, any

                                     18

<PAGE>
<PAGE>

indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (other
than defaults or violations that have been cured or waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or
(iii) is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal,
state and local laws relating to taxes, environmental protection,
occupational health and safety, product quality and safety and employment
and labor matters, except in each case as could not, individually or in the
aggregate, have or could not reasonably be expected to result in a Material
Adverse Effect. The Borrower is in compliance with the applicable
requirements of the Sarbanes-Oxley Act of 2002, as amended, and the rules
and regulations thereunder promulgated by the Commission, except where such
noncompliance could not have or reasonably be expected to result in a
Material Adverse Effect. The Borrower is not, to the best of its knowledge
(after due inquiry), in default in any material respect with the terms,
conditions or covenants set forth in (i) the Securities Purchase Agreement,
or the debentures or warrants issued pursuant thereto, among the Borrower
and the lenders therein, dated as of December 19, 2003, (ii) the Securities
Purchase Agreement, or the debentures or warrants issued pursuant thereto,
among the Borrower and the lenders therein, dated as of March 11, 2004 or
(iii) the Loan and Warrant Agreement, or the notes and warrants issued
pursuant thereto, among the Borrower and the lenders therein dated as of
October 14, 2004.

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

                  (o) Title to Assets. The Borrower and the Subsidiaries
                      ---------------
have good and marketable title in fee simple to all real property owned by
them that is material to the business of the Borrower and the Subsidiaries
and good and marketable title in all personal property owned by them that is
material to the business of the Borrower and the Subsidiaries, in each case
free and clear of all Liens, except for Permitted Liens, which are set forth
in Section 3.1(k) of the Disclosure Schedule, and except for such Liens as
do not materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by the
Borrower and the Subsidiaries. Any real property and facilities held under
lease by the Borrower and the Subsidiaries that are material to the business
of the Borrower and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Borrower and the Subsidiaries
are in compliance.

                  (p) Patents and Trademarks. The Borrower and the
                      ----------------------
Subsidiaries own, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
licenses and other similar rights that are necessary or material for use in
connection with their respective businesses as described in the SEC Reports
and which the failure to so have could not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect (collectively, the "INTELLECTUAL PROPERTY RIGHTS"). Neither the
Borrower nor any Subsidiary has received a written notice that any
Intellectual Property

                                     19

<PAGE>
<PAGE>

Right violates or infringes upon the rights of any Person. Except as set
forth in the SEC Reports, to the knowledge of the Borrower, all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights.

                  (q) Insurance. The Borrower and the Subsidiaries are
                      ---------
insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary in the
businesses in which the Borrower and the Subsidiaries are engaged. Neither
the Borrower nor any Subsidiary has any reason to believe that it will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business without a significant increase in cost.

                  (r) Transactions With Affiliates and Employees. Except as
                      ------------------------------------------
set forth in the SEC Reports, none of the officers or directors of the
Borrower or any Subsidiary and, to the knowledge of the Borrower, none of
the employees of the Borrower or any Subsidiary is presently a party to any
transaction with the Borrower or any Subsidiary (other than for services as
employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to
the knowledge of the Borrower, any entity in which any officer, director, or
any such employee has a substantial interest or is an officer, director,
trustee or partner.

                  (s) Internal Accounting Controls. Except as set forth in
                      ----------------------------
the SEC Reports, the Borrower and the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general
or specific authorization, and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences. The Borrower has
established disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Borrower and designed such disclosure
controls and procedures to ensure that material information relating to the
Borrower, including its Subsidiaries, is made known to the certifying
officers by others within those entities, particularly during the period in
which the Borrower's Form 10-K or 10-Q, as the case may be, is being
prepared. The Borrower's certifying officers have evaluated the
effectiveness of the Borrower's controls and procedures in accordance with
Item 307 of Regulation S-K under the Exchange Act for the Borrower's most
recently ended fiscal quarter or fiscal year-end (such date, the "EVALUATION
DATE"). The Borrower presented in its most recently filed Form 10-K or Form
10-Q the conclusions of the certifying officers about the effectiveness of
the disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Borrower's internal controls (as such term is defined in Item
308(c) of Regulation S-K under the Exchange Act) or, to the Borrower's
knowledge, in other factors that could significantly affect the Borrower's
internal controls.

                  (t) Solvency. Based on the financial condition of the
                      --------
Borrower as of the applicable Closing Date (and assuming that the Closing
shall have occurred), (i) the Borrower's

                                     20

<PAGE>
<PAGE>

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

                  (u) Certain Fees. Except as set forth in Section 3.1(u) of
                      ------------
the Disclosure Schedule, no brokerage or finder's fees or commissions are or
will be payable by the Borrower to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other Person
with respect to the transactions contemplated by this Agreement. Neither the
Administrative Agent nor any Lender shall have any obligation with respect
to any fees or with respect to any claims (other than such fees or
commissions owed by such Person pursuant to written agreements executed by
such Person which fees or commissions shall be the sole responsibility of
such Person) made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement.

                  (v) Certain Registration Matters. Assuming the accuracy of
                      ----------------------------
the Lenders' representations and warranties set forth in Sections
3.2(b)-(e), no registration under the Securities Act is required for the
offer and sale of the Securities by the Borrower to the Lenders under the
Transaction Documents. The Borrower has not granted or agreed to grant to
any Person any rights (including without limitation "PIGGY BACK"
registration rights) to have any securities of the Borrower registered with
the Commission or any other governmental authority that have not been
satisfied.

                  (w) Listing and Maintenance Requirements. Except as
                      ------------------------------------
specified in the SEC Reports, the Borrower has not, in the two years
preceding the date hereof, received notice from any Eligible Market to the
effect that the Borrower is not in compliance with the listing or
maintenance requirements thereof. The Borrower is, and has no reason to
believe that it will not in the foreseeable future continue to be, in
compliance with the listing and maintenance requirements for continued
listing of the Common Stock on the Trading Market. The issuance and sale of
the Securities under the Transaction Documents does not contravene the rules
and regulations of the Trading Market, and except as set forth in this
Agreement, no approval of the shareholders of the Borrower thereunder is
required for the Borrower to issue and deliver to the Lenders the maximum
number of Securities contemplated by Transaction Documents, including as may
be required pursuant to Nasdaq Rule Filing SR-NASD-2003-40 (March 14, 2003)
concerning shareholder approval requirements when officers and directors
participate in discounted private placements and Nasdaq Rule Filing
SR-NASD-2003-61 (March 28, 2003) concerning shareholder approval
requirements in connection with a change of control.

                                     21

<PAGE>
<PAGE>

                  (x) Environmental Matters. Neither the Borrower nor any
                      ---------------------
Subsidiary (i) is in violation of any statute, rule, regulation, decision or
order of any governmental agency or body or any court, domestic or foreign,
relating to the use, disposal or release of hazardous or toxic substances or
relating to the protection or restoration of the environment or human
exposure to hazardous or toxic substances (collectively, "ENVIRONMENTAL
LAWS"), (ii) owns or operates any real property contaminated with any
substance that is subject to any Environmental Laws, (iii) is liable for any
off-site disposal or contamination pursuant to any Environmental Laws, and
(iv) is subject to any claim relating to any Environmental Laws, which
violation, contamination, liability or claim has had or could reasonably be
expected to have a Material Adverse Effect, individually or in the
aggregate; and there is no pending investigation threatened in writing by
any governmental authority that might lead to such a claim.

                  (y) Investment Company. The Borrower is not, and is not an
                      ------------------
Affiliate of, an "INVESTMENT COMPANY" within the meaning of the Investment
Company Act of 1940, as amended.

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

                  (aa) No Additional Agreements. The Borrower does not have
                       ------------------------
any agreement or understanding with the Administrative Agent or any Lender
with respect to the transactions contemplated by the Transaction Documents
other than as specified therein, except that any officer or director who
participates in this transaction as a Lender shall not be entitled to any
anti-dilution protection (other than on account of stock splits, stock
combinations and similar events) under the Notes or the Warrants acquired by
them or their Affiliates so as not to violate Nasdaq Rule Filing
SR-NASD-2003-40 (March 14, 2003).

                  (bb) Disclosure. The Borrower confirms that neither it nor
                       ----------
any Person acting on its behalf has provided the Administrative Agent or any
of the Lenders or their agents or counsel with any information that the
Borrower believes constitutes material, non-public information. The Borrower
understands and confirms that the Administrative Agent and the Lenders will
rely on the foregoing representations and warranties in effecting
transactions in securities of the Borrower. All disclosure provided to the
Administrative Agent and the Lenders regarding the Borrower, its business
and the transactions contemplated hereby, furnished by or on behalf of the
Borrower (including the Borrower's representations and warranties set forth
in this Agreement and the Disclosure Schedule) are true and correct and do
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.

                                     22

<PAGE>
<PAGE>

                  (cc) Acknowledgment Regarding Lenders' Purchase of
                       ---------------------------------------------
Securities. The Borrower acknowledges and agrees that each of the Lenders is
----------
acting solely in the capacity of an arm's length lender with respect to the
Transaction Documents and the transactions contemplated hereby. The Borrower
further acknowledges that neither the Administrative Agent nor any Lender is
acting as a financial advisor or fiduciary of the Borrower (or in any
similar capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and any advice given by the Administrative
Agent or any Lender or any of their respective representatives or agents in
connection with the Transaction Documents and the transactions contemplated
hereby is merely incidental to the Lenders' purchase of the Securities or
the Administrative Agent's performance of its duties under the Transaction
Documents. The Borrower further represents to the Administrative Agent and
each Lender that the Borrower's decision to enter into this Agreement has
been based solely on the independent evaluation by the Borrower and its
representatives.

         3.2.     Representations and Warranties of the Lenders. Each
                  ---------------------------------------------
Lender, for itself and for no other Lender, hereby represents and warrants
to the Borrower as follows:

                  (a) Organization; Authority. Such Lender is an entity duly
                      -----------------------
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate, partnership,
limited liability company or other applicable like power and authority to
enter into and to consummate the transactions contemplated by the applicable
Transaction Documents and otherwise to carry out its obligations thereunder.
The execution, delivery and performance by such Lender of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or, if such Lender is not a corporation, such partnership, limited
liability company or other applicable like action, on the part of such
Lender. Each of this Agreement, the Registration Rights Agreement, the
Mortgage, the Security Agreement and Guarantee Agreement has been duly
executed by such Lender, and when delivered by such Lender in accordance
with the terms hereof, will constitute the valid and legally binding
obligation of such Lender, enforceable against it in accordance with its
terms.

                  (b) Investment Intent. Such Lender is acquiring its Note
                      -----------------
and Warrant for investment purposes and not with a view to or for
distributing or reselling them or any part thereof, without prejudice,
however, to such Lender's right at all times to sell or otherwise dispose of
all or any part thereof in compliance with applicable federal and state
securities laws. Subject to the immediately preceding sentence, nothing
contained herein shall be deemed a representation or warranty by such Lender
to hold any Securities for any period of time. Such Lender is acquiring such
Note and Warrant in the ordinary course of its business. Such Lender does
not have any agreement or understanding, directly or indirectly, with any
Person to distribute any of the Securities.

                  (c) Lender Status. At the time each Lender was offered its
                      -------------
Note and its Warrant, it was, and at the date of each Closing will be, it
is, an "accredited investor" as defined in Rule 501(a) under the Securities
Act. Such Lender is not a registered broker-dealer under Section 15 of the
Exchange Act.

                  (d) General Solicitation. Such Lender is not taking any
                      --------------------
Note or Warrant as a result of any advertisement, article, notice or other
communication regarding either of them

                                     23

<PAGE>
<PAGE>

published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar or any other general
solicitation or general advertisement.

                  (e) Access to Information. Such Lender acknowledges that
                      ---------------------
it has reviewed the Disclosure Materials and has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Borrower concerning the terms
and conditions of the offering of the Securities and the merits and risks of
investing in the Securities; (ii) access to information about the Borrower
and the Subsidiaries and their respective financial condition, results of
operations, business, properties, management and prospects sufficient to
enable it to evaluate its investment; and (iii) the opportunity to obtain
such additional information that the Borrower possesses or can acquire
without unreasonable effort or expense that is necessary to make an informed
investment decision with respect to the investment. Neither such inquiries
nor any other investigation conducted by or on behalf of such Lender or its
representatives or counsel shall modify, amend or affect such Lender's right
to rely on the truth, accuracy and completeness of the Disclosure Materials
and the Borrower's representations and warranties contained in the
Transaction Documents.

                  (f) Limited Ownership. The purchase by such Lender of the
                      -----------------
Securities issuable to it at the applicable Closing (including the
Underlying Shares that would be issuable upon the conversion and exercise of
such Securities) will not result in such Lender (individually or together
with other Persons with whom such Lender has identified, or will have
identified, itself as part of a "group" in a public filing made with the
Commission involving the Borrower's securities) acquiring, or obtaining the
right to acquire, in excess of 19.999% of the Common Stock or the voting
power of the Borrower on a post transaction basis that assumes that the
applicable Closing shall have occurred. Such Lender does not presently
intend to, alone or together with others, make a public filing with the
Commission to disclose that it has (or that it together with such other
Persons have) acquired, or obtained the right to acquire, as a result of the
applicable Closing (when added to any other securities of the Borrower that
it or they then own or have the right to acquire), in excess of 19.999% of
the Common Stock or voting power of the Borrower on a post transaction basis
that assumes that the applicable Closing shall have occurred.

                  (g) Independent Investment Decision. Such Lender has
                      -------------------------------
independently evaluated the merits of its decision to invest in the Notes
and the Warrants pursuant to this Agreement, such decision has been
independently made by such Lender and such Lender confirms that it has only
relied on the advice of its own business and/or legal counsel and not on the
advice of any other Lender's business and/or legal counsel in making such
decision.

The Borrower acknowledges and agrees that no Lender makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2. The
Borrower acknowledges and agrees that the Administrative Agent does not make
and has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
this Section 3.2.

                                     24

<PAGE>
<PAGE>

                                 ARTICLE IV.

                       OTHER AGREEMENTS OF THE PARTIES

         4.1.     (a) Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of the
Securities other than pursuant to an effective registration statement, to
the Borrower, to an Affiliate of a Lender or in connection with a pledge as
contemplated in Section 4.1(b), the Borrower may require the transferor
thereof to provide to the Borrower an opinion of counsel selected by the
transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Borrower, to the effect that such transfer does not
require registration of such transferred Securities under the Securities
Act.

                  (b) Certificates evidencing the Securities will contain the
following legend, so long as is required by this Section 4.1(b) or Section
4.1(c):

         [NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON
         CONVERSION/EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED]
         [THESE SECURITIES HAVE NOT BEEN REGISTERED] WITH THE SECURITIES AND
         EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
         RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
         ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
         MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
         REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
         AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
         REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
         WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
         OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE
         OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE BORROWER. [THESE
         SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION/EXERCISE OF
         THESE SECURITIES] [THESE SECURITIES] MAY BE PLEDGED IN A MANNER
         CONSISTENT WITH THE SECURITIES ACT IN CONNECTION WITH A BONA FIDE
         MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

                  The Borrower acknowledges and agrees that a Lender may
from time to time pledge, and/or grant a security interest in some or all of
the Securities pursuant to a bona fide margin agreement in connection with a
bona fide margin account in accordance with the Securities Act and, if
required under the terms of such agreement or account, such Lender may
transfer pledged or secured Securities to the pledgees or secured parties.
Such a pledge or transfer would not be subject to approval or consent of the
Borrower and no legal opinion of legal counsel to the pledgee, secured party
or pledgor shall be required in connection with the pledge, but such legal
opinion may be required in connection with a subsequent transfer, following
default, by the Lender transferee of the pledge. No notice shall be required
of such pledge. At the appropriate Lender's expense, the Borrower will
execute and deliver such reasonable documentation as a pledgee or secured
party of Securities may reasonably request in connection with a pledge or
transfer of the Securities including the preparation and filing of any
required prospectus supplement under Rule 424(b)(3) under the Securities Act
or other

                                     25

<PAGE>
<PAGE>

applicable provision of the Securities Act to appropriately amend the list
of Selling Stockholders thereunder.

                  (c) Certificates evidencing Underlying Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)): (i)
following a sale of such Securities under a registration statement
(including a Registration Statement), or (ii) following any sale of such
Securities pursuant to Rule 144, or (iii) while such Securities are eligible
for sale under Rule 144(k), or (iv) if such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the Commission).
Borrower may not make any notation on its records or give instructions to
any transfer agent of the Borrower that enlarge the restrictions on transfer
set forth in this Section.

         4.2.     Furnishing of Information. As long as any Lender owns the
                  -------------------------
Securities issued or issuable to it, the Borrower covenants to timely file
(or obtain extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Borrower after the
date hereof pursuant to the Exchange Act. Upon the request of any such
Person, the Borrower shall deliver to such Person a written certification of
a duly authorized officer as to whether it has complied with the preceding
sentence. As long as any Lender owns Securities, if the Borrower is not
required to file reports pursuant to such laws, it will prepare and furnish
to the Lenders and make publicly available in accordance with Rule 144(c)
such information as is required for the Lenders to sell the Underlying
Shares under Rule 144. The Borrower further covenants that it will take such
further action as any holder of Securities may reasonably request, all to
the extent required from time to time to enable such Person to sell such
Underlying Shares without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144.

         4.3.     Acknowledgment of Dilution. The Borrower acknowledges that
                  --------------------------
the issuance of the Securities (including the Underlying Shares) will result
in dilution of the outstanding shares of Common Stock, which dilution may be
substantial. The Borrower further acknowledges that its obligations under
the Transaction Documents, including without limitation its obligation to
issue the Securities (including the Underlying Shares) pursuant to the
Transaction Documents, are unconditional and absolute and not subject to any
right of set off, counterclaim, delay or reduction, regardless of the effect
of any such dilution or any claim that the Borrower may have against the
Administrative Agent or any Lender.

         4.4.     Integration. The Borrower shall not, and shall use
                  -----------
its best efforts to ensure that no Affiliate of the Borrower shall, sell,
offer for sale or solicit offers to buy or otherwise negotiate in respect of
any security (as defined in Section 2 of the Securities Act) that would be
integrated with the offer or sale of the Securities in a manner that would
require the registration under the Securities Act of the sale of the
Securities to the Lenders, or that would be integrated with the offer or
sale of the Securities for purposes of the rules and regulations of any
Trading Market.

         4.5.     Listing of Common Stock. From the date hereof through
                  -----------------------
the Effectiveness Period (as such term is defined in the Registration Rights
Agreement) the Borrower agrees (i) if the Borrower applies to have the
Common Stock traded on any Trading Market other than the Trading Market
which the Common Stock is currently listed for trading, it will include in
such application the Underlying Shares, and will take such other action as
is necessary or desirable to

                                     26

<PAGE>
<PAGE>

cause such securities to be listed on such other Trading Market as promptly
as possible and (ii) it will take all action reasonably necessary to
continue the listing and trading of its Common Stock on a Trading Market and
will comply in all material respects with the Borrower's reporting, filing
and other obligations under the bylaws or rules of the Trading Market.

         4.6.     Reservation of Shares. The Borrower shall maintain a
                  ---------------------
reserve from its duly authorized shares of Common Stock to comply with its
conversion obligations under the Notes and its exercise obligations under
the Warrants. If on any date the Borrower would be, if notice of exercise or
conversion were to be delivered on such date, precluded from issuing the
number of Underlying Shares, as the case may be, issuable upon conversion in
full of the Notes or exercise in full under the Warrants due to the
unavailability of a sufficient number of authorized but unissued or reserved
shares of Common Stock, then the Board of Directors of the Borrower shall
promptly prepare and mail to the shareholders of the Borrower proxy
materials or other applicable materials requesting authorization to amend
the Borrower's articles of incorporation or other organizational document to
increase the number of shares of Common Stock which the Borrower is
authorized to issue so as to provide enough shares for issuance of the
Underlying Shares. In connection therewith, the Board of Directors shall (a)
adopt proper resolutions authorizing such increase, (b) recommend to and
otherwise use its best efforts to promptly and duly obtain shareholder
approval to carry out such resolutions (and hold a special meeting of the
shareholders as soon as practicable, but in any event not later than the
60th day after delivery of the proxy or other applicable materials relating
to such meeting) and (c) within five Business Days of obtaining such
shareholder authorization, file an appropriate amendment to the Borrower's
articles of incorporation or other organizational document to evidence such
increase.

         4.7.     Conversion and Exercise Procedures. The form of Exercise
                  ----------------------------------
Notice included in and as defined in the Warrants and the form of Conversion
Notice included in and as defined in the Notes set forth the totality of the
procedures required by the Lenders in order to exercise the Warrants and
convert the Notes. No additional legal opinion or other information or
instructions shall be necessary to enable the Lenders to exercise the
Warrants or convert Notes. The Borrower shall honor exercises of the
Warrants and conversions of the Notes and shall deliver Underlying Shares in
accordance with the terms, conditions and time periods set forth in the
Transaction Documents.

         4.8.     Subsequent Registrations; Subsequent Placements.
                  -----------------------------------------------

                  (a) From the First Closing Date through and including the
Effective Date, the Borrower will not file a registration statement (other
than on a Form S-8 and pursuant to the Registration Rights Agreement) with
the Commission with respect to any securities of the Borrower.

                  (b) Prior to the first year anniversary of the Second
Closing Date, in the event the Borrower or any Subsidiary, directly or
indirectly, determines to offer, sell, grant any option to purchase, or
otherwise dispose of (or announces any offer, sale, grant or any option to
purchase or otherwise dispose of) any Common Stock or Common Stock
Equivalents (other than under and pursuant to the Notes and the Warrants) or
any of its Subsidiaries' equity or Common Stock Equivalents, including
without limitation, pursuant to a private placement, an equity line of
credit or a shelf registration statement in accordance with Rule 415 under
the Securities Act,

                                     27

<PAGE>
<PAGE>

(such offer, sale, grant, disposition or announcement being referred to as
"SUBSEQUENT PLACEMENT"), the Borrower shall deliver to each Lender a written
notice (the "SUBSEQUENT PLACEMENT NOTICE") of its intention to effect such
Subsequent Placement, which specifies in reasonable detail the type of
securities being offered (the "OFFERED SECURITIES"), all of the other
material terms of such Subsequent Placement, the amount of proceeds intended
to be raised thereunder, the names of the investors (including the
investment manager of such investors, if any) and the investment bankers
with whom such Subsequent Placement is proposed to be effected, and attached
to which shall be a term sheet or similar document. Each Lender shall have
until 6:30 p.m. (New York City time) on the fifth Trading Day after their
respective receipt of the Subsequent Placement Notice to notify Borrower of
its intention to participate ("NOTICE OF ACCEPTANCE"), subject to completion
of mutually acceptable documentation, in such financing on the same terms as
set forth in the Subsequent Placement Notice, provided however, that as to
any transaction or series of related transactions, the Borrower shall have
no obligation to offer the Lenders the right to participate, in the
aggregate, in an amount that exceeds the lesser of (i) 25% of the securities
offered and (ii) a portion of the Subsequent Placement equal to the then
outstanding principal amount of the Notes divided by the aggregate purchase
price of the Subsequent Placement.

                  (c) The Borrower shall have five (5) Trading Days from the
expiration of the period set forth in Section 4.8(b) above to issue, sell or
exchange all or any part of such Offered Securities as to which a Notice of
Acceptance has not been given by the Lenders (the "REFUSED SECURITIES"), but
only to the offerees described in the Subsequent Placement Notice and only
upon terms and conditions (including, without limitation, unit prices and
interest rates) that are not more favorable to the acquiring Person or
Persons or less favorable to the Borrower than those set forth in the
Subsequent Placement Notice.

                  (d) Any Offered Securities not acquired by the Lenders or
other persons in accordance with this Section 4.8(b) above may not be
issued, sold or exchanged until they are again offered to the Lenders under
the procedures specified in this Agreement.

                  (e) The period set forth in the first sentence of Section
4.8(b) shall be extended for the number of Trading Days during such period
in which (i) trading in the Common Stock is suspended by any Trading Market
or the Commission, or (ii) the Registration Statement is not effective or
the prospectus included in the Registration Statement may not be used by the
Lenders for the resale of the Underlying Shares following the required
effective date as set forth in Section 2(b) of the Registration Rights
Agreement.

                  (f) The Borrower's obligations under Section 4.8(b) shall
not apply to any grant or issuance by the Borrower of any of the following:
(i) the issuance of securities upon the exercise or conversion of any Common
Stock Equivalents issued by the Borrower prior to the date of this Agreement
(but will apply to any amendments, modifications and reissuances thereof),
and (ii) the grant of options or warrants, or the issuance of additional
securities, under any duly authorized company stock option, restricted stock
plan or stock purchase plan in existence on the First Closing Date, (iii)
the issuance of Common Stock in payment of interest on the Notes, or (iv)
the issuance of Common Stock Equivalents pursuant to a Strategic
Transaction.

                                     28

<PAGE>
<PAGE>

         4.9.     Securities Laws Disclosure; Publicity. By 8:30 a.m. (New
                  -------------------------------------
York City time) on both the Trading Day following the day this Agreement is
executed and on each subsequent Closing Date, the Borrower shall issue a
press release reasonably acceptable to the Lenders and the Administrative
Agent disclosing the transactions contemplated hereby on the date of this
Agreement and file a Current Report on Form 8-K disclosing the material
terms of the transactions contemplated hereby. The Borrower will file an
additional Current Report on Form 8-K, if necessary, on each applicable
Closing Date to disclose the applicable Closing. In addition, the Borrower
will make such other filings and notices in the manner and time required by
the Commission and the Trading Market on which the Common Stock is listed.
Notwithstanding the foregoing, the Borrower shall not publicly disclose the
name of the Administrative Agent, any Lender, or include the name of the
Administrative Agent or any Lender in any filing with the Commission (other
than the Registration Statement and any exhibits to filings made in respect
of this transaction in accordance with periodic filing requirements under
the Exchange Act) or any regulatory agency or Trading Market, without the
prior written consent of the Administrative Agent or such Lender, as the
case may be, except to the extent such disclosure is required by law or
Trading Market regulations, in which case the Borrower shall provide the
Administrative Agent and the Lenders with prior notice of such disclosure.

         4.10.    Limitation on Issuance of Future Priced Securities. Following
                  --------------------------------------------------
the First Closing and for so long as Notes remain outstanding, the Borrower
shall not issue or agree to issue any "FUTURE PRICED SECURITIES" as such
term is described by NASD IM-4350-1.

         4.11.    Indemnification of Lenders. In addition to the indemnity
                  --------------------------
provided in the Registration Rights Agreement and in Section 8.18, the
Borrower will indemnify and hold the Lenders and their directors, officers,
shareholders, partners, employees and agents (each, a "LENDER PARTY")
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys' fees and costs of
investigation that any such Lender Party may suffer or incur as a result of
or relating to any misrepresentation, breach or inaccuracy of any
representation, warranty, covenant or agreement made by the Borrower in any
Transaction Document. In addition to the indemnity contained herein, the
Borrower will reimburse each Lender Party for its reasonable legal and other
expenses (including the cost of any investigation, preparation and travel in
connection therewith) incurred in connection therewith, as such expenses are
incurred.

         4.12.    Non-Public Information. The Borrower covenants and agrees
                  ----------------------
that neither it nor any other Person acting on its behalf will provide the
Administrative Agent, any Lender or any agent or counsel to the
Administrative Agent or any Lender with any information that the Borrower
believes constitutes material non-public information. The Borrower
understands and confirms that the Administrative Agent and each Lender shall
be relying on the foregoing representations in effecting transactions in
securities of the Borrower.

         4.13.    Certain Trading Restrictions. Each Lender agrees that neither
                  ----------------------------
it nor its Affiliates (taken as a whole) will enter into or maintain a net
short position with respect to the Common Stock. Accordingly, each Lender
agrees that neither it nor its Affiliates will enter into or maintain any
short sale of the Common Stock at a time when there is no equivalent
offsetting

                                     29

<PAGE>
<PAGE>

long position in the Common Stock held by such Lender. For purposes of
determining whether there is an equivalent offsetting long position in the
Common Stock held by such Lender, the Underlying Shares issuable upon
exercise of all warrants (including the Warrants) and conversion of all
debentures and notes (including the Notes and in each case any shares
issuable on account of interest under such notes or debentures) held by such
Lender (without regard to any exercise or conversion caps contained therein,
and whether or not any exercise or conversion notice shall have been
tendered by such Lender) shall be deemed held long by such Lender for
purposes of this Section.

         4.14.    Existence; Conduct of Business. The Borrower will, and will
                  ------------------------------
cause each of the Subsidiaries to, do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises
material to the conduct of its business, provided that the foregoing shall
not prohibit (a) any sale, lease, transfer or other disposition permitted by
Section 5.1, or (b) any merger of (i) any domestic Subsidiary with any other
domestic Subsidiary, (ii) any domestic Subsidiary with and into the
Borrower, (iii) any foreign Subsidiary (other than Opco and its
Subsidiaries) with any other foreign Subsidiary, or (iv) any Subsidiary of
Opco with Opco or any other Subsidiary of Opco.

         4.15.    Maintenance of Cash and Cash Equivalents. While any Notes are
                  ----------------------------------------
outstanding, the Borrower will, at all times, maintain unrestricted cash and
Cash Equivalents, together with availability under the Borrower's revolving
line of credit, in an aggregate amount not less than $500,000, free and
clear of all Liens (other than Permitted Liens within the meaning of clauses
(a), (h) or (i) of such defined term). In the event that such unrestricted
cash and Cash Equivalents maintained by the Borrower hereunder shall at the
end of any fiscal quarter (as reflected in Borrower's Quarterly Report on
Form 10-Q under the Exchange Act for such fiscal quarter) be in an aggregate
amount less than such amount, the Borrower shall deliver to each Lender at
the Borrower's expense, a letter of credit (in form and substance acceptable
to such Lender) and issued by a bank reasonably acceptable to such Lender in
a face amount equal to the sum of 100% of the then outstanding principal
amount of such Lender's Note plus interest payable thereon until the
maturity date thereof. Such letters of credit shall provide, among other
things, that the beneficiary thereof shall have the right to draw thereunder
upon presentation of a draft together with a certificate signed by such
Lender referring to this Agreement and the Notes held by such Lender and
certifying that an Event of Default has occurred and is continuing under the
Transaction Documents.

         4.16.    Use of Proceeds. The Borrower shall use the net proceeds from
                  ---------------
the sale of the Securities hereunder for (i) working capital purposes, (ii)
for the payment of all outstanding principal and interest of the Borrower's
Debt secured by the assets and/or properties listed on Schedule 4.16, within
15 days of the Second Closing Date and (iii) capital expenditures associated
with the addition of carbon fiber and acrylic fiber precursor production
lines, but not (a) for the satisfaction of any portion of the Borrower's or
any of its Subsidiaries' other Debt (other than payment of the Borrower's
existing line of credit and trade payables and accrued expenses in the
ordinary course of the Borrower's business and consistent with prior
practices), (b) to redeem any Common Stock or Common Stock Equivalents or
(c) to settle any outstanding Action or Proceeding.

                                     30

<PAGE>
<PAGE>

         4.17.    2005 Notes Conversion Price, Anti-dilution, Prohibition on
                  ----------------------------------------------------------
Indebtedness.
------------

                  (a) On the nine month anniversary of the Second Closing
Date, the Borrower and the holders of the 2005 Notes shall amend the
conversion price of the 2005 Notes (as defined in the Notes) to an amount
equal to the product of (a) 0.9 and (b) the arithmetic average of the VWAP
of the Closing Prices of the Borrower's Common Stock for each of the 20
Trading Days immediately preceding the nine month anniversary of the Second
Closing Date; provided that such conversion price shall not be (i) less than
$12.50 or (ii) greater than $20.00 or the conversion price currently in
effect for the 2005 Notes.

                  (b) Each Lender agrees that the Debt evidenced by the
Notes shall be permitted under Section 5.03 of the 2005 Loan Agreement (as
defined in the Notes).

                  (c) Each Lender agrees that the issuance of the Notes will
not trigger the anti-dilution provisions set forth in Section 11 of the 2005
Notes or Section 9 of the warrants issued pursuant to the 2005 Loan
Agreement.

         4.18.    Lender's Obligations.
                  --------------------

                  (a) On or prior to the six month anniversary of the Second
Closing Date, the Lenders shall exercise all unexercised warrants issued to
such Lenders by the Borrower on December 19, 2003 and March 11, 2004.

                  (b) Each Lender agrees to convert the entire outstanding
principal amount of the 2004 Notes into Common Stock in accordance with
their terms no later than the 30 Trading Days following the Second Closing
Date.

                                  ARTICLE V.

                             NEGATIVE COVENANTS

                  The Borrower covenants and agrees that from and after the
First Closing Date and (except as provided in Section 5.3) so long as any
there remains any outstanding principal amount under the Notes, the Borrower
shall not, and shall not permit its Subsidiaries to:

         5.1.     Dispositions of Assets or Subsidiaries. Sell, convey, assign,
                  --------------------------------------
lease, abandon or otherwise transfer or dispose of, voluntarily or
involuntarily, any material properties or assets, tangible or intangible
(including any spin-offs of any divisions, lines of business or subsidiaries
and also including sale, assignment, discount or other disposition of
accounts, contract rights, chattel paper, equipment or general intangibles
with or without recourse or of capital stock, shares of beneficial interest,
partnership interests or limited liability company interests of a Subsidiary
of the Borrower), except transactions involving the sale of inventory or
upgrade or exchange of machinery, in either case, in the ordinary course of
business and for usual and ordinary prices.

         5.2.     Restricted Payments. Declare or make, or agree to pay for or
                  -------------------
make, directly or indirectly, any Restricted Payment, provided that (a) the
                                                      --------
Borrower may declare and pay, and agree to pay, dividends with respect to
its Equity Interests payable solely in Common Stock,

                                     31

<PAGE>
<PAGE>

(b) any wholly owned Subsidiary of the Borrower may declare and pay
dividends with respect to its Equity Interests to the Borrower or any other
wholly owned Subsidiary of the Borrower, (c) the Borrower may pay bonuses to
its officers, directors and employees consistent with past practices, (d)
the Borrower may pay director's fees to its directors consistent with past
practices, and (e) the Borrower may pay fees to its directors for bona fide
consulting services consistent with past practices.

         5.3.     Permitted Debt. At any time prior to the Second Closing,
                  --------------
create, incur, assume, guarantee or suffer to exist any Debt, except:

                      (i)      Debt evidenced by the Notes, the 2005 Notes
(as defined in the Notes), the 2004 Notes (as defined in the Notes), the
2004 Debentures (as defined in the Notes) and the 2003 Debentures (as
defined in the Notes);

                      (ii)     subordinated Debt approved in writing by the
Required Lenders;

                      (iii)    accounts payable by such Borrower or a
Subsidiary to trade creditors, accrued expenses and other liabilities
incurred in the ordinary course of business;

                      (iv)     Capital Lease Obligations which do not in the
aggregate exceed $500,000 at any time outstanding;

                      (v)      Debt for accrued payroll taxes so long as
payment thereof is not past due and payable unless such taxes are being
contested in good faith and by appropriate proceedings and for which
adequate reserves in accordance with GAAP are maintained on the books of the
Borrower or the applicable Subsidiary;

                      (vi)     Contingent Obligations not in excess of the
sum of (i) an aggregate of $1,402,864.50, incurred in connection with that
certain Letter of Credit dated June 21, 2004 issued by Marshall & Ilsley
Bank in the amount of $85,864.50 in favor of Cisco Systems, and that certain
Letter of Credit dated December 17, 2004 issued by Marshall & Ilsley Bank in
the amount of $1,317,000 in favor of Contractor Bonding and Insurance
Company (the "EXISTING LETTERS OF CREDIT") or any extension or renewal
thereof, and (ii) $300,000; provided that upon termination of or permanent
reduction in the Existing Letters of Credit, the amount of Contingent
Obligations the Borrower may incur shall be reduced to reflect such
termination or permanent reduction.

                      (vii)    Debt in respect of netting services, overdraft
protections and otherwise in connection with deposit accounts of the
Borrower or any Subsidiary; and

                      (viii)   Debt incurred in the ordinary course of
business solely to support any Borrower or any Subsidiary's insurance or
self-insurance obligations in the ordinary course of business (including to
secure worker's compensation and other similar insurance coverages).

         Upon consummation of the Second Closing, without any further action
by the Borrower or the Lenders the restrictions set forth in this Section
5.3 shall terminate and be of no further force and effect.

                                     32

<PAGE>
<PAGE>

                                 ARTICLE VI.

                            CONDITIONS PRECEDENT

         6.1.     Conditions Precedent to the Obligations of the Lenders.
                  ------------------------------------------------------
The obligation of each Lender to make its Loan on each Closing Date is
subject to the satisfaction or waiver by such Lender of each of the
following conditions:

                  (a) Representations and Warranties. The representations
                      ------------------------------
and warranties of the Borrower contained herein shall be true and correct in
all respects as of the date when made and as of such Closing Date as though
made on and as of such date;

                  (b) Performance. The Borrower shall have performed,
                      -----------
satisfied and complied in all respects with, and caused each of its
Subsidiaries to perform, satisfy and comply in all respects with, all
covenants, agreements and conditions required by the Transaction Documents
to be performed, satisfied or complied with by it at or prior to applicable
Closing;

                  (c) No Injunction. No treaty and no U.S. or foreign
                      -------------
statute, rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by the Transaction
Documents;

                  (d) Adverse Changes. Since the date of execution of this
                      ---------------
Agreement, no event or series of events shall have occurred that reasonably
would be expected to have or result in a (i) an adverse effect on the
legality, validity or enforceability of any Transaction Document, or (ii) a
material and adverse effect on the results of operations, assets, business
or condition (financial or otherwise) of (i) the Borrower, (ii) any
Subsidiary party to a Transaction Document, or (iii) the Borrower and the
Subsidiaries, taken as a whole;

                  (e) No Suspensions of Trading in Common Stock; Listing.
                      --------------------------------------------------
Trading in the Common Stock shall not have been suspended by the Commission
or any Trading Market (except for any suspensions of trading of not more
than one Trading Day solely to permit dissemination of material information
regarding the Borrower) at any time since the date of execution of this
Agreement, and the Common Stock shall have been at all times since such date
listed for trading on a Trading Market;

                  (f) Nasdaq Listing. The Nasdaq Stock Market shall have
                      --------------
waived application of the 15 day prior notice contained in NASD Marketplace
Rule 4310(17)(D) or such timeframe shall have expired without objection;

                  (g) 2004 Note Conversion Price. The Borrower shall amend
                      --------------------------
the conversion price of the 2004 Notes (as defined in the Notes) to $9.50;

                  (h) Bank Consent. To the extent applicable, the Borrower
                      ------------
shall have received the consent of each bank or other lender or provider of
credit to the Borrower or any Subsidiary whose consent is required with
respect to the transactions contemplated by the Transaction Documents as
well as an estoppel certificate indicating the absence of any event of
default or any default which could with or without the passage of time or
notice or both in an event of default

                                     33

<PAGE>
<PAGE>

under any document or agreement governing the transactions with such bank,
lender or provider or credit; and

                  (i) Borrower Deliverables. The Lenders shall have received
                      ---------------------
the Borrower Deliverables, as applicable.

         6.2.     Conditions Precedent to the Obligations of the Borrower to
                  ----------------------------------------------------------
deliver the Notes and the Warrants. The obligation of the Borrower to
----------------------------------
deliver the Notes and the Warrants on each Closing Date is subject to the
satisfaction or waiver by the Borrower hereunder of each of the following
conditions:

                  (a) Representations and Warranties. The representations
                      ------------------------------
and warranties of each Lender contained herein shall be true and correct in
all respects as of the date when made and as of such Closing Date as though
made on and as of such date;

                  (b) Performance. Each Lender shall have performed,
                      -----------
satisfied and complied in all material respects with all covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by such Lender at or prior to such
Closing;

                  (c) No Injunction. No statute, rule, regulation, executive
                      -------------
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents; and

                  (d) Nasdaq Listing. The Nasdaq Stock Market shall have
                      --------------
waived application of the 15 day prior notice contained in NASD Marketplace
Rule 4310(17)(D) or such timeframe shall have expired without objection.

                                ARTICLE VII.

                            ADMINISTRATIVE AGENT

         7.1.     Each Lender hereby irrevocably appoints the Administrative
Agent as its agent and authorizes the Administrative Agent to take such
actions on its behalf and to exercise such powers as are delegated to the
Administrative Agent by the terms hereof, together with such actions and
powers as are reasonably incidental thereto.

         7.2.     The Person serving as the Administrative Agent hereunder
shall have the same rights and powers in its capacity as a Lender as any other
Lender and may exercise the same as though it were not the Administrative
Agent, and such Person and its Affiliates may lend money to and generally
engage in any kind of business with the Borrower or any Subsidiary or other
Affiliate thereof as if it were not the Administrative Agent hereunder.

         7.3.     The Administrative Agent shall not have any duties or
obligations except those expressly set forth herein. Without limiting the
generality of the foregoing, (i) the Administrative Agent shall not be
subject to any fiduciary or other implied duties, regardless of whether an
Event of Default (or an event which, with the giving of notice, lapse of
time, or both, would

                                     34

<PAGE>
<PAGE>

constitute an Event of Default) has occurred and is continuing, (ii) the
Administrative Agent shall not have any duty to take any discretionary
action or exercise any discretionary powers, except discretionary rights and
powers expressly contemplated by the Transaction Documents that the
Administrative Agent is required to exercise in writing by the Required
Lenders (or such other number or percentage of the Lenders as shall be
necessary under the circumstances as provided in Section 8.4), and (iii)
except as expressly set forth herein, the Administrative Agent shall not
have any duty to disclose, and shall not be liable for the failure to
disclose, any information relating to the Borrower, any Affiliate thereof or
any Subsidiary that is communicated to or obtained by the Person serving as
Administrative Agent or any of its Affiliates in any capacity. The
Administrative Agent shall not be liable for any action taken or not taken
by it with the consent or at the request of the Required Lenders (or such
other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 8.4) or in the absence of its own gross
negligence or willful misconduct. The Administrative Agent shall be deemed
not to have knowledge of any Event of Default (or any event which, with the
giving of notice, lapse of time, or both, would constitute an Event of
Default) unless and until written notice thereof is given to the
Administrative Agent by the Borrower or a Lender (and, promptly after its
receipt of any such notice, it shall give each Lender and the Borrower
notice thereof), and the Administrative Agent shall not be responsible for
or have any duty to ascertain or inquire into (a) any statement, warranty or
representation made in or in connection with any Transaction Document, (b)
the contents of any certificate, report or other document delivered
thereunder or in connection therewith, (c) the performance or observance of
any of the covenants, agreements or other terms or conditions set forth
therein, (d) the validity, enforceability, effectiveness or genuineness
thereof or any other agreement, instrument or other document or (e) the
satisfaction of any condition set forth in Article VI or elsewhere in the
Transaction Documents.

         7.4.     The Administrative Agent shall be entitled to rely upon,
and shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing
believed by it to be genuine and to have been signed or sent by the proper
Person. The Administrative Agent also may rely upon any statement made to it
orally or by telephone and believed by it to be made by the proper Person,
and shall not incur any liability for relying thereon. The Administrative
Agent may consult with legal counsel (who may be counsel for the Borrower or
any Subsidiary), independent accountants and other experts selected by it,
and shall not be liable for any action taken or not taken by it in
accordance with the advice of any such counsel, accountants or experts.

         7.5.     The Administrative Agent may perform any and all its duties
and exercise its rights and powers by or through any one or more sub agents
appointed by the Administrative Agent, provided that no such delegation
                                       --------
shall serve as a release of the Administrative Agent or waiver by the
Borrower or any Lender of any rights hereunder. The Administrative Agent and
any such sub-agent may perform any and all its duties and exercise its
rights and powers through their respective Related Parties. The exculpatory
provisions of the preceding paragraphs shall apply to any such sub-agent and
to the Related Parties of the Administrative Agent and any such sub agent,
and shall apply to their respective activities in connection with the
activities as Administrative Agent.

                                     35

<PAGE>
<PAGE>

         7.6.     Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this paragraph, the Administrative Agent
may resign at any time by notifying the Lenders and the Borrower. Upon any
such resignation, the Required Lenders shall have the right to appoint a
successor. If no successor shall have been so appointed by the Required
Lenders and shall have accepted such appointment within 30 days after the
retiring Administrative Agent gives notice of its resignation, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent. Upon the acceptance of its appointment as
Administrative Agent hereunder by a successor, such successor shall succeed
to and become vested with all the rights, powers, privileges and duties of
the retiring Administrative Agent, and the retiring Administrative Agent
shall be discharged from its duties and obligations hereunder. The fees
payable by the Borrower to a successor Administrative Agent shall be the
same as those payable to its predecessor unless otherwise agreed between the
Borrower and such successor. After the Administrative Agent's resignation
hereunder, the provisions of this Article and Section 8.18 shall continue in
effect for the benefit of such retiring Administrative Agent, its sub-agents
and their respective Related Parties in respect of any actions taken or
omitted to be taken by any of them while it was acting as Administrative
Agent.

         7.7.     Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make
its own decisions in taking or not taking action under or based upon any
Transaction Document, any related agreement or any document furnished
thereunder.

                               ARTICLE VIII.

                               MISCELLANEOUS

         8.1.     Fees and Expenses. The Borrower shall be responsible for the
                  -----------------
reasonable legal fees, charges and disbursements of the Administrative Agent
and each Lender in the event that the Borrower requests any waiver or
amendment of the provisions of any Transaction Document following the First
Closing. Except as otherwise specified in the Transaction Documents
(including without limitation Section 8.19), and except that Borrower shall
reimburse OMT (i) $55,000 for its legal fees of which amount $20,000 of
which has been previously paid by the Borrower, and (ii) expenses incurred
in connection with its entering into the Transaction Documents, including,
without limitation, fees and expenses relating to the cost of Hungarian
counsel (OMT may deduct such amounts from the First Closing Purchase Price
deliverable to the Borrower at the First Closing), each party shall pay the
fees and expenses of its advisers, counsel, accountants and other experts,
if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of the
Transaction Documents. The Borrower shall pay all stamp and other taxes and
duties levied in connection with the sale of the Securities.

         8.2.     Entire Agreement. The Transaction Documents, together with
                  ----------------
the Exhibits and Schedules thereto, contain the entire understanding of the
parties with respect to the subject

                                     36

<PAGE>
<PAGE>

matter hereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters, which the parties acknowledge have
been merged into such documents, exhibits and schedules. At or after the
First Closing, and without further consideration, each party will execute
and deliver to the other party hereto such further documents as may be
reasonably requested in order to give practical effect to the intention of
the parties under the Transaction Documents.

         8.3.     Notices. All notices or other communications or deliveries
                  -------
required or permitted to be provided hereunder shall be in writing and shall
be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile number specified in this Section prior to 6:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile number specified in this Section on a day that is not a
Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day,
(c) the Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt
by the party to whom such notice is required to be given. The addresses and
facsimile numbers for such notices and communications shall be as follows:

                  If to the Borrower: Zoltek Companies, Inc.
                                      3101 McKelvey Rd.
                                      St. Louis, Missouri 63044
                                      Facsimile No.: (314) 291-9082
                                      Attention: Chief Financial Officer

                  With a copy to:     Thompson Coburn LLP
                                      One U.S. Bank Plaza
                                      St. Louis, Missouri 63101
                                      Facsimile No.: (314) 552-7000
                                      Attention: Thomas A. Litz, Esq.

                  If to any Lender:   To the address and facsimile number set
                                      forth under such Lender's name on its
                                      signature page attached hereto.

                  If to the
                  Administrative      To the address and facsimile number set
                  Agent:              forth under the Administrative Agent's
                                      name on its signature page attached
                                      hereto.

or such other address or facsimile number as may be designated in writing
hereafter, in the same manner, by such Person.

         8.4.     Amendments; Waivers
                  -------------------

                  (a) No failure or delay by the Administrative Agent or any
Lender in exercising any right or power under any Transaction Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or

                                     37

<PAGE>
<PAGE>

discontinuance of steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Administrative Agent and the Lenders under the
Transaction Documents are cumulative and are not exclusive of any rights or
remedies that they would otherwise have. No waiver of any provision of any
Transaction Document or consent to any departure by the Borrower or any
Subsidiary therefrom shall in any event be effective unless the same shall
be permitted by paragraph (b) of this Section, and then such waiver or
consent shall be effective only in the specific instance and for the purpose
for which given.

                  (b) Neither any Transaction Document (which, for purposes
of this Section 8.4(b), shall include the Shareholders Agreement) nor any
provision thereof may be waived, amended or modified except pursuant to an
agreement or agreements in writing entered into by the Borrower and the
Required Lenders or by the Borrower and the Administrative Agent with the
consent of the Required Lenders, provided that no such agreement shall (i)
increase the amount of the Loan agreed to be made by any Lender without the
written consent of such Lender, (ii) change the rate of interest applicable
to any Loan or the conversion price with respect to any Note unless the
resulting rate of interest or conversion price (as the case may be) applies
to all Loans or Notes (as the case may be), (iii) change any other term of
any Transaction Document if, as a result thereof, the rights and obligations
of any Lender under the Transaction Documents would be disproportionately
(based on its pro rata share) affected relative to the rights and
obligations of any other Lender under the Transaction Documents, or (iv)
change any of the provisions of this Section or the definition of the term
"REQUIRED LENDERS" or any other provision hereof specifying the number or
percentage of Lenders required to waive, amend or modify any rights
hereunder or make any determination or grant any consent hereunder, or
change the currency in which Loans are to be made or payments under the
Transaction Documents are to be made, or provide for additional borrowers,
without the written consent of each Lender, and provided further that no
such agreement shall amend, modify or otherwise affect the rights or duties
of the Administrative Agent without the prior written consent of the
Administrative Agent.

         8.5.     Construction. The headings herein are for convenience only,
                  ------------
do not constitute a part of this Agreement and shall not be deemed to limit
or affect any of the provisions hereof. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their
mutual intent. This Agreement shall be construed as if drafted jointly by
the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement or any of the Transaction Documents.

         8.6.     Successors and Assigns. This Agreement shall be binding
                  ----------------------
upon and inure to the benefit of the parties and their successors and
permitted assigns. The Borrower may not assign this Agreement or any rights
or obligations hereunder without the prior written consent of the Lenders.
Any Lender may assign its rights under this Agreement to any Person to whom
such Lender assigns or transfers any Securities.

         8.7.     No Third-Party Beneficiaries. This Agreement is intended for
                  ----------------------------
the benefit of the parties hereto and their respective successors and
permitted assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other Person.

                                     38

<PAGE>
<PAGE>

         8.8.     Governing Law. All questions concerning the construction,
                  -------------
validity, enforcement and interpretation of this Agreement shall be governed
by and construed and enforced in accordance with the internal laws of the
State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all Proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement, the Notes, the Warrants and the Registration Rights
Agreement (whether brought against a party hereto or its respective
Affiliates, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the City of New York, Borough of Manhattan
(the "NEW YORK COURTS"). Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the
enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any Proceeding, any claim that it is not
personally subject to the jurisdiction of any such New York Court, or that
such Proceeding has been commenced in an improper or inconvenient forum.
Each party hereto hereby irrevocably waives personal service of process and
consents to process being served in any such Proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to
it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. Each party hereto hereby irrevocably waives, to the
fullest extent permitted by applicable law, any and all right to trial by
jury in any legal proceeding arising out of or relating to this Agreement or
the transactions contemplated hereby. If either party shall commence a
Proceeding to enforce any provisions of a Transaction Document, then the
prevailing party in such Proceeding shall be reimbursed by the other party
for its reasonable attorneys' fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such Proceeding.

         8.9.     Survival. The representations, warranties, agreements and
                  --------
covenants contained herein shall survive each of the Closings and the
delivery, exercise and conversion of the Securities.

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

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

         8.12.    Rescission and Withdrawal Right. Notwithstanding anything to
                  -------------------------------
the contrary contained in (and without limiting any similar provisions of)
the Transaction Documents,

                                     39

<PAGE>
<PAGE>

whenever any Lender exercises a right, election, demand or option under a
Transaction Document and the Borrower does not timely perform its related
obligations within the periods therein provided, then such Lender may
rescind or withdraw, in its sole discretion from time to time upon written
notice to the Borrower, any relevant notice, demand or election in whole or
in part without prejudice to its future actions and rights.

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

         8.14.    Remedies. In addition to being entitled to exercise all
                  --------
rights provided herein or granted by law, including recovery of damages, the
Lenders and the Borrower will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive
in any action for specific performance of any such obligation the defense
that a remedy at law would be adequate.

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

         8.16.    Independent Nature of Lenders. The obligations of each Lender
                  -----------------------------
under each Transaction Document are several and not joint with the
obligations of each other Lender, and no Lender shall be responsible in any
way for the performance or observance of the obligations of any other Lender
under any Transaction Document. The decision of each Lender to acquire
Securities pursuant to this Agreement has been made by such Lender and each
Lender confirms that it has only relied on the advice of its own business
and/or legal counsel and not on the advice of any other Lender's business
and/or legal counsel. Nothing contained herein, or in any Transaction
Document, and no action taken by any Lender pursuant hereto or thereto,
shall be deemed to constitute the Lenders (or any of them) as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Lenders are in any way acting in concert or as a group
with respect to the transactions contemplated by the Transaction Documents.
Except as specifically provided in the Transaction Documents, each Lender
shall be entitled to independently protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the
other Transaction Documents, without joining any

                                     40

<PAGE>
<PAGE>

other Lender as an additional party in any proceeding for such purpose. Each
Lender represents that it has been represented by its own separate legal
counsel in its review and negotiations of this Agreement and the Transaction
Documents and that Proskauer Rose LLP represents only OMT in connection with
this Agreement and the Transaction Documents.

         8.17.    Limitation of Liability. Notwithstanding anything herein to
                  -----------------------
the contrary, the Borrower acknowledges and agrees that the liability of any
Lender arising directly or indirectly, under any Transaction Document, of
any and every nature whatsoever, shall be satisfied solely out of the assets
of such Lender, and that no trustee, officer, other investment vehicle
affiliated with such Lender or any investor, shareholder or holder of shares
of beneficial interest of such a Lender shall be personally liable for any
liabilities of such Lender.

         8.18.    Adjustments in Share Numbers and Prices. In the event of any
                  ---------------------------------------
stock split, subdivision, dividend or distribution payable in shares of
Common Stock (or other securities or rights convertible into, or entitling
the holder thereof to receive directly or indirectly shares of Common
Stock), combination or other similar recapitalization or event occurring
after the date hereof, each reference in this Agreement to a number of
shares or a price per share shall be deemed amended to appropriately account
for such event.

         8.19.    Expenses; Indemnity; Damage Waiver
                  ----------------------------------

                  (a) The Borrower shall pay (i) all reasonable out of
pocket costs and expenses incurred by the Administrative Agent and its
Related Parties, including the reasonable fees, charges and disbursements of
counsel for the Administrative Agent, in connection with the administration
of each Transaction Document, and (ii) all reasonable out of pocket costs
and expenses incurred by any Lender, including the reasonable fees, charges
and disbursements of any counsel for any Lender and any consultant or expert
witness fees and expenses, in connection with the enforcement or protection
of its rights in connection with the Transaction Documents, including its
rights under this Section, or in connection with the Loans made, including
all such reasonable out of pocket costs and expenses incurred during any
workout, restructuring or negotiations in respect of such Loans.

                  (b) The Borrower shall indemnify each Lender and each
Related Party thereof (each such Person being called an "INDEMNITEE")
                                                         ----------
against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, including the reasonable fees,
charges and disbursements of any counsel for any Indemnitee, incurred by or
asserted against any Indemnitee arising out of, in connection with, or as a
result of (i) the execution or delivery of any Transaction Document or any
agreement or instrument contemplated thereby, the performance by the parties
to the Transaction Documents of their respective obligations thereunder or
the consummation of the Transactions or any other transactions contemplated
thereby, (ii) any Loan or the use of the proceeds thereof, or (iii) any
actual or prospective claim, litigation, investigation or proceeding
relating to any of the foregoing, whether based on contract, tort or any
other theory and regardless of whether any Indemnitee is a party thereto,
provided that such indemnity shall not, as to any Indemnitee, be available
to the extent that such losses, claims, damages, liabilities or related
expenses are determined by a court of competent jurisdiction by final and
nonappealable judgment to have resulted from the gross negligence or willful
misconduct of such Indemnitee.

                                     41

<PAGE>
<PAGE>

                  (c) To the extent that the Borrower or any Subsidiary
fails to pay any amount required to be paid by it to the Administrative
Agent under this Section 8.18, each Lender severally agrees to pay to the
Administrative Agent an amount equal to the product of such unpaid amount
multiplied by a fraction, the numerator of which is the outstanding
-------------
principal balance of such Lender's Loans and the denominator of which is the
outstanding principal balance of all Lenders' Loans (in each case determined
as of the time that the applicable unreimbursed expense or indemnity payment
is sought or, in the event that no Lender shall have any outstanding Loans
at such time, as of the last time at which any Lender had any outstanding
Loans), provided that the unreimbursed expense or indemnified loss, claim,
        --------
damage, liability or related expense, as applicable, was incurred by or
asserted against the Administrative Agent in its capacity as such.

                  (d) To the extent permitted by applicable law, the
Borrower shall not assert, and hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential
or punitive damages (as opposed to direct and actual damages) arising out
of, in connection with, or as a result of, any Transaction Document or any
agreement, instrument or other document contemplated thereby, the
transactions contemplated by the Loan Documents or the use of the proceeds
thereof.

                  (e) All amounts due under this Section shall be payable
promptly but in no event later than ten days after written demand therefor.

                 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                           SIGNATURE PAGES FOLLOW]

                                     42

<PAGE>
<PAGE>

                         LOAN AND WARRANT AGREEMENT
                         --------------------------

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

                               ZOLTEK COMPANIES, INC.

                               By: /s/ Kevin J. Schott
                                  ---------------------------------
                                  Name:  Kevin J. Schott
                                  Title: Chief Financial Officer

                 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                     SIGNATURE PAGES OF LENDERS FOLLOW]

<PAGE>
<PAGE>

                         LOAN AND WARRANT AGREEMENT
                         --------------------------

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

                               OMICRON MASTER TRUST, in its capacity as
                               Administrative Agent

                               By: /s/ Bruce Bernstein
                                  ---------------------------------
                                  Name:  Bruce Bernstein
                                  Title: Managing Partner

                               Address for Notice:

                               c/o Omicron Capital, L.P.
                               810 Seventh Avenue, 39th Floor
                               New York, New York 10019
                               Facsimile: (212) 803-5269
                               Attn: Bruce Bernstein

                               With a copy to:

                               Proskauer Rose LLP
                               1585 Broadway
                               New York, NY 10036-8299
                               Facsimile: (212) 969-2900
                               Attn: Adam J. Kansler, Esq.

<PAGE>
<PAGE>

                         LOAN AND WARRANT AGREEMENT
                         --------------------------

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

                               [LENDER]

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

<PAGE>
<PAGE>

<TABLE>

                                                            SCHEDULE A
                                                            ----------
<CAPTION>
                 ----------------------------------------------------------------------------------------------------------------
                   First Closing    First     Second Closing     Second     Third Closing     Third   Fourth Closing     Fourth
                    Notes/First   Closing-     Notes/Second     Closing-     Notes/Third    Closing-   Notes/Fourth     Closing-
                      Closing      Warrant   Closing Purchase    Warrant       Closing       Warrant     Closing         Warrant
                  Purchase Price   Shares          Price         Shares     Purchase Price   Shares   Purchase Price     Shares
                 ----------------------------------------------------------------------------------------------------------------
<S>                <C>            <C>         <C>              <C>          <C>             <C>       <C>               <C>
---------------
    Omicron
 Master Trust      2,750,000.00   77,000.00    8,250,000.00    231,000.00   11,000,000.00              5,500,000.00
---------------
  Smithfield
 Fiduciary LLC       750,000.00   21,000.00    2,250,000.00     63,000.00    3,000,000.00              1,500,000.00
---------------
   Iroquois
 Capital, L.P.       500,000.00   14,000.00    1,500,000.00     42,000.00    2,000,000.00              1,000,000.00
---------------
   Cranshire
 Capital, L.P.       500,000.00   14,000.00    1,500,000.00     42,000.00    2,000,000.00              1,000,000.00
---------------
   Midsummer
Investment Ltd.      500,000.00   14,000.00    1,500,000.00     42,000.00    2,000,000.00              1,000,000.00
---------------

     Total         5,000,000.00               15,000,000.00                 20,000,000.00             10,000,000.00
</TABLE>

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00091-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00091-of-00352.parquet"}]]