Document:

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                                                                    Exhibit 10.1

                          Proprietary and Confidential

                              AMENDED AND RESTATED
                                  COMMON STOCK
                               PURCHASE AGREEMENT

                                     Between

                         THE GLENEAGLES FUND COMPANY II

                                       and

                             CONSTELLATION 3D, INC.

                           Dated as of August 16, 2001

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                                TABLE OF CONTENTS
                                -----------------

                                                                     Page No.

1.    DEFINITIONS ......................................................    1
2.    PURCHASE AND SALE OF COMMON STOCK ................................    6
   a .   Purchase and Sale of Common Stock; Issuance of Warrant ........    6
   b .   Delivery of Drawdown Notices ..................................    6
   c .   Purchase of Shares ............................................    7
   d .   Limitations on Purchaser's Obligation and Right to
          Purchase Shares ..............................................    8
   e .   Conditions to Company's Ability to Deliver a Drawdown Notice ..    9
   f .   Mechanics of Purchase .........................................   10
   g .   Certain Adjustments ...........................................   13
   h .   Delisting; Suspension .........................................   13
3.    PURCHASER'S REPRESENTATIONS AND WARRANTIES .......................   14
   a .   Accredited Investor Status ....................................   14
   b .   Information ...................................................   14
   c .   No Governmental Review ........................................   14
   d .   Authorization; Enforcement ....................................   15
   e .   Residency .....................................................   15
   f .   No Conflicts ..................................................   15
   g .   Financial Risks ...............................................   15
   h .   IP Acknowledgement ............................................   15
4.    REPRESENTATIONS AND WARRANTIES OF THE COMPANY ....................   15
   a .   Organization and Qualification ................................   15
   b .   Authorization; Enforcement; Compliance with Other Instruments..   16
   c .   Capitalization ................................................   16
   d .   No Conflicts ..................................................   17
   e .   SEC Documents; Financial Statements ...........................   18
   f .   Absence of Certain Changes ....................................   18
   g .   Absence of Litigation .........................................   18
   h .   Acknowledgment Regarding Purchaser's Purchase of Shares .......   19
   i .   No Undisclosed Events, Liabilities, Developments or
          Circumstances ................................................   19
   j .   No Integrated Offering ........................................   19
   k .   Employee Relations ............................................   19
   l .   Intellectual Property Rights ..................................   19
   m .   Environmental Laws ............................................   20
   n .   Title .........................................................   21
   o .   Insurance .....................................................   21
   p .   Regulatory Permits ............................................   21
   q .   Internal Accounting Controls ..................................   21
   r .   Foreign Corrupt Practices Act .................................   21
   s .   Tax Status ....................................................   22
   t .   Certain Transactions ..........................................   22
   u .   Dilutive Effect ...............................................   22
   v .   Application of Takeover Protections ...........................   22
   w .   Rights Plan ...................................................   23

                                       i

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   x .   Obligations Absolute ..........................................   23
   y .   Issuance of Shares ............................................   23
   z .   Form S-3 ......................................................   23
   aa.   Brokers .......................................................   23
5.    COVENANTS ........................................................   23
   a .   Best Efforts ..................................................   23
   b .   Blue Sky ......................................................   23
   c .   Use of Proceeds ...............................................   24
   d .   Financial Information .........................................   24
   e .   Transactions with Affiliates ..................................   24
   f .   Filing of Form 8-K or Press Release ...........................   24
   g .   Registration Statement ........................................   24
   h .   Registration and Listing; Effective Registration ..............   25
   i .   Rights Plan ...................................................   25
   j .   Comfort Letters ...............................................   26
   k .   Legal Opinions ................................................   26
   l .   Prospectus Delivery; Share Certificates .......................   27
   m .   No Inside Information .........................................   27
   n .   No Manipulation ...............................................   27
6.   CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL ....................   27
7.   CONDITIONS OF THE PURCHASER'S OBLIGATION TO PURCHASE ..............   28
8.   TERMINATION .......................................................   30
9.   INDEMNIFICATION ...................................................   31
10.  GOVERNING LAW; MISCELLANEOUS ......................................   32
   a .   Governing Law .................................................   32
   b .   Expenses ......................................................   33
   c .   Counterparts ..................................................   34
   d .   Headings ......................................................   34
   e .   Severability ..................................................   34
   f .   Entire Agreement; Amendments; Waivers .........................   34
   g .   Notices .......................................................   35
   h .   Successors and Assigns ........................................   36
   i .   No Third Party Beneficiaries ..................................   36
   j .   Survival ......................................................   36
   k .   Publicity .....................................................   36
   l .   Further Assurances ............................................   36
   m .   No Strict Construction ........................................   37
   n .   Remedies ......................................................   37
   o .   Payment Set Aside .............................................   37
   p .   Days ..........................................................   37
   q .   Rescission and Withdrawal Right ...............................   37

                                       ii

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                  THIS AMENDED AND RESTATED COMMON STOCK PURCHASE AGREEMENT
(this "Agreement"), is dated as of August 16, 2001, by and between Constellation
3D, Inc., a Delaware corporation with an office located at 805 Third Avenue,
14th Floor, New York, New York 10022 (the "Company"), and The Gleneagles Fund
Company II, an exempted company, organized and existing under the laws of the
Cayman Islands, BWI with an address at c/o Citco Fund Services (Cayman Islands)
Ltd., Corporate Center, West Bay Road, P.O. Box 31106 SMB, Grand Cayman, Cayman
Islands, BWI (together with its successors in interest and assigns or its
designees, the "Purchaser"), and amends and restates the Common Stock Purchase
Agreement dated as of August 13, 2001.

                  WHEREAS, the Company and the Purchaser entered into a Common
Stock Purchase Agreement dated as of August 13, 2001 which the parties now wish
to amend and restate in its entirety;

                  WHEREAS, the parties desire that, upon the terms and subject
to the conditions contained herein, the Purchaser shall purchase up to
$30,000,000 in shares of the Company's common stock, par value $0.00001 per
share (the "Common Stock");

                  WHEREAS, contemporaneously with the execution and delivery of
this Agreement, the parties hereto are executing and delivering an Amended and
Restated Registration Rights Agreement substantially in the form attached hereto
as Exhibit A (the "Registration Rights Agreement"), pursuant to which the
Company has agreed to provide certain registration rights under the 1933 Act and
the rules and regulations promulgated thereunder, and applicable state
securities laws, and to undertake certain related transactions including without
limitation, the filing of a registration statement; and

                  WHEREAS, simultaneously with the execution and delivery of
this Agreement the Company shall issue to the Purchaser a warrant excisable for
52,000 shares of Common Stock and an Adjustment Warrant (as defined below);

                  NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Purchaser hereby agree to amend and restate the Common Stock Purchase Agreement
dated as of August 13, 2001 to read as follows:

         1.       DEFINITIONS
                  -----------

                  As used in this Agreement, the following terms, when
capitalized, shall have the respective meanings assigned to them below, unless
the context clearly indicates otherwise:

                  "1933 Act" shall mean the Securities Act of 1933, as amended.

                  "Adjusted Redemption Price" shall mean the greatest of (a)
115% of the Initial Purchase Price, (b) the VWAP on the 120th calendar day (or
the next succeeding Trading Day if such calendar day is not a Trading Day)
following the date of this Agreement, and (c) the VWAP on the Trading Day prior
to date on which the Purchaser delivers a Repurchase Notice to the Company in
accordance with Section 2(i).

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                  "Adjustment Shares" shall mean the shares of Common Stock for
which the Adjustment Warrant is exercisable.

                  "Adjustment Warrant" shall mean the Common Stock Adjustment
Warrant dated as August 16, 2001 delivered by the Company to the Purchaser, in
the form and substance of Exhibit G hereto.
                          ---------

                  "Affiliate" shall mean, with respect to any person or entity,
another person or entity that directly or indirectly controls, is controlled by,
or is under common control with that person or entity.

                  "Agreement" shall have the meaning specified in the preamble.

                  "Approved Market" shall mean the American Stock Exchange,
Inc., the New York Stock Exchange, Inc., the Nasdaq National Market System or
the Nasdaq SmallCap Market.

                  "Available Period" shall have the meaning specified in Section
2(c)(ii).

                  "Change in Control Transaction" shall mean any transaction
pursuant to which (i) the Company sells, leases, transfers, conveys or otherwise
disposes of, in one or more related transactions, all or substantially all of
its assets to any person or entity other than existing stockholders and their
Affiliates, (ii) any person or group (within the meaning of Section 13(d) of the
Exchange Act), together with its affiliates and associates (as such terms are
defined in Rule 405 under the 1933 Act) obtains beneficial ownership of or is
deemed to beneficially own (as described in Rule l3d-3 under the Exchange Act;
provided, that for this purpose, the right to acquire beneficial ownership, even
if not within 60 days, shall be deemed to convey beneficial ownership) in excess
of 50% of the Company's voting power, or (iii) there is a replacement of more
than one-half of the members of the Company's Board of Directors which is not
approved by those individuals who are members of the Company's Board of
Directors on the date thereof.

                  "Closing" shall have the meaning specified in Section
2(f)(i)(D).

                  "Closing Date" shall have the meaning specified in Section
2(f)(i).

                  "Company Accountants" shall mean BDO International or such
other independent certified public accountants (within the meaning of the 1933
Act and the rules and regulations thereunder) as are reasonably satisfactory to
the Purchaser.

                  "Company Counsel" shall mean Blank Rome Comiskey & McCauley
LLP or such other independent counsel as is reasonably satisfactory to the
Purchaser.

                  "Control" or "Controls" shall mean a person or entity that has
the power, directly or indirectly, to conduct the affairs or govern the policies
of another person or entity.

                  "Daily Dollar Amount" shall mean for any Trading Day during a
Purchase Period, the Stated Dollar Amount (as defined herein) for such Purchase
Period divided by 20, subject to adjustment as set forth in Section 2(c).

                                       2

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                  "Daily Purchase Amount" shall have the meaning specified in
Section 2(c).

                  "Disclosure Letter" shall mean the letter delivered by the
Company to the Purchaser in connection with the Company's representations and
warranties contained herein.

                  "DTC" shall mean The Depository Trust Company.

                  "Drawdown Notice" shall mean a written notice delivered by the
Company to the Purchaser in the form and substance of Exhibit E hereto.

                  "Drawdown Notice Date" shall mean each date on which the
Purchaser receives a Drawdown Notice.

                  "Drawdown Notice Start Date" shall mean, with respect to a
particular Purchase Period, the Trading Day immediately following the 6th
Trading Day (or if no Drawdown Notice has been delivered to the Purchaser during
the prior 60 calendar days, the Trading Day immediately following the 12th
Trading Day) after the related Drawdown Notice Date.

                  "Drawdown Shares" shall mean all shares of Common Stock
purchased by the Purchaser from time to time pursuant to this Agreement other
than the Initial Shares, Warrant Shares and Adjustment Shares.

                  "Effective Date" shall mean the date that a Registration
Statement covering the resale by the Purchaser of the Purchased Shares is first
declared effective by the SEC.

                  "Equity Line Agreement" shall mean an agreement of the type
commonly referred to as an "equity line," providing for the Company's future
sale of (or right to sell) Common Stock to a third party from time to time
during the term of the agreement at a purchase price per share based on the
market price (or average trading price) of the Common Stock at either the time
of such sale or some period preceding such sale.

                  "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.

                  "Floor Price" shall have the meaning specified in Section
2(b)(i).

                  "Initial Purchase Price" shall mean $1.40.

                  "Initial Shares" shall have the meaning specified in Section
2(a)(iii).

                  "Major Transaction" shall be deemed to have occurred at the
closing of any of the following events:

                  (i)      A Change in Control Transaction;

                  (ii)     A "going private" transaction under Rule 13e-3
promulgated pursuant to the Exchange Act; or

                  (iii) A tender offer by the Company under Rule 13e-4
promulgated pursuant to the Exchange Act for 20% or more of the outstanding
Common Stock.

                                       3

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                  "Material Adverse Effect" means any material adverse effect on
the business, properties, assets, operations, results of operations or financial
condition of the Company and its subsidiaries taken as a whole, or on the
transactions contemplated hereby or by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents.

                  "Minimum Floor Price" shall mean $4.00, subject to increase
(but not to decrease) in the case of a reverse stock split, recapitalization or
similar transaction; provided, that the Company may reduce the Minimum Floor
Price to an amount not less than $1.00 upon five days prior written notice to
the Purchaser. Such a reduction in the Minimum Floor Price shall not affect the
Floor Price for a then-current Purchase Period.

                  "NASD Limit" shall mean 9,200,000 shares of Common Stock, as
appropriately adjusted from time to time for any stock splits, reverse stock
splits, recapitalizations, stock dividends and other events of a like nature.

                  "Open Period" shall mean the period beginning on and including
the day following the expiration of the Pricing Period and ending upon the
termination of this Agreement in accordance with Section 2(f)(iv), Section
2(f)(v) or Section 8.

                  "Pricing Period" shall have the meaning given to such term in
the Adjustment Warrant.

                  "Principal Market" shall mean the Nasdaq National Market
System or, if the Common Stock ceases to be traded on the Nasdaq National Market
System, such other Approved Market on which the Common Stock is then principally
listed or quoted.

                  "Purchase Day" shall mean each Trading Day during a Purchase
Period where the Daily Dollar Amount (as adjusted pursuant to Section 2(c)) is
greater than zero.

                  "Purchase Notice" shall have the meaning specified in Section
2(f)(i).

                  "Purchase Notice Date" shall have the meaning specified in
Section 2(f)(i).

                  "Purchase Period" shall mean, with respect to a particular
Drawdown Notice, the 20 Trading Day period beginning on the related Drawdown
Notice Start Date; provided, that a Purchase Period may not start while another
Purchase Period is then ongoing.

                  "Purchase Price" for each Drawdown Share purchased by the
Purchaser with respect to a particular Trading Day during a Purchase Period
shall be equal to 94% of the VWAP for such Trading Day .

                  "Purchased Shares" shall mean, collectively, the Initial
Shares and the Drawdown Shares.

                  "Purchaser's Counsel" shall have the meaning specified in
Section 2(f)(i)(D).

                                       4

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                  "Registration Statement" shall have the meaning given to such
term in the Registration Rights Agreement.

                  "Resale Notice" shall mean a written notice from the Purchaser
stating that it has resold one or more Purchased Shares, Warrant Shares or
Adjustment Shares purchased from the Company (which may include short sales
where the Purchaser intends to cover such sales with shares purchased from the
Company) and complied with all applicable prospectus delivery requirements under
the 1933 Act and the rules promulgated thereunder with respect to such resale.

                  "Restricted Ownership Percentage" shall mean a percentage of
the total issued and outstanding shares of Common Stock equal to 9.99%.

                  "Scheduled Closing Date" shall have the meaning specified in
                  Section 2(f)(iv). "SEC" shall mean the Securities and Exchange
                  Commission.

                  "SEC Documents" shall mean all reports, schedules, forms,
statements and other documents filed by the Company with the SEC pursuant to the
reporting requirements of the 1933 Act and the Exchange Act, including, without
limitation, all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference, along with the Company's Form
S-3 Registration Statement declared effective by the SEC on February 14, 2001.

                  "Stated Dollar Amount" shall have the meaning specified in
Section 2(b)(i).

                  "Subsidiary" shall mean any entity in which the Company,
directly or indirectly, owns more than 50% of the outstanding capital or holds
an equity or similar interest representing at least 50% of the outstanding
equity or similar interests of such entity.

                  "Trading Day" shall mean any day on which the Principal Market
is scheduled to be open for a full day of trading.

                  "Transaction Documents" shall mean this Agreement, the
Registration Rights Agreement, the Warrant, the Adjustment Warrant, the
Disclosure Letter and each of the other agreements entered into by the parties
hereto in connection with the transactions contemplated by this Agreement.

                  "Volume Limit" shall have the meaning specified in Section
2(c)(iii).

                  "VWAP" shall mean the daily volume weighted average price of
the Common Stock on the Principal Market between the hours of 9:30 a.m. and 4:00
p.m. on a Trading Day, or during the Available Period if the Daily Dollar Amount
has been adjusted pursuant to Section 2(c)(ii) below (as reported by Bloomberg
Financial L.P. using the AQR function; provided, that such function captures all
trades on the Principal Market that occur during the hours specified above).

                  "Warrant" shall have the meaning specified in Section
2(a)(ii).

                                       5

<PAGE>

                  "Warrant Shares" shall have the meaning specified in Section
2(a)(ii).

         2.       PURCHASE AND SALE OF COMMON STOCK
                  ---------------------------------

                  a.  Purchase and Sale of Common Stock; Issuance of Warrant
                      ------------------------------------------------------
and Adjustment Warrant.
----------------------

                  (i) Upon and subject to the terms and conditions set forth
herein, the Company may issue and sell to the Purchaser, and the Purchaser shall
purchase from the Company upon proper exercise of the Company's rights
hereunder, that number of Drawdown Shares having an aggregate Purchase Price of
up to $29,000,000.

                  (ii) As an inducement to the Purchaser to enter into this
Agreement and purchase the Purchased Shares hereunder, simultaneous with the
signing of this Agreement the Company shall issue and deliver to the Purchaser
(I) a five year warrant in the form and substance of Exhibit F hereto (the
                                                     ---------
"Warrant") to purchase 52,000 shares of Common Stock ("Warrant Shares") at an
exercise price equal to $3.31896 per share and (II) the Adjustment Warrant.

(iii) As an advance against the Purchaser's purchase obligations hereunder,
simultaneous with the signing of this Agreement and prior to the filing of the
Registration Statement by the Company, the Company shall issue, sell and deliver
to the Purchaser, and the Purchaser shall purchase from the Company for the
aggregate purchase price of $1,000,000, a number of shares of Common Stock equal
to $1,000,000 divided by the Initial Purchase Price (the "Initial Shares").

                  b.  Delivery of Drawdown Notices.
                      ----------------------------

                     (i) Subject to the satisfaction of the conditions set forth
in Section 2(e) below, at any time and from time to time during the Open Period,
the Company may, in its sole discretion, deliver a Drawdown Notice to the
Purchaser stating a dollar amount (the "Stated Dollar Amount") of Drawdown
Shares which the Company desires to sell to the Purchaser during the related
Purchase Period. The Company shall designate in each Drawdown Notice a minimum
Purchase Price per Drawdown Share with regard to the related Purchase Period
(the "Floor Price"), which shall not be less than the Minimum Floor Price. Each
Drawdown Notice shall include a representation by the Company as to the number
of shares of Common Stock outstanding as of the last day of the calendar month
immediately preceding the related Drawdown Notice Date.

                     (ii) The Stated Dollar Amount designated by the Company in
a Drawdown Notice shall be in increments of $100,000 and shall be at least
$500,000, but shall in no event exceed $3,000,000. Additionally, the Stated
Dollar Amount designated by the Company in a Drawdown Notice may not be greater
than the product of (A) the Floor Price and (B) the number of shares of Common
Stock then currently available under the Registration Statement.

                     (iii) Contemporaneous with the delivery of a Drawdown
Notice, the Company shall deliver to the Purchaser (A) a current and deliverable
prospectus or prospectus

                                       6

<PAGE>

supplement to the Registration Statement in accordance with the rules and
regulations under the 1933 Act (including disclosure of the Stated Dollar Amount
in such Drawdown Notice and the timing of the related Purchase Period), (B) the
other documents required to be delivered pursuant to Sections 7(e), 7(f), 7(h)
and 7(i) below, and (C) reimbursement for any previously unreimbursed expenses
as provided in Section 10(b) below. Purchases required as a result of a Drawdown
Notice shall be effected by the parties in accordance with Section 2(f) below.

                  c. Purchase of Drawdown Shares. Subject to the conditions set
                     ---------------------------
forth in this Agreement, following the receipt of a validly delivered Drawdown
Notice, on each Trading Day during the related Purchase Period, the Purchaser
shall purchase an amount of shares of Common Stock (the "Daily Purchase Amount")
equal to the Daily Dollar Amount for such Trading Day divided by the Purchase
Price for such Trading Day; provided, that the Daily Dollar Amount for any
Trading Day during a Purchase Period shall be subject to adjustment as follows:

                     (i) For each Trading Day during the Purchase Period on
which the Purchase Price is less than the Floor Price, the Daily Dollar Amount
for such Trading Day shall equal the product of (x) the number of shares of
Common Stock sold by the Purchaser during such Trading Day at a price greater
than or equal to the Floor Price and (y) the Floor Price. In addition, the
Purchase Price for any such Trading Day shall equal the Floor Price.

                     (ii) For each Trading Day during the Purchase Period on
which (A) the Registration Statement or any prospectus or prospectus supplement
is not available for more than one hour at any time during which the Principal
Market is open for trading for the sale of Purchased Shares by the Purchaser,
(B) trading of the Common Stock on the Principal Market is suspended or halted
for more than one hour at any time during which the Principal Market is open for
trading, (C) trading on the Principal Market in general is suspended or halted
for more than one hour, or (D) any one or more of the conditions in Section 7
are not satisfied for more than one hour at time during which the Principal
Market is open for trading (the full Trading Day less such period of
unavailability, suspension or nonsatisfaction being referred to as the
"Available Period"), the Daily Dollar Amount for such Trading Day shall be
automatically reduced (but not increased) to equal the product of (x) the number
of shares of Common Stock sold by the Purchaser during the Available Period at a
price greater than or equal to the Floor Price and (y) the Purchase Price per
share (with the VWAP component of the Purchase Price being calculated with
respect to the Available Period only).

                     (iii) For each Trading Day on which the Daily Dollar Amount
for such Trading Day divided by the Purchase Price for such Trading Day is
greater than 10% of such Trading Day's trading volume for the Common Stock on
the Principal Market as reported by Bloomberg Financial L.P. (provided, that for
                                                              --------
the purpose of determining the Trading Day's trading volume (I) individual
trades of 20,000 shares or more of Common Stock on any Trading Day shall, not be
counted toward such calculations and (II) all transactions other than bona fide,
arm's length transactions between or among unaffiliated and unrelated persons
and entities shall not be counted toward such calculations) (such 10% figure
being referred to as the "Volume Limit"), the Daily Dollar Amount for such
Trading Day shall be the product of the Volume Limit and the Purchase Price for
such Trading Day.

                                       7

<PAGE>

                  For the avoidance of any doubt, all calculations performed
with respect to this Section 2(c) will be performed with respect to the Trading
Day on which the sale of Drawdown Shares to the Purchaser is deemed to occur,
not the corresponding Closing Date. Furthermore, a reduction in the Daily Dollar
Amount for a Trading Day shall not affect the Daily Dollar Amount for any other
Trading Day.

                  Subject to the conditions set forth in this Agreement,
following the Company's receipt of Purchase Notice(s) delivered pursuant to
Section 2(f) below, the Company shall be required to sell to the Purchaser the
number of Drawdown Shares specified in such Purchase Notice(s). Notwithstanding
any other provision of the Transaction Documents, the Purchaser shall in no
event be required to purchase pursuant to this Agreement an aggregate number of
Purchased Shares and Adjustment Shares that is in excess of the NASD Limit or a
number of Purchased Shares having an aggregate Purchase Price greater than
$30,000,000.

                  d. Limitations on Purchaser's Obligation and Right to Purchase
                     -----------------------------------------------------------
Common Stock.
------------

                     (i) Notwithstanding anything to the contrary in this
Agreement, the number of shares of Common Stock that may be acquired by the
Purchaser at any specific time pursuant hereto shall not exceed a number that,
when added to the total number of shares of Common Stock deemed beneficially
owned at such time by the Purchaser (other than by virtue of the ownership of
securities or rights to acquire securities that have limitations on the
Purchaser's right to convert, exercise or purchase similar to the limitation set
forth herein), together with all shares of Common Stock deemed beneficially
owned at such time (other than by virtue of the ownership of securities or
rights to acquire securities that have limitations on the right to convert,
exercise or purchase similar to the limitation set forth herein) by the
Purchaser's "affiliates" (as defined in Rule 144 of the 1933 Act) (the
"Aggregation Parties") that would be aggregated for purposes of determining
whether a group under Section 13(d) of the Exchange Act exists, would exceed the
Restricted Ownership Percentage. In connection with the foregoing limitation,
the Daily Dollar Amount shall be further reduced such that it shall not include
such excess amount of shares of Common Stock. If at any time, the ten percent
beneficial ownership trigger level contained in Section 16(a) of the Exchange
Act is reduced, the Restricted Ownership Percentage shall be automatically
reduced to .01% below such reduced trigger level.

                     (ii) The Purchaser covenants at all times on each day (each
such day being referred to as a "Covenant Day") as follows: During the balance
of such Covenant Day and the succeeding 61 days (the balance of such Covenant
Day and the succeeding 61 days being referred to as the "Covenant Period") the
Purchaser will not acquire shares of Common Stock pursuant to any right
(including pursuant to Section 2 of this Agreement) existing at the commencement
of the Covenant Period to the extent the number of shares so acquired by the
Purchaser and so acquired by its Aggregation Parties (ignoring all dispositions)
would exceed:

                     (x)   the Restricted Ownership Percentage of the total
                           number of shares of Common Stock outstanding at the
                           commencement of the Covenant Period, minus
                                                                -----

                                       8

<PAGE>

                     (y)   the number of shares of Common Stock  actually owned
                           by the Purchaser and its  Aggregation  Parties
                           at the commencement of the Covenant Period.

                  A new and independent covenant will be deemed to be given by
the Purchaser as of each moment of each Covenant Day. No covenant will
terminate, diminish or modify any other covenant. The Purchaser agrees to comply
with each such covenant. This Section 2(d) controls in the case of any conflict
with any other provision of this Agreement or any agreement entered into in
connection herewith.

                     (iii) The Purchaser shall notify the Company in writing
when it becomes aware that it will not be permitted to purchase shares of Common
Stock as a result of the provisions of this Section 2(d). The Company shall have
no obligation to sell shares of Common Stock to the Purchaser and the Purchaser
shall have no obligation to purchase shares of Common Stock from the Company
that may not be acquired by the Purchaser by reason of the provisions of this
Section 2(d). The Purchaser shall have no liability for any failure to purchase
shares of Common Stock from the Company that are not permitted to be acquired by
the Purchaser pursuant to this Section 2(d).

                     (iv) Nothing contained in this Section 2(d) shall affect or
relieve in any way the Company's obligation to deliver shares of Common Stock
previously purchased by the Purchaser pursuant to this Agreement as to which
there has not been a Closing.

                  e. Conditions to Company's Ability to Deliver a Drawdown
                     -----------------------------------------------------
Notice. Notwithstanding anything to the contrary in this Agreement, the Company
------
shall not be entitled to deliver a Drawdown Notice unless each of the following
conditions is satisfied at the time of such delivery:

                     (i) a Registration Statement covering at least 750,000
shares of Common Stock (or, if less, the greatest number of shares of Common
Stock that the Company is then permitted to register pursuant to the 1933 Act
and the rules and regulations promulgated thereunder) shall have been declared
effective in accordance with the Registration Rights Agreement and such
Registration Statement, together with any required prospectus supplement, shall
be effective and available for the sale of such shares of Common Stock by the
Purchaser, along with all Purchased Shares previously purchased hereunder and
still held by the Purchaser, and all such shares of Common Stock shall be duly
authorized and reserved for issuance to the Purchaser;

                     (ii) the Common Stock shall be listed and/or quoted on an
Approved Market and shall not have been suspended from trading thereon, and the
Company shall not have been notified of any pending or threatened proceeding or
other action to delist or suspend the Common Stock on the Principal Market;

                     (iii) there shall not have occurred a Major Transaction or
the public announcement of a pending Major Transaction which has not been
abandoned or terminated;

                     (iv) the Company shall have complied with its obligations
under all the Transaction Documents and shall otherwise not be in breach of, or
in default under (A) any of

                                       9

<PAGE>

the Transaction Documents or (B) any of the Company's other financing
arrangements which involve a loan, line of credit, or other debt incurred by the
Company in excess of $1,000,000 and the breach of which or default under which
has resulted in an acceleration of such debt or obligation or another similar
result, and all the Company's representations and warranties under the
Transaction Documents shall be true;

                     (v) there shall not have occurred any breach or default by
the Company under any other agreements between the Company and the Purchaser;

                     (vi) the Company shall have delivered to the Purchaser a
secretary's certificate dated as of the applicable Drawdown Notice Date in the
form and substance of Exhibit D; and

                     (vii) the quotient of (A) the Stated Dollar Amount and (B)
the Floor Price (as such amounts are specified in the applicable Drawdown
Notice) is less than or equal to the amount determined by subtracting the
aggregate number of Purchased Shares purchased by the Purchaser pursuant to this
Agreement, whether or not there has been a Closing with respect to such
Purchased Shares, and the Adjustment Shares, from the NASD Limit.

                  The Company's delivery of a Drawdown Notice shall constitute a
representation by the Company that the shares of Common Stock referred to in
clause (i) above have been reserved for issuance as required pursuant to this
Section 2(e). If any of the events described in clauses (iii) and (v) above
occurs, or the Company ceases to be in compliance with one or more of the
conditions specified in clauses (i), (ii) and (iv) above, during a Purchase
Period, then the Purchaser shall have no further obligation to purchase any more
shares of Common Stock during such Purchase Period, although the Company's
obligation to deliver shares of Common Stock previously purchased by the
Purchaser pursuant to this Agreement as to which there has not been a Closing,
or to be purchased by the Purchaser pursuant to a subsequently delivered
Purchase Notice, shall not be affected or relieved in any way as a result of any
of the above conditions not being fulfilled by the Company.

                  f. Mechanics of Purchase.
                     ---------------------

                     (i) To effect a purchase of Drawdown Shares, the Purchaser
shall deliver for each Purchase Day a written notice (which written notice may
cover more than one Purchase Day) via facsimile or e-mail to the Company (each a
"Purchase Notice" and each date on which a Purchase Notice is sent being a
"Purchase Notice Date"). Each Purchase Notice shall cover each Purchase Day
commencing with the later of (x) the first Purchase Day in that Purchase Period
and (y) the Purchase Day immediately following the Purchase Notice Date on which
Drawdown Shares were last purchased and ending on the current Purchase Notice
Date. The Purchaser must deliver a Purchase Notice with respect to a particular
Purchase Day no later than one Trading Day following the final Trading Day of
the Purchase Period during which such Purchase Day occurs. Each Purchase Notice
shall set forth:

                        (A)  the aggregate Purchase Price (as determined in
                             accordance with this Section 2) for the Drawdown
                             Shares being

                                       10

<PAGE>

                             purchased by the Purchaser pursuant to such
                             Purchase Notice;

                       (B)   the Purchase Price (as determined in accordance
                             with this Section 2) for each of the Trading Days
                             within the Purchase Period covered by such Purchase
                             Notice;

                       (C)   the number of Drawdown Shares being purchased
                             pursuant to such Purchase Notice;

                       (D)   the date of the closing of the purchase by the
                             Purchaser of such Drawdown Shares (a "Closing")
                             (which shall occur at 10:00 a.m. New York City time
                             on the Trading Day specified in the Purchase
                             Notice, such Trading Day being not sooner than the
                             2nd Trading Day after the delivery of the Purchase
                             Notice and not later than 3 Trading Days following
                             the date of such delivery, at the offices of
                             Kleinberg, Kaplan, Wolff & Cohen, P.C.
                             ("Purchaser's Counsel"), 551 Fifth Avenue, New
                             York, New York 10 176) or such other place as the
                             parties shall agree; and

                       (E)   a representation by the Purchaserthat after giving
                             effect to the purchase of Drawdown Shares
                             contemplated by such Purchase Notice, the Purchaser
                             will be in compliance with the terms of Section
                             2(d) of this Agreement.

                  The date of each Closing is referred to herein as a "Closing
Date."

                     (ii) Notwithstanding anything herein to the contrary, the
parties agree that the Purchaser will be deemed to own the Drawdown Shares to be
purchased with respect to a particular Purchase Day as of such Purchase Day
regardless of the associated Closing Date.

                     (iii) On each Closing Date, (A) the Company shall either
(x) deliver to the Purchaser certificates representing the Drawdown Shares to be
issued and sold to the Purchaser on such date as specified in the Purchase
Notice(s) delivered by the Purchaser to the Company, registered in the name of
the Purchaser or its designee, such certificates to be freely tradable and free
of any legends or stop transfer restrictions provided that the Purchaser has
delivered a Resale Notice to the Company or the Company's transfer agent prior
to or on such Closing Date or (y) deposit such Drawdown Shares into the
account(s) (with the Purchaser receiving confirmation that the Drawdown Shares
are in such account(s)) designated by the Purchaser for the benefit of the
Purchaser, and (B) the Purchaser shall deliver to the Company the aggregate
Purchase Price (net of any amounts payable by the Company pursuant hereto) to be
paid for such Drawdown Shares (upon receipt of confirmation of delivery of such
Drawdown Shares), determined as aforesaid, in immediately available funds. In
addition, each of the Company and the Purchaser shall deliver all documents,
instruments and writings required to be delivered by either of them pursuant to
this Agreement, at or prior to each Closing. In the alternative to physical
delivery of certificates representing Common Stock, if delivery of the

                                       11

<PAGE>

Drawdown Shares may be effectuated by electronic book-entry through DTC, then
the Closing shall occur, and delivery of the Drawdown Shares pursuant to such
purchase shall, unless requested otherwise by the Purchaser, settle by
book-entry transfer through DTC by the Closing Date. The parties agree to
coordinate with DTC to further this objective.

                     (iv) If the Company fails to deliver the appropriate number
of Drawdown Shares to the Purchaser within 2 Trading Days following the date on
which the Closing with respect to such Drawdown Shares was scheduled as provided
above (the "Scheduled Closing Date") for any reason, the Purchaser need not
purchase any more shares of Common Stock from the Company pursuant to this
Agreement until such failure has been fully cured by the Company. The Purchase
Period shall not be extended as a result of such failure and subsequent cure
without the prior written consent of the Purchaser. If such failure is not cured
by the Company by the close of business on the 5th Trading Day following the
Scheduled Closing Date (1) the current Purchase Period shall immediately
terminate and the Purchaser shall have no further obligation to purchase any
more shares of Common Stock from the Company with respect to such terminated
Purchase Period, and (2) the Purchaser may, from time to time during the 10
Trading Day period following such 5th Trading Day, purchase in the open market
an amount of shares of Common Stock necessary to fulfill the Purchaser's then
outstanding obligations to deliver shares of Common Stock in connection with
sales of Common Stock made by the Purchaser (but in no event greater than the
number of Drawdown Shares that the Company failed to deliver) and the Company
shall, upon receipt of notice of such purchase, as partial and non-exclusive
relief for the damages to the Purchaser by reason of the above-described
failure, reimburse the Purchaser for the cost of such purchase (each such
purchase and reimbursement being a "Buy-in") upon demand, following which time
the Purchaser shall deliver to the Company the sum of the aggregate Purchase
Price to be paid for such Drawdown Shares, determined as aforesaid, in
immediately available funds. If the Company fails to pay such reimbursement
within 3 Trading Days of receipt of such notice, then the Company shall pay to
the Purchaser, on the 1st Trading Day following such 3rd Trading Day, in
addition to, and not in lieu of, the reimbursement amount payable by the Company
to the Purchaser hereunder, an amount equal to 2% of the reimbursement amount
per period of 20 Trading Days (or portion thereof) until the reimbursement
amount is paid in full. If no Buy-in occurs with respect to a certain number of'
Drawdown Shares and the Company's failure to deliver such Drawdown Shares to the
Purchaser is not cured by the Company by the close of business on the 13th
Trading Day following the Scheduled Closing Date, this Agreement shall terminate
(subject to Section 10(j) below) upon the delivery by the Purchaser to the
Company of a notice regarding such excessively delayed Closing (a "Delayed
Closing Notice"), and following its delivery of such notice, the Purchaser shall
have no further obligation to purchase any more shares of Common Stock from the
Company under this Agreement. The remedies set forth in this Section 2(f)(iv)
are not exclusive of any other remedies available to the Purchaser at law or
equity.

                     (v) If the Company fails to satisfy any of the conditions
set forth in Section 7 below (including, without limitation, Section 7.1) on any
Purchase Day or Scheduled Closing Date, the Purchaser shall purchase Drawdown
Shares from the Company on such date (if it is a Purchase Day) in accordance
with Section 2(c)(ii), but need not purchase any more shares of Common Stock
from the Company on any subsequent Purchase Days or Scheduled Closing Dates
pursuant to this Agreement until such condition has been fully satisfied by the
Company. If such condition is not fully satisfied by the Company by the close of
business on the 5th

                                       12

<PAGE>

Trading Day following such Purchase Day or Scheduled Closing Date (as
applicable), the current Purchase Period shall immediately terminate, and the
Purchaser shall have no further obligation to purchase any more shares of Common
Stock from the Company with respect to such terminated Purchase Period. If such
condition is not fully satisfied by the Company by the close of business on the
13th Trading Day following such Purchase Day or Scheduled Closing Date (as
applicable), this Agreement shall terminate (subject to Section 10(j) below)
upon the delivery to the Company of a Delayed Closing Notice and, following its
delivery of such notice, the Purchaser shall have no further obligation to
purchase any more shares of Common Stock from the Company under this Agreement;
provided, however, that the Purchaser may not deliver a Delayed Closing Notice
during the pendency of a Suspension Period (as defined in the Registration
Rights Agreement). The remedies set forth in this Section 2(f)(v) are not
exclusive of any other remedies available to the Purchaser at law or equity and
shall not affect or relieve in any way the Company's obligation to deliver
shares of Common Stock previously, purchased by the Purchaser pursuant to this
Agreement as to which there has not been a Closing.

                     (vi) The number of Drawdown Shares to be purchased pursuant
to each Purchase Notice shall be rounded up to the next whole number so as to
avoid the issuance of fractional shares.

                  g. Certain Adjustments. The limitations imposed by Section
                     -------------------
2(d) on the number of shares of Common Stock acquirable shall be adjusted
appropriately to reflect stock splits, reverse stock splits, stock dividends,
combinations and like transactions affecting the Common Stock. Such appropriate
adjustments shall be made for any period of Trading Days used for purposes of
performing calculations under this Agreement.

                  h. Delisting; Suspension. If at any time during a Purchase
                     ---------------------
Period or during the 10 Trading Days after the end of such Purchase Period, (i)
the Registration Statement, together with the required prospectus or prospectus
supplement, shall not be effective and available for sale of all the shares of
Common Stock purchased by the Purchaser hereunder, or (ii) the Common Stock or
the Purchased Shares purchased by the Purchaser hereunder shall not be listed on
the Principal Market or shall have been suspended from trading thereon, the
Purchaser shall have the right (the "Repurchase Option"), as partial relief for
the damages to the Purchaser by reason of the occurrence of the events listed in
clauses (i) or (ii) above (each a "Repurchase Event"), which remedy shall not be
exclusive of any other remedies available at law or equity, in its sole
discretion, to sell to the Company, and the Company agrees to buy, promptly upon
the exercise of such right by the Purchaser, but in any event within 3 Trading
Days of the exercise of such right, all or any part of the Drawdown Shares
issued to the Purchaser during such Purchase Period and then held by the
Purchaser, at the price per share at which such Drawdown Shares were actually
purchased by the Purchaser (the "Payment Amount") (such repurchase being a
"Repurchase Closing"). Notwithstanding anything else in this Section 2(h) to the
contrary, in the event that the consummation of a Repurchase Closing would
constitute a violation of Regulation M promulgated under the Exchange Act, (A)
the Purchaser shall have the right to immediately terminate this Agreement
(subject to Section 10(j) below) upon written notice to the Company (such
termination being deemed by both parties hereto as a termination of the related
"Distribution" pursuant to Rule 100 under Regulation M), and (B) such Repurchase
Closing shall be postponed until immediately following such termination of this
Agreement. If the Company fails to pay to the Purchaser the full aggregate

                                       13

<PAGE>

Payment Amount within 3 Trading Days of the Purchaser's exercise of the
Repurchase Option hereunder (or, if the Repurchase Closing is postponed pursuant
to the immediately preceding sentence, within 3 Trading Days of the date on
which the Purchaser terminated this Agreement pursuant to clause (A) above) the
Company shall pay to the Purchaser, on the 1st Trading Day following such 3rd
Trading Day, in addition to and not in lieu of the Payment Amount payable by the
Company to the Purchaser upon exercise of the Repurchase Option, an amount equal
to 2% of the Payment Amount per period of 20 Trading Days (or portion thereof)
until the Payment Amount is paid in full. The Purchaser may in its sole
discretion, without prejudice, withdraw such exercise of its Repurchase Option
in whole or part from time to time prior to the payment in full to the Purchaser
of the amounts specified in this Section 2(h).

                  i. Repurchase of Initial Shares. If (A) the Adjusted Share
                     ----------------------------
Amount (as defined in the Adjustment Warrant) on five or more consecutive
Trading Days during the Pricing Period (as defined in the Adjustment Warrant) is
equal to zero, or (B) the Initial Shares are not effectively registered and
available for public resale by the Purchaser in accordance with the terms of the
Registration Rights Agreement by the 120th calendar day following the date of
this Agreement, the Purchaser may at any time following either such event (and
regardless of whether the Initial Shares are subsequently so registered and
available for resale) deliver one or more written notices to the Company (each
such notice being a "Repurchase Notice") specifying a date and time not sooner
than one Trading Day following the date of such notice on which there shall be a
closing with respect to such Repurchase Notice. At such closing, the Company
shall repurchase from the Purchaser for cash all or such portion of the Initial
Shares specified by the Purchaser in the Repurchase Notice at a per share price
equal to the Adjusted Redemption Price.

         3.      PURCHASER'S REPRESENTATIONS AND WARRANTIES

                 The Purchaser represents and warrants to the Company that:

                  a. Accredited Investor Status. The Purchaser is an "accredited
                     --------------------------
investor" as that term is defined in Rule 501(a) of Regulation D under the 1933
Act.

                  b. Information. The Purchaser and its advisors, if any, have
                     -----------
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
shares of Common Stock which have been requested by the Purchaser. The Purchaser
and its advisors, if any, have been afforded the opportunity to ask questions of
the Company. Neither such inquiries nor any other due diligence investigations
conducted by the Purchaser or its advisors, if any, or its representatives shall
modify, amend or affect the Purchaser's right to rely on the Company's
representations and warranties contained in Section 4 below. The Purchaser
understands that its investment in the shares of Common Stock involves a high
degree of risk. The Purchaser has sought such accounting, legal and tax advice
as it has considered necessary to make an informed investment decision with
respect to its acquisition of the shares of Common Stock.

                  c. No Governmental Review. The Purchaser understands that no
                     ----------------------
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the shares of
Common Stock or the fairness or

                                       14

<PAGE>

suitability of the investment in the shares of Common Stock nor have such
authorities passed upon or endorsed the merits of the offering of the shares of
Common Stock.

                  d. Authorization; Enforcement. (i) The Purchaser has the
                     --------------------------
requisite power and authority to enter into and perform under the Transaction
Documents and to purchase the Purchased Shares being sold to it hereunder, (ii)
the execution and delivery of the Transaction Documents by the Purchaser and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Purchaser or its shareholders or directors is required, and
(iii) this Agreement and the Registration Rights Agreement have been duly
executed and delivered by the Purchaser and constitute valid and binding
obligations of the Purchaser enforceable against the Purchaser in accordance
with their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.

                  e. Residency. The Purchaser is a resident of the Cayman
                     ---------
Islands, BWI.

                  f. No Conflicts. The execution, delivery and performance of
                     ------------
the Transaction Documents by the Purchaser and the consummation by the Purchaser
of the transactions contemplated thereby do not and will not (i) result in a
violation of the documents of organization of the Purchaser or any order,
judgment or decree of any court or governmental agency applicable to the
Purchaser or its properties or (ii) conflict with any other agreement, indenture
or instrument to which the Purchaser is a party.

                  g. Financial Risks. The Purchaser acknowledges that it is able
                     ---------------
to bear the financial risks associated with an investment in the Purchased
Shares and that it has been given full access to such records of the Company and
its subsidiaries and to the officers of the Company and its subsidiaries as it
has deemed necessary or appropriate to conduct its due diligence investigation.
The Purchaser is capable of evaluating the risks and merits of an investment in
the Purchased Shares by virtue of its experience as an investor and its
knowledge, experience, and sophistication in financial and business matters and
the Purchaser is capable of bearing the loss of its entire investment in the
Purchased Shares.

                  h. IP Acknowledgement. Without limiting the Company's
                     ------------------
representations and warranties under Section 4(l), the Purchaser recognizes and
acknowledges that the Company's pending patent and trademark applications may be
subject to governmental actions which may challenge the patentability or
registrability of such properties.

         4.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY
                  ---------------------------------------------

                  The Company represents and warrants to the Purchaser that:

                  a. Organization and Qualification. Set forth in the Disclosure
                     ------------------------------
Letter is a complete list of each entity in which the Company, directly or
indirectly, owns capital stock or holds an equity or similar interest. The
Company and its Subsidiaries, a complete list of which is set forth in the
Disclosure Letter, are corporations duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are incorporated, and
have the requisite

                                       15

<PAGE>

corporate power and authorization to own their properties and to carry on their
business as now being conducted and currently contemplated. Each of the Company
and its Subsidiaries is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which its ownership of property
or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect.

                  b. Authorization; Enforcement; Compliance with Other
                     -------------------------------------------------
Instruments. The Company has the requisite corporate power and authority to
-----------
enter into and perform its obligations under the Transaction Documents, and to
issue the Purchased Shares and Adjustment Shares (up to a maximum of 9,200,000
shares) and Warrant Shares in accordance with the terms thereof, (ii) the
execution and delivery of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby, including without
limitation the reservation for issuance and the issuance of the Purchased
Shares, Adjustment Shares and Warrant Shares have been duly authorized by the
Company's Board of Directors and no further consent or authorization is required
by the Company, its Board of Directors or its shareholders, (iii) the
Transaction Documents have been duly executed and delivered by the Company, and
(iv) the Transaction Documents constitute the valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.

                  c. Capitalization. As of July 27, 2001, the authorized capital
                     --------------
stock of the Company consisted of (i) 100,000,000 shares of Common Stock, of
which as of the date hereof, 46,083,601 shares are issued and outstanding,
6,727,715 shares are issuable upon exercise of outstanding stock options,
whether or not currently exercisable, 2,117,793 shares are issuable upon
exercise of outstanding warrants, whether or not currently exercisable, and
319,913 shares are issuable upon conversion of convertible loans. All of such
outstanding shares have been, or upon issuance will be, validly issued, fully
paid and nonassessable. As of the date hereof, except as disclosed in the
Disclosure Letter, (i) no shares of the Company's capital stock are subject to
preemptive rights or any other similar rights or are secured by any liens or
encumbrances against the Company or its assets, (ii) there are no outstanding
debt securities, (iii) there are no outstanding options, warrants, scrip, rights
to subscribe to, calls or commitments of any character whatsoever relating to,
or securities or rights convertible, exercisable or exchangeable into, any
shares of capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible, exercisable or exchangeable into, any shares
of capital stock of the Company or any of its Subsidiaries, (iv) there are no
agreements or arrangements under which the Company or any of its Subsidiaries is
obligated to register the sale of any of their securities under the 1933 Act
(except the Registration Rights Agreement), (v) there are no outstanding
securities of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries, (vi) there are no

                                       16

<PAGE>

securities or instruments containing anti-dilution, most-favored-nations or
similar provisions that will be triggered by the issuance of the Purchased
Shares, Adjustment Warrant, Adjustment Shares, Warrant or Warrant Shares as
described in this Agreement, the Adjustment Warrant and the Warrant and, (vii)
the Company does not have any stock appreciation rights or "phantom stock" plans
or agreements or any similar plan or agreement. The Company has furnished to the
Purchaser true and correct copies of the Company's Articles of Incorporation, as
amended and as in effect on the date hereof (the "Certificate of
Incorporation"), and the Company's By-laws, as in effect on the date hereof (the
"By-laws"), and the terms of all securities convertible or exchangeable into or
exercisable for Common Stock and the material rights of the holders thereof in
respect thereto.

                  d. No Conflicts. The execution, delivery and performance of
                     ------------
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby will not (i) result in a
violation of the Certificate of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of preferred stock of the
Company or the By-laws; (ii) conflict with, or constitute a default (or an event
which 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 of, any material agreement, indenture or instrument to which the
Company or any of its Subsidiaries is a party, or (iii) result in a violation of
any law, rule, regulation, order, judgment or decree (including without
limitation United States federal and state securities laws and regulations and
the rules and regulations of the Principal Market or principal securities
exchange or trading market on which the Common Stock is traded or listed)
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected. Neither
the Company nor its Subsidiaries is in violation of any term of, or in default
under, (x) its Certificate of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of preferred stock or By-laws
or their organizational charter or by-laws, respectively, (y) any material
contract, agreement, mortgage, indebtedness, indenture, instrument, or (z) any
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its Subsidiaries, the non-compliance with which (in the case of
clause (z) only) may cause a Material Adverse Effect. The business of the
Company and its Subsidiaries is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for any violations
which individually or in the aggregate will not have a Material Adverse Effect.
Except as specifically contemplated by this Agreement and as required under the
1933 Act (or applicable "Blue Sky" laws), the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration with,
any court, governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under, or
contemplated by, the Transaction Documents in accordance with the terms hereof
or thereof. All consents, authorizations, orders, filings and registrations
which the Company is required to obtain pursuant to the preceding sentence have
been obtained or effected on or prior to the date hereof. The Company complies
with and is not in violation of the listing requirements of the Principal Market
as in effect on the date hereof (or other Approved Market on which the Common
Stock is then traded) on each of the Closing Dates and is not aware of any facts
which, after the Effective Date, would reasonably lead to delisting or
suspension of the Common Stock by the Principal Market (or other Approved Market
on which the Common Stock is then traded) in the foreseeable future.

                                       17

<PAGE>

                  e. SEC Documents; Financial Statements. Since January 12,
                     -----------------------------------
1999, the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act. The Company has delivered to the Purchaser or
its representatives true and complete copies of the SEC Documents. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, 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. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except in the case of unaudited interim statements, to the
extent they may exclude footnotes or may be condensed or summary statements) and
fairly present in all material respects the financial position of the Company as
of the dates thereof and the results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). No other written information provided by or on
behalf of the Company to the Purchaser which is not included in the SEC
Documents, including, without limitation, information referred to in Section
2(b) of this Agreement, contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstance under which they are or were made, not
misleading. Neither the Company nor any of its Subsidiaries or any of their
officers, directors, employees or agents have provided the Purchaser with any
material, nonpublic information which was not publicly disclosed prior to the
date hereof, and, except as otherwise provided for in Section 3(h)(ii) of the
Registration Rights Agreement, the Company shall not provide the Purchaser with
any non-public information, and if it does so in violation of such Section
3(h)(ii) the Purchaser may disclose such information to the public without
liability.

                  f. Absence of Certain Changes. Except as disclosed in the SEC
                     --------------------------
Documents filed on EDGAR at least five (5) Trading Days prior to the date
hereof, since December 31, 2000 there has been no adverse change or adverse
development in the business, properties, assets, operations, financial
condition, prospects, liabilities or results of operations of the Company or its
Subsidiaries which has had or, to the knowledge of the Company or its
Subsidiaries, may have a Material Adverse Effect. The Company has not taken any
steps, and does not currently expect to take any steps, to seek protection
pursuant to any bankruptcy law nor does the Company or its Subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings.

                  g. Absence of Litigation. There is no action, suit,
                     ---------------------
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company, the Common Stock or any of the Company's Subsidiaries or
any of the Company's or the Company's Subsidiaries' officers or directors in
their capacities as such, except as set forth in the Disclosure Letter.

                                       18

<PAGE>

                  h. Acknowledgment Regarding Purchaser. The Company
                     ----------------------------------
acknowledges and agrees that the Purchaser is acting solely in the capacity of
arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that the Purchaser is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to the Transaction Documents
and the transactions contemplated hereby and thereby, and any advice given by
the Purchaser or any of its respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated hereby and
thereby is merely incidental to the Purchaser's purchase of the Purchased
Shares. The Company further represents to the Purchaser that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.

                  i. No Undisclosed Events, Liabilities, Developments or
                     ---------------------------------------------------
Circumstances. No event, liability, development or circumstance has occurred or
-------------
exists with respect to the Company or its Subsidiaries or their respective
business, properties, prospects, operations or financial condition, that would
be required to be disclosed by the Company under applicable securities laws on a
registration statement filed with the SEC relating to an issuance and sale by
the Company of its Common Stock and which has not been publicly disclosed.

                  j. No Integrated Offering. Neither the Company, nor any of its
                     ----------------------
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of Common
Stock to the Purchaser to be integrated with prior offerings by the Company for
purposes of the 1933 Act or any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of the Principal
Market, nor will the Company or any of its Subsidiaries take any action or steps
that would cause the offering of the Common Stock to be integrated with other
offerings.

                  k. Employee Relations. Neither the Company nor any of its
                     ------------------
Subsidiaries is involved in any material union labor dispute nor, to the
knowledge of the Company or any of its Subsidiaries, is any such dispute
threatened. Neither the Company nor any of its Subsidiaries is a party to a
collective bargaining agreement. The Company and its Subsidiaries believe that
relations between the Company and its Subsidiaries and their respective
employees are good. No executive officer (as defined in Rule 501(f) of the 1933
Act) has notified the Company that such officer intends to leave the Company or
otherwise terminate such officer's employment with the Company.

                  l. Intellectual Property Rights. The Company and its
                     ---------------------------
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, patent applications, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and confidential business
information, computer software, and all other proprietary or intellectual
property rights, and all goodwill associated with the foregoing (collectively,
"Intellectual Property") necessary or desirable to conduct their respective
businesses as now conducted or currently contemplated to be conducted in the
future. None of the Company's Intellectual Property rights have expired or
terminated, or are expected to expire or terminate within three (3) years from
the date of this Agreement. The Company and its Subsidiaries do not have any
knowledge of any infringement,

                                       19

<PAGE>

interference or misappropriation by the Company or its Subsidiaries of or with
Intellectual Property or other similar rights of others, or of any such
development of similar or identical trade secrets or technical information by
others, and there is no claim, action or proceeding being made or brought
against, or to the Company's knowledge, being threatened against, the Company or
its Subsidiaries regarding Intellectual Property or other infringement,
interference or misappropriation. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their Intellectual Property. To the knowledge of the Company or its
Subsidiaries, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property
rights of the Company or its Subsidiaries.

                  To the extent the Company and its Subsidiaries own any
Intellectual Property: the Company and/or its Subsidiaries possess all right,
title and interest in and to the item, free and clear of any lien, claim,
encumbrance, license, or other restriction; the item is not subject to any
outstanding injunction, judgment, order, decree, ruling or charge; and no
action, suit, proceeding, hearing, investigation, charge, complaint, claim or
demand is pending or threatened which challenges the legality, validity,
enforceability, use or ownership of the item.

                  To the extent the Company and its Subsidiaries have the right
to use any Intellectual Property: the license, sublicense, agreement or
permission covering the item is legal, valid, binding, enforceable and in full
force and effect; no party to the license, sublicense, agreement or permission
is in breach or default, and no event has occurred which with notice or lapse of
time would constitute a breach or default or permit termination, modification,
or acceleration thereunder; no party to the license, sublicense, agreement or
permission has repudiated any provision thereof; the underlying item of
Intellectual Property is not subject to any outstanding injunction, judgment,
order, decree, ruling or charge; no action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand is pending or threatened which
challenges the legality, validity or enforceability of the underlying item of
Intellectual Property; and none of the Company or its Subsidiaries has granted
any sublicense or similar right with respect to the license, sublicense,
agreement or permission.

                  To the knowledge of the Company and its Subsidiaries, none of
the Company and its Subsidiaries will interfere with, infringe upon,
misappropriate, or otherwise come into conflict with, any Intellectual Property
rights of third parties as a result of the continued operation of its businesses
as presently conducted and as presently proposed to be conducted.

                  Except as disclosed in the SEC Documents, none of the Company
and its Subsidiaries has any knowledge of any new products, inventions,
procedures or methods of manufacturing or processing that any competitors or
other third parties have developed which reasonably could be expected to
supersede or make obsolete any product, process or Intellectual Property of any
of the Company or its Subsidiaries.

                  m. Environmental Laws. The Company and its Subsidiaries (i)
                     ------------------
are in compliance with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to

                                       20

<PAGE>

conduct their respective businesses and (iii) are in compliance with all terms
and conditions of any such permit, license or approval where such noncompliance
or failure to receive permits, licenses or approvals referred to in clauses (i),
(ii) or (iii) above could have, individually or in the aggregate, a Material
Adverse Effect.

                  n. Title. The Company and its Subsidiaries have good and
                     -----
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not interfere with the use made and proposed to be made of
such property by the Company or any of its Subsidiaries. Any real property and
facilities held under lease by the Company or any of its Subsidiaries are held
by them under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its Subsidiaries.

                  o. Insurance. The Company and each of its Subsidiaries are
                     ---------
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as reasonably prudent and customary in the
businesses in which the Company and its Subsidiaries are engaged. Neither the
Company nor any such Subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such 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 at a cost that would not materially
and adversely affect the condition, financial or otherwise, or the earnings,
business, operations or prospects of the Company and its Subsidiaries taken as a
whole.

                  p. Regulatory Permits. The Company and its Subsidiaries
                     ------------------
possess all material certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities, necessary to
conduct their respective businesses, and neither the Company nor any such
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.

                  q. Internal Accounting Controls. The Company and each of its
                     ----------------------------
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.

                  r. Foreign Corrupt Practices Act. Neither the Company, nor any
                     -----------------------------
director, officer, agent, employee or other person acting on behalf of the
Company or any Subsidiary has, in the course of acting for, or on behalf of, the
Company, directly or indirectly: (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation

                                       21

<PAGE>

of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended,
or any similar treaties of the United States; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government or party official or employee.

                  s. Tax Status. The Company and each of its Subsidiaries has
                     ----------
made or filed all United States federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the Company is not aware of any basis for any such claim.

                  t. Certain Transactions. Except as set forth in the SEC
                     --------------------
Documents filed on EDGAR at least five (5) Trading Days prior to the date hereof
and except for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options disclosed on the Disclosure Letter, none of the officers, directors or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director
or any such employee has a substantial interest or is an officer, director,
trustee or partner.

                  u. Dilutive Effect. The Company understands and acknowledges
                     ---------------
that the number of shares of Common Stock issuable upon purchases pursuant to
this Agreement, the number of Warrant Shares issuable upon exercise of the
Warrant and the number of Adjustment Shares issuable upon exercise of the
Adjustment Warrant will increase in certain circumstances. The Company further
acknowledges that, subject to such limitations as are expressly set forth in the
Transaction Documents, its obligation to issue shares of Common Stock upon
purchases pursuant to this Agreement, Warrant Shares upon exercise of the
Warrant and Adjustment Shares upon exercise of the Adjustment Warrant is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other shareholders of the Company.

                  v. Application of Takeover Protections. The Company and its
                     -----------------------------------
board of directors have taken all necessary action, if any, in order to render
inapplicable any anti-takeover provisions under applicable Delaware law or
contained in the Company's Certificate of Incorporation or otherwise which is or
could become applicable to the Purchaser as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company's
issuance of the Purchased Shares, Warrant Shares, Adjustment Shares, the
Adjustment Warrant and the Warrant and the Purchaser's ownership of any of such
securities.

                                       22

<PAGE>

                  w. Rights Plan. Neither the Company nor any of its
                     -----------
Subsidiaries has adopted a shareholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of Common Stock or a change in
control of the Company. The Company confirms that no provision of such plan
will, under any present or future circumstances, delay, prevent or interfere
with the performance of any of the Company's obligations under the Transaction
Documents and such plan will not be "triggered" by such performance.

                  x. Obligations Absolute. The Company acknowledges that,
                     --------------------
subject only to the conditions, qualifications and exceptions (if any)
specifically set forth in the Transaction Documents, its obligations under the
Transaction Documents are unconditional and absolute. Except to the extent (if
any) specifically set forth in the Transaction Documents, the Company's
obligations thereunder are not subject to any right of set off, counterclaim,
delay or reduction.

                  y. Issuance. The Purchased Shares, Adjustment Shares and
                     --------
Warrant Shares are duly authorized and reserved for issuance and, upon issuance
of and payment for the Purchased Shares in accordance with the terms hereof, the
Adjustment Shares upon exercise of the Adjustment Warrant in accordance with the
terms thereof, and the Warrant Shares upon exercise of the Warrant in accordance
with the terms thereof, such Purchased Shares, Adjustment Shares and Warrant
Shares will be validly issued, fully paid and non-assessable, free and clear of
any and all liens, claims and encumbrances, and entitled to be traded on the
Principal Market or one of the other Approved Markets, and the holders of such
Purchased Shares, Adjustment Shares and Warrant Shares shall be entitled to all
rights and preferences accorded to a holder of Common Stock. As of the date of
this Agreement, the outstanding shares of Common Stock are included for
quotation on the Nasdaq National Market System.

                  z. Form S-3. The Company is eligible to file the Registration
                     --------
Statement for primary and secondary offerings on Form S-3 (as in effect on the
date of this Agreement) under the 1933 Act and rules promulgated thereunder, and
Form S-3 (as in effect on the date of this Agreement) will be permitted to be
used for the transactions contemplated hereby and contemplated by the
Registration Rights Agreement under the 1933 Act and rules promulgated
thereunder.

                  aa. Brokers. The Company has taken no action which would give
                      -------
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Company or the Purchaser relating to the Transaction
Documents or the transactions contemplated thereby. Any broker's fees which may
be payable as a result of the Company and/or the Purchaser entering into the
Transaction Documents or performing the transactions contemplated thereby shall
be paid solely by the Company.

         5.       COVENANTS
                  ---------

                  a. Best Efforts. Each party shall use its best efforts timely
                     ------------
to satisfy each of the conditions to be satisfied by it as provided in Sections
6 and 7 of this Agreement.

                  b. Blue Sky. The Company shall, on or before each Drawdown
                     --------
Notice Date, take such action as the Company shall reasonably determine is
necessary to qualify the Purchased Shares for, or obtain exemption for the
Purchased Shares for, resale by the Purchaser

                                       23

<PAGE>

under applicable securities or "Blue Sky" laws of all the states of the United
States, and shall provide evidence of any such action so taken, if any such
action is required, to the Purchaser on or prior to the Drawdown Notice Date.
The Company shall make all filings and reports relating to the offer and sale of
the Purchased Shares required under the applicable securities or "Blue Sky" laws
of all the states of the United States on or before each of the Drawdown Notice
Dates.

                  c. Use of Proceeds. The Company will use the proceeds from the
                     ---------------
sale of the Purchased Shares for legally permissible general corporate and
working capital purposes.

                  d. Financial Information. The Company agrees to deliver or
                     ---------------------
make available to the Purchaser during the Open Period: (i) within 2 Trading
Days after the filing thereof with the SEC, a copy of each of its Annual Reports
on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form
8-K and any registration statements or amendments (other than on Form S-8) filed
pursuant to the 1933 Act; and (ii) on the same day as the release thereof,
facsimile or e-mail copies of all press releases issued by the Company or any of
its Subsidiaries. The Company and the Purchaser hereby acknowledge that the
foregoing may be satisfied by the Company by filing such applicable documents
via EDGAR.

                  e. Transactions with Affiliates. The Company shall not, and
                     ----------------------------
shall cause each of its Subsidiaries not to, enter into, amend, modify or
supplement, or permit any Subsidiary to enter into, amend, modify or supplement,
any agreement, transaction, commitment or arrangement with any of its or any
Subsidiary's officers, directors, persons who were officers or directors at any
time during the previous 2 years, shareholders who beneficially own 5% or more
of the Common Stock, or Affiliates or with any individual related by blood,
marriage or adoption to any such individual or with any entity in which any such
entity or individual owns a 5% or more beneficial interest, except for (i)
customary employment arrangements and benefit programs on reasonable terms, or
(ii) any agreement, transaction, commitment or arrangement which is approved by
a majority of the disinterested directors of the Company. For purposes hereof,
any director who is also an officer of the Company or any Subsidiary of the
Company shall not be deemed a disinterested director with respect to any such
agreement, transaction, commitment or arrangement.

                  f. Filing of Form 8-K, Form 10-Q or Press Release. On or
                     ----------------------------------------------
before the date which is 2 Trading Days after the date of this Agreement, the
Company shall (i) file with the SEC a Current Report on Form 8-K or a quarterly
report on Form 10-Q and/or (ii) issue a press release announcing and describing
the terms of the transactions contemplated by the Transaction Documents (such
filing being in form and substance reasonably acceptable to the Purchaser).

                  g. Registration Statement. The Company shall:
                     ----------------------

                     (i) file with the SEC one or more Registration Statements
on Form S-3 (or if such form is not then available to the Company, on Form S-1
or Form S-2) providing for the transactions contemplated by this Agreement and
as contemplated in the Registration Rights Agreement, with the form and
substance of such Registration Statement being acceptable to the Purchaser
acting in good faith, on or before the date which is 30 calendar days after the
date of this Agreement; and

                                       24

<PAGE>

                     (ii) use its best efforts to cause such Registration
Statement to be declared effective on or before the date which is 90 calendar
days after the date of this Agreement.

                  The Company may file a Registration Statement covering the
resale of the Adjustment Shares which is separate from the Registration
Statement filed by the Company covering the Purchased Shares and Warrant Shares;
provided that each of such Registration Statements comply with the terms of the
Registration Rights Agreement. Notwithstanding anything else contained in this
Section 5(g), any delay in the filing of the Registration Statement (whether
voluntary or involuntary) shall not affect or extend (A) the number of days in
which the Company has agreed under this Agreement to use its best efforts to
cause the Registration Statement to become effective, or (B) the Purchaser's
right to terminate this Agreement pursuant to Section 8 below.

                  h. Registration and Listing; Effective Registration.
                     ------------------------------------------------

                     (i) During the Registration Period (as defined in the
Registration Rights Agreement) the Company will:

                     (A) comply in all material respects with its reporting and
                         filing obligations under the Exchange Act;

                     (B) use its best efforts to cause the Common Stock to be
                         registered under Sections 12(b) or (g) of the Exchange
                         Act;

                     (C) use its best efforts to cause the Common Stock to be
                         listed and/or quoted on the Principal Market and each
                         other national securities exchange and automated
                         quotation system, if any, upon which shares of Common
                         Stock are then listed or quoted (subject only to
                         official notice of issuance); and

                     (D) comply in all material respects with the Company's
                         reporting, filing and other obligations under the
                         bylaws or rules of the Principal Market.

                     (ii) The Company shall use its best efforts to cause the
Purchased Shares and Adjustment Shares (which in the aggregate shall not exceed
9,200,000) and the Warrant Shares to be listed and/or quoted on the Principal
Market no later than the Effective Date.

                     (iii) The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 5(h).

                  i. Rights Plan. The Company shall not adopt a rights plan that
                     -----------
could be triggered by the exercise of any of the Purchaser's rights under the
Transaction Documents.

                                       25

<PAGE>

                  j. Comfort Letters. The Company shall cause to be delivered to
                     ---------------
the Purchaser from the Company Accountants a "comfort letter" reasonably
satisfactory to the Purchaser and covering such financial and accounting
information that customarily appears in comfort letters delivered by independent
public accountants to underwriters in connection with underwritten public
offerings of securities. A comfort letter shall be delivered to the Purchaser:

                     (i) contemporaneous with the initial delivery to the
Purchaser of a Drawdown Notice, covering the last Form 10-K filed by the Company
and each subsequent Form 10-Q filed by the Company prior to the date of such
delivery;

                     (ii) quarterly (with respect to such quarter and the
corresponding Form 10-Q) for the first three quarters of a fiscal year, not
later than 2 Trading Days after the day the Company files its Form 10-Q with the
SEC;

                     (iii) annually (with respect to such fiscal year and the
corresponding Form 10-K), not later than 2 Trading Days after the day the
Company files its Form 10-K with the SEC; and

                     (iv) to the extent not covered by clauses (i), (ii), and
(iii) above, each time an event occurs that is required to be disclosed by the
Company on Form 8-K (except if such event is disclosable by the Company solely
pursuant to Item 5 or Item 9 of Form 8-K), not later than 2 Trading Days
following the day the Company files such Form 8-K.

                  Notwithstanding the above, if the date on which a comfort
letter would otherwise be deliverable by the Company to the Purchaser falls on a
date other than during the Pricing Period or a Purchase Period and other than
during the time between the delivery of a Drawdown Notice and the commencement
of a Purchase Period, the Company may defer its delivery to the Purchaser of
such comfort letter until the commencement of the Pricing Period or the
immediately following Drawdown Notice Date, if any, whichever is earlier.

                  k. Legal Opinions.
                     --------------

                     (i) The Company shall cause to be delivered to the
Purchaser contemporaneously with the Company's execution of this Agreement an
opinion of counsel from Company Counsel in the form and substance attached
hereto as Exhibit C-1.
          -----------

                     (ii) The Company shall cause to be delivered to the
Purchaser an opinion of counsel from Company Counsel, in the form and substance
of Exhibit C-2 hereto, (A) quarterly for the first three quarters of a fiscal
   -----------
year, not later than 10 Trading Days after the day the Company files its Form
10-Q with respect to such quarter with the SEC, and (B) annually, not later than
10 Trading Days after the day the Company files its Form 10-K with the SEC.

                     (iii) The assumptions, exceptions and qualifications taken
by Company Counsel in each of the forgoing legal opinions must be substantially
similar in substance to the assumptions, exceptions and qualifications then
being taken by Company Counsel in legal opinions delivered by it to underwriters
in connection with registered underwritten public offerings in which Company
Counsel represents the issuer.

                                       26

<PAGE>

                     Notwithstanding the above, if the date on which a legal
opinion required by Section 5(k)(ii) would otherwise be deliverable by the
Company to the Purchaser falls on a date other than during the Pricing Period or
a Purchase Period and other than during the time between the delivery of a
Drawdown Notice and the commencement of a Purchase Period, the Company may defer
its delivery to the Purchaser of such legal opinion until the commencement of
the Pricing Period or the immediately following Drawdown Notice Date, if any,
whichever is earlier.

                  l. Prospectus Delivery; Certificates. The Purchaser
                     ---------------------------------
acknowledges that the sale of Warrant Shares, Purchased Shares and Adjustment
Shares by the Company to the Purchaser pursuant to this Agreement, the Warrant
and the Adjustment Warrant is not being registered under the 1933 Act or any
state securities laws, and such securities may not be offered for sale, sold,
assigned or transferred by the Purchaser unless (1) subsequently registered
thereunder pursuant to the Registration Rights Agreement or otherwise or (2) an
exemption exists permitting such securities to be sold, assigned or transferred
without such registration. As a result, absent such registration, certificates
representing such securities shall be issued with a legend to such effect. The
Purchaser covenants that, in connection with any transfer of Purchased Shares or
Adjustment Shares by the Purchaser, it will comply with the applicable
prospectus delivery requirements of the 1933 Act, provided that copies of a
current prospectus relating to such effective registration statement are or have
been supplied to the Purchaser. The Company covenants that it shall issue any
certificates representing Drawdown Shares purchased by the Purchaser under this
Agreement, or reissue any certificates representing Initial Shares, Warrant
Shares or Adjustment Shares, free of any legend or stop transfer restrictions by
no later than the fifth Trading Day following receipt by the Company or the
Company's transfer agent of a Resale Notice with respect to such Drawdown
Shares, Warrant Shares, Adjustment Shares or Initial Shares, as applicable, and
provided that such Drawdown Shares, Warrant Shares, Adjustment Shares or Initial
Shares were covered by an effective Registration Statement when they were resold
by the Purchaser.

                  m. No Inside Information. Except and to the extent provided in
                     ---------------------
the Registration Rights Agreement, none of the Company, its Subsidiaries or
their employees, representatives or agents directly or indirectly shall provide
material non-public information to the Purchaser or its Affiliates, or their
employees, representatives or agents. In the case of noncompliance with this
Section 5(m), the Purchaser may require the Company to publicly disclose such
information within two Trading Days of the Purchaser's demand therefore.

                  n. No Manipulation. The Purchaser covenants not to enter into
                     ---------------
sales of shares of Common Stock with the intent of lowering the market price of
the Common Stock on the Principal Market in violation of applicable federal
securities laws. The fact that the market price may have decreased following a
sale of shares of Common Stock by the Purchaser shall not be deemed or
considered an indication or evidence of the Purchaser's intent to so lower the
market price.

         6.       CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL.
                  ----------------------------------------------

                  The obligation hereunder of the Company to issue and sell the
Drawdown Shares to the Purchaser is further subject to the satisfaction, at or
before each Closing, of each of the

                                       27

<PAGE>

following conditions set forth below. These conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole
discretion.

                  a. The Purchaser shall have executed each of the Transaction
Documents and delivered the same to the Company.

                  b. The Purchaser shall have paid to the Company the full
aggregate Purchase Price for each of the Drawdown Shares being purchased by the
Purchaser (upon receipt of confirmation of delivery of such Drawdown Shares) at
the Closing and for all prior Closings by wire transfer of immediately available
funds pursuant to the wire instructions provided to the Purchaser in writing by
the Company or through DTC as described in Section 2(f) above.

                  c. The representations and warranties of the Purchaser shall
be true and correct in all material respects as of the date when made and as of
the applicable Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date, provided that
they were true as of the date to which they speak).

                  d. 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 which prohibits
the consummation of any of the transactions contemplated by this Agreement.

         7.       CONDITIONS OF THE PURCHASER'S OBLIGATION TO PURCHASE

                  The obligation of the Purchaser hereunder to purchase Drawdown
Shares with respect to a particular Trading Day is subject to the satisfaction,
on such Trading Day and on the related Closing Date, of each of the following
conditions set forth below.

                  a. The Company shall have executed each of the Transaction
Documents and delivered the same to the Purchaser.

                  b. The Common Stock shall be authorized for quotation on an
Approved Market and trading in the Common Stock shall not then be suspended by
the SEC or the Approved Market on which the Company's Common Stock is then
traded or listed.

                  c. The representations and warranties of the Company set forth
in this Agreement shall have been true and correct as of the date of this
Agreement.

                  d. The representations and warranties of the Company set forth
in this Agreement shall be true and correct as of the applicable Trading Day or
Closing Date (the "Representation Date") as though made on and as of such
Representation Date, except for representations and warranties:

                     (i) that speak as of a specific date (provided that they
were true and correct as of the date to which they speak); or

                     (ii) that are made in Sections 4(g), 4(i), 4(k), 4(s), the
first sentence of Section 4(f) or the third or fifth sentences of Section 4(l)
of this Agreement; provided that such
                   --------

                                       28

<PAGE>

representations and warranties are not true and correct as of the Representation
Date solely as a result of events or circumstances (or the absence of events or
circumstances) that either:

                    (A) are not required to be disclosed by the Company in SEC
                        filings under the 1933 Act or the Exchange Act (or the
                        rules, regulations, and instructions to the forms
                        promulgated pursuant thereto) and are not required to be
                        filed by the Company in SEC filings in order for such
                        filings not to contain an untrue statement of a material
                        fact or not to omit to state a material fact required to
                        be stated therein, or necessary to make the statements
                        therein, in light of the circumstances in which they
                        were made, not misleading; or

                    (B) have been adequately disclosed in SEC filings made by
                        the Company at least 3 Trading Days prior to such
                        Representation Date.

                     e. The Company shall have performed, satisfied and complied
with the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Company at or prior
to such Trading Day or Closing Date, as applicable, including without limitation
the delivery to the Purchaser of all Purchased Shares, Adjustment Shares and
Warrant Shares required to be so delivered by the Company as of such date. The
Purchaser shall have received a certificate, executed by the Chief Executive
Officer, Chief Financial Officer and General Counsel of the Company, dated as of
the applicable Drawdown Notice Date and as of any Closing Date for which one is
reasonably requested by the Purchaser, in the form and substance of Exhibit B
                                                                    ---------
attached hereto.

                     f. The Purchaser shall have received the legal opinions of
the Company Counsel in the form and substance and as of the dates specified in
Section 5(k) above.

                     g. As of the Closing Date only, the Company shall have
executed and delivered to the Purchaser the certificates representing, or have
executed electronic book-entry transfer of, the Drawdown Shares (in such
denominations as such Purchaser shall request) being purchased by the Purchaser
on such Closing Date.

                     h. The Board of Directors of the Company shall have adopted
resolutions consistent with Section 4(b)(ii) and in a form reasonably acceptable
to the Purchaser and its counsel (the "Resolutions") and such Resolutions shall
not have been amended or rescinded.

                     i. The Purchaser shall have received the "comfort letters"
of the type, in the form and with the substance of the letter described in
Section 5(j) above and as of the dates specified in Section 5(j) above from the
Company Accountants.

                     j. 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 which prohibits
the consummation of any of the transactions contemplated by this Agreement.

                                       29

<PAGE>

                     k. The Registration Statement shall be effective at the
time of each Closing and no stop order suspending the effectiveness of the
Registration Statement shall be in effect or shall be pending or threatened.

                  l. The disclosures contained in the Registration Statement and
the related prospectus (including information or documents incorporated by
reference therein) and any amendments or supplements thereto shall be acceptable
to the Purchaser in its good faith opinion.

                  m. There shall not be pending a petition in bankruptcy, either
voluntarily or involuntarily, with respect to the Company and there shall not
have been commenced any proceedings under any bankruptcy or insolvency laws, or
any laws relating to the relief of debtors, readjustment of indebtedness or
reorganization of debtors, and there shall have been no calling of a meeting of
creditors of the Company or appointment of a committee of creditors or
liquidating agents or offering of a composition or extension to creditors by,
for, with or without the consent or acquiescence of the Company. The Company and
its Subsidiaries shall be able to pay their debts as they become due.

                  n. The conditions set forth in Section 2(e) above shall have
each been satisfied as of the Drawdown Notice Date and shall each be satisfied
as of such Trading Day or Closing Date, as applicable.

                  o. The Company shall have delivered to the Purchaser such
other documents relating to the transactions contemplated by this Agreement as
the Purchaser or its counsel may reasonably request.

                     p. The Warrant, the Adjustment Warrant and the Initial
Shares shall have been issued and delivered to the Purchaser.

         8.       TERMINATION
                  -----------

                  a. This Agreement may be terminated (except as provided in
Section 10(j) below) at any time by the Purchaser (in addition to a termination
pursuant to Sections 2(f)(iv), 2(f)(v) or 2(h) above) if (i) the Common Stock is
not listed on an Approved Market after the Effective Date for a period of at
least 2 consecutive Trading Days or an aggregate of 3 Trading Days occurring at
any time during the Open Period; (ii) the Effective Date does not occur by the
180th calendar day following the date of this Agreement; (iii) the Company has
not sold Drawdown Shares to the Purchaser pursuant to this Agreement during the
preceding 150 calendar days; (iv) the Company fails to deliver to the Purchaser
the proper number of Drawdown Shares within 1 Trading Day following any
Scheduled Closing Date (regardless of whether such failure is subsequently
cured) on more than 1 occasion in any 12 month period; (v) the Company enters
into an Equity Line Agreement with any party other than the Purchaser or an
Affiliate of the Purchaser; (vi) the Purchaser receives notice from a
governmental or self-regulatory agency that it does not then possess one or more
required registrations or approvals to perform its obligations under this
Agreement; (vii) the Purchaser is named as a defendant (other than by the
Company) in a suit, action or other legal proceeding in a court of competent
jurisdiction arising out of or in connection with the Purchaser's purchase
and/or resale of shares

                                       30

<PAGE>

of Common Stock pursuant to this Agreement; or (viii) an event occurs which is
reasonably likely to have or has had a Material Adverse Effect on the Company.

                  b. This Agreement may be terminated (except as provided in
Section 10(j) below) at any time following the end of the Pricing Period by the
Company; provided, that with respect to this Section 8(b)(ii), this Agreement
may not be terminated by the Company during a pending Purchase Period until such
Purchase Period has elapsed and all of the Company's obligations with respect to
such Purchase Period and all previous Purchase Periods have been satisfied.

                  c. This Agreement shall automatically terminate (except as
provided in Section 10(j) below) without any further action of either party
hereto upon the earliest of (i) the date on which the Purchaser has purchased
Purchased Shares pursuant to this Agreement with an aggregate Purchase Price of
$30,000,000, (ii) the date on which the Purchaser has purchased an amount of
Common Stock pursuant to this Agreement and the Adjustment Warrant (including
the Purchased Shares and Adjustment Shares) that equals, in the aggregate, the
NASD Limit and (iii) the date which is 30 months after the Effective Date.

                  d. Notwithstanding anything herein to the contrary, and in
addition to the terms of Section 10(j) below, the termination of this Agreement
pursuant to this Section 8 shall not relieve or otherwise diminish the parties'
obligations to deliver and pay for in accordance with the terms of this
Agreement any Purchased Shares purchased by the Purchaser hereunder for which
there has not been a Closing.

         9.       INDEMNIFICATION
                  ---------------

                  a. In consideration of the Purchaser's execution and delivery
of the Transaction Documents and acquiring the Purchased Shares hereunder, and
in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless the
Purchaser and all of its officers, directors, affiliates, employees, members and
direct or indirect investors and any of the foregoing persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims (which actions, causes of action, suits and claims are made by third
parties including, without limitation, by shareholders of the Company directly
or through shareholder derivative actions), and from any and all losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee as
a result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Company in the Transaction
Documents or any other certificate or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate or document contemplated
hereby or thereby, (c) any cause of action, suit or claim brought or made
against such Indemnitee by a third party and arising out of or resulting from
the execution, delivery, performance, breach by the Company or enforcement of
the Transaction Documents or any other certificate, instrument or document

                                       31

<PAGE>

contemplated hereby or thereby, and (d) the enforcement of this Section 9(a).
Notwithstanding the foregoing, Indemnified Liabilities shall not include any
liability of any Indemnitee to the extent it arises out of: (i) such
Indemnitee's willful misconduct, gross negligence, or fraudulent action(s) or
(ii) the breach of any representation, warranty or covenant in the Transaction
Documents by such Indemnitee. To the extent that the foregoing undertaking by
the Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 9(a) shall be the same as those set forth in
Section 6 (other than Section 6(b)) of the Registration Rights Agreement,
including, without limitation, those procedures with respect to the settlement
of claims and Company's right to assume the defense of claims.

                  b. In consideration of the Company's execution and delivery of
this Agreement and the Registration Rights Agreement and in addition to the
Purchaser's other obligations under the Transaction Documents, the Purchaser,
shall defend, protect, indemnify and hold harmless the Company and all of its
subsidiaries, officers, directors and employees, and any of the foregoing
persons' agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Purchaser in the Transaction Documents,
(b) any breach of any covenant, agreement or obligation of the Purchaser
contained in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, and (c) the enforcement of this Section
9(b) Notwithstanding the foregoing, Indemnified Liabilities shall not include
any liability of any Indemnitee arising solely out of: (i) such Indemnitee's
willful misconduct, gross negligence or fraudulent action(s) or (ii) the breach
of any representation, warranty or covenant in the Transaction Documents by such
Indemnitee. To the extent that the foregoing undertaking by the Purchaser may be
unenforceable for any reason, the Purchaser shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. Except as otherwise set forth herein, the
mechanics and procedures with respect to the rights and obligations under this
Section 9(b) shall be the same as those set forth in Section 6 (other than
Section 6(a)) of the Registration Rights Agreement, adjusted as applicable.
Notwithstanding the above, in no event shall the Purchaser's indemnification
obligations under this Agreement exceed the aggregate net profits received by
the Purchaser from its sale of Purchased Shares purchased from the Company
pursuant to this Agreement.

         10.      GOVERNING LAW; MISCELLANEOUS
                  ----------------------------

                  a. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
                     -------------
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. EACH

                                       32

<PAGE>

PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND
FEDERAL COURTS SITTING IN THE STATE OF NEW YORK, CITY OF NEW YORK, BOROUGH OF
MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN, AND
HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR
PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF
ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS FOR SUCH NOTICES TO IT UNDER
THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT
SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED
TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
IF ANY PROVISION OF THIS AGREEMENT SHALL BE INVALID OR UNENFORCEABLE IN ANY
JURISDICTION, SUCH INVALIDITY OR UNENFORCEABILITY SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF THE REMAINDER OF THIS AGREEMENT IN THAT JURISDICTION OR THE
VALIDITY OR ENFORCEABILITY OF ANY PROVISION OF THIS AGREEMENT IN ANY OTHER
JURISDICTION. EACH PARTY HERETO IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY.

                  b. Expenses.
                     --------

                     (i) The Company shall reimburse the Purchaser for all due
diligence fees, costs and expenses (including all legal due diligence fees,
costs and expenses of one counsel for the Purchaser) of the Purchaser on each
occasion that the Company delivers a Drawdown Notice. The Company's payment
obligations pursuant to this Section 10(b)(i) shall be limited to $25,000 with
respect to the Purchaser's due diligence in the continental U.S. prior to the
Company's initial delivery of a Drawdown Notice to the Purchaser (plus any fees,
costs and expenses incurred by the Purchaser in conducting due diligence outside
of the continental United States), and $5,000 per calendar quarter with respect
to due diligence performed by the Purchaser or its agents following such initial
due diligence; provided, that to the extent a payment limit is not fully
utilized in any period, the amount of such unused availability shall carry
forward and be available to the Purchaser in subsequent periods.

                     (ii) In addition to the reimbursement of due diligence
costs pursuant to Section 10(b)(i), the Company agrees to reimburse the
Purchaser or its counsel, designees or clients, as applicable, for reasonable
expenses (including reasonable legal expenses) relating to the initial due
diligence and the negotiation and execution of the Transaction Documents up to
$30,000 in the aggregate. The Company will pay to the Purchaser and/or its
counsel, at the time of signing this Agreement, for an estimate of all such
costs and expenses. If the Purchaser or its counsel (as the case may be)
discovers that such estimates were higher than actual costs and expenses, it
will reimburse any excess to the Company within 30 days of such discovery to
extent such excess is not offset against other or further reimbursable expenses.
To the extent

                                       33

<PAGE>

such estimate does not so cover all such reimbursable costs and expenses, the
Company shall promptly pay the Purchaser and/or its counsel following demand
therefor.

                     (iii) Except as otherwise set forth in this Section 10(b)
or Section 9 above or set forth in the Registration Rights Agreement, 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
transactions contemplated by the Transaction Documents. Any attorneys' fees and
expenses incurred by either the Company or by the Purchaser in connection with
the preparation, negotiation, execution and delivery of any amendments to this
Agreement or relating to the enforcement of the rights of any party, after the
occurrence of any breach of the terms of this Agreement by another party or any
default by another party in respect of the transactions contemplated hereunder,
shall be paid on demand by the party which breached the Agreement and/or
defaulted, as the case may be. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Purchased Shares,
Adjustment Shares and Warrant Shares issued pursuant to the Transaction
Documents.

                  c. Counterparts. This Agreement may be executed in two or more
                     ------------
identical counterparts, all of which 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; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.

                  d. Headings. The headings of this Agreement are for
                     --------
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.

                  e. Severability. If any provision of this Agreement shall be
                     ------------
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.

                  f. Entire Agreement; Amendments; Waivers. This Agreement
                     -------------------------------------
supersedes all other prior oral or written agreements between the Purchaser and
the Company with respect to the matters discussed herein, and this Agreement and
the instruments referenced herein (including the other Transaction Documents)
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Purchaser makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and the Purchaser, and no provision hereof may be waived other than
by an instrument in writing signed by the party against whom enforcement is
sought. The Purchaser may at any time elect, by notice to the Company, to waive
(whether permanently or temporarily, and subject to such conditions, if any, as
the Purchaser may specify in such notice) any of its rights, any of the
Company's obligations to the Purchaser, or any of the conditions precedent with
which the Company must comply that are for the sole benefit of the Purchaser,
with respect to or in connection with the Purchaser's acquisition of

                                       34

<PAGE>

Common Stock from the Company pursuant to the Transaction Documents, in which
event such waiver shall be binding against the Purchaser in accordance with its
terms.

                  g. Notices. Any notices, consents, waivers or other
                     -------
communications required or permitted to be given under the terms of this
Agreement must be in writing, must be delivered by (i) a nationally recognized
delivery service, mail or hand delivery or (ii) facsimile, and will be deemed to
have been delivered (A) upon receipt, when delivered via delivery service; or
(B) upon receipt, when sent by facsimile (provided confirmation of transmission
is mechanically or electronically generated and kept on file by the sending
party). The addresses and facsimile numbers for such communications shall be:

                  If to the Company:

                  Constellation 3D, Inc.
                  805 Third Avenue, 14th Floor
                  New York, New York 94005
                  Telephone:    212-983-1107
                  Facsimile:    650-624-1007
                  Attention:    Mr. Leonardo Berezowsky

                  with a copy to:

                  Blank Rome Comiskey & McCauley LLP
                  One Logan Square
                  Philadelphia, Pennsylvania 19103
                  Telephone:    215-569-5754
                  Facsimile:    215-569-5628
                  Attention:    Alan L. Zeiger, Esq.

                  If to the Purchaser:

                  The Gleneagles Fund Company II
                  c/o The Palladin Group, L.P.
                  195 Maplewood Avenue
                  Maplewood, New Jersey 07040
                  Telephone:    973-313-6477
                  Facsimile:    973-313-6491
                  Attention:    Mr. Maurice Hryshko

                  with a copy to:

                  Kleinberg, Kaplan, Wolff & Cohen, P.C.
                  551 Fifth Avenue
                  New York, New York 10176
                  Telephone:    212-986-6000

                                       35

<PAGE>

                  Facsimile:    212-986-8866
                  Attention:    Stephen M. Schultz, Esq.

                  Each party shall provide 5 days prior written notice to the
other party of any change in address, telephone number or facsimile number.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by a nationally recognized overnight delivery service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.

                  h. Successors and Assigns. Except as otherwise provided
                     ----------------------
herein, this Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns. Neither the Purchaser nor
the Company shall assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other, including, in the case of the
Company only, by merger or consolidation. Notwithstanding anything to the
contrary contained in the Transaction Documents, the Purchaser shall be entitled
to pledge the Purchased Shares, Warrant Shares and Adjustment Shares in
connection with a bona fide margin account as permitted by applicable law.

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

                  j. Survival. The representations and warranties of the Company
                     --------
and the Purchaser contained in the Transaction Documents or incorporated by
reference therein, the agreements and covenants (with respect to any deliveries
of Purchased Shares not yet made by the Company and any purchases of Purchased
Shares not yet made by the Purchaser that, in each case, are required to be made
by such party pursuant to this Agreement) set forth in Sections 2(f)(iii),
2(f)(iv) 2(f)(v), 2(h), 2(i), 5 (except for Sections 5(j), (k), (l), (m) and
(n)), 6, 7 and 10, and the indemnification provisions set forth in Section 9,
shall survive each of the Closings, the termination of the Open Period and the
termination of this Agreement, regardless of whether this Agreement is
terminated automatically or by one or both of the parties hereto, for a period
of 3 years following the termination of this Agreement.

                  k. Publicity. The Company and the Purchaser shall have the
                     ---------
right to approve before issuance any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of the
Purchaser, to make any press release or other public disclosure with respect to
such transactions as is required by applicable law and regulations (although the
Purchaser shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release and shall be provided
with a copy thereof).

                  l. Further Assurances. Each party shall do and perform, or
                     ------------------
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request

                                       36

<PAGE>

in order to carry out the intent and accomplish the purposes of this Agreement
and the consummation of the transactions contemplated hereby.

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

                  n. Remedies. The Purchaser shall have all rights and remedies
                     --------
set forth in the Transaction Documents and all rights and remedies which such
holders have been granted at any time under any other agreement or contract and
all of the rights which such holders have under any law. Any person having any
rights under any provision of the Transaction Documents shall be entitled to
enforce such rights specifically (without posting a bond or other security), to
recover damages by reason of any breach of any provision of the Transaction
Documents and to exercise all other rights granted by law. The Purchaser and
each Permitted Assignee without prejudice may withdraw, revoke or suspend its
pursuit of any remedy at any time prior to its complete recovery as a result of
such remedy. Notwithstanding the foregoing, in no event shall either party be
liable to the other party for any indirect, incidental, consequential, special
or exemplary damages arising from or in connection with the Transaction
Documents (other than pursuant to a party's indemnification obligations under
Section 6 of the Registration Rights Agreement) even if such party has been
advised of the possibility of such damages.

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

                  p. Days. Unless the text refers to "Trading Days," "Eliminated
                     ----
Days" or "Purchase Days," all references herein to "days" shall mean calendar
days.

                  q. Rescission and Withdrawal Right. Notwithstanding anything
                     -------------------------------
to the contrary contained in (and without limiting any similar provisions of)
the Transaction Documents, wherever a party exercises a right, election, demand
or option under a Transaction Document and the other party does not fully
perform its related obligations within the periods therein provided, then the
first party in its sole discretion may rescind or withdraw from time to time any
relevant notice, demand or election in whole or in part without prejudice to its
future actions and rights.

                         [***Signature Page Follows***]

                                       37

<PAGE>

                  IN WITNESS WHEREOF, the parties hereto have caused this
Amended and Restated Common Stock Purchase Agreement to be duly executed as of
the date and year first above written.

CONSTELLATION 3D, INC.                  THE GLENEAGLES FUND COMPANY II

                                        By:  The Palladin Group, L.P., as
                                               attorney-in-fact

By: /s/ Leonardo Berezowsky             By: /s/ Maurice Hryshko
   ----------------------------            ----------------------------------
Name:  Leonardo Berezowsky                 Name:  Maurice Hryshko
Title: Chief Financial Officer             Title: Counsel
                                                  The Palladin Group, L.P.
                                                    Attorney-in-fact

<PAGE>

List of Exhibits
----------------

Exhibit A            Registration Rights Agreement
Exhibit B            Officers' Certificate (signed by CEO, CFO and GC)
Exhibit C-1          Opinion of Counsel (on execution)
Exhibit C-2          Opinion of Counsel (including 10b-5)
Exhibit D            Secretary's Certificate
Exhibit E            Form of Drawdown Notice
Exhibit F            Form of Warrant
Exhibit G            Form of Adjustment Warrant<PAGE>

                                                                    Exhibit 10.2

                              AMENDED AND RESTATED
                          REGISTRATION RIGHTS AGREEMENT

         AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "Agreement"),
dated as of August 16, 2001, by and between CONSTELLATION 3D, INC., a Delaware
corporation, with headquarters located at 805 Third Avenue, 14th Floor, New
York, New York 10022 (the "Company"), and THE GLENEAGLES FUND COMPANY II, an
exempted company organized and existing under the laws of the Cayman Islands,
having an office at c/o Citco Fund Services (Cayman Islands) Ltd., Corporate
Center, West Bay Road, P.O. Box 31106 SMB, Grand Cayman, Cayman Islands, British
West Indies (together with its successors in interest and assigns or its
designees, the "Purchaser").

         WHEREAS:

         A.   The Company and the Purchaser entered into a Registration Rights
Agreement dated as of August 13, 2001 which the parties now wish to amend and
restate in its entirety;

         B.   In connection with the Amended and Restated Common Stock Purchase
Agreement by and between the Company and the Purchaser of even date herewith
(the "Purchase Agreement"), the Company has agreed, upon the terms and subject
to the conditions of the Purchase Agreement, to issue and sell to the Purchaser
(i) certain shares of the Company's common stock, par value $0.00001 per share
(the "Common Stock"), pursuant to an effective Registration Statement (as
defined below), (ii) a Warrant (the "Warrant") to purchase 52,000 shares of
Common Stock, and (iii) an Adjustment Warrant (the "Adjustment Warrant")
exercisable for a number of shares of Common Stock as determined by the formula
set forth therefore in the Adjustment Warrant;

         C.   The Company is filing a registration statement on Form S-3 with
the Securities and Exchange Commission (the "SEC") pursuant to the 1933 Act (as
defined below) and Rule 415 thereunder; and

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

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Purchaser hereby agree to amend and restate the Registration Rights Agreement
dated as of August 13, 2001 to read as follows:

         1.   DEFINITIONS.
              -----------

              As used in this Agreement, the following terms shall have the
following meanings:

<PAGE>

              (a) "Holder" means the Purchaser and any transferee or assignee
thereof to whom the Purchaser assigns its rights under this Agreement and the
Purchase Agreement and who agrees to become bound by the provisions of this
Agreement and the Purchase Agreement in accordance with Section 8.

              (b) "Person" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.

              (c) "Register," "registered" and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement(s) by the SEC.

              (d) "Registered Securities" means (i) all of the shares of Common
Stock issued or issuable pursuant to the Purchase Agreement (including, without
limitation, the Initial Shares) and the shares of Common Stock issued or
issuable upon exercise of the Warrant and the Adjustment Warrant; (ii)
securities issued or issuable upon any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise with respect to such
shares of Common Stock; and (iii) any other security issued as a dividend or
other distribution with respect to, in exchange for or in replacement of the
securities referred to in the preceding clauses; in each case regardless of any
limitation on the Purchaser's right or obligation to purchase the maximum number
of shares of Common Stock provided for under the Purchase Agreement, the Warrant
and the Adjustment Warrant.

              (e) "Registration Statement" shall mean a registration statement
to be filed by the Company with the SEC pursuant to Rule 415 on Form S-3 under
the 1933 Act covering the resale of the Registered Securities.

              (f) Capitalized terms used but not defined herein shall have the
meanings specified in the Purchase Agreement.

          2.   REGISTRATION.
               ------------

              (a) Mandatory Registration. The Company represents, warrants and
                  ----------------------
covenants that it will file a Registration Statement on Form S-3 with the SEC,
all in compliance with the 1933 Act and Rule 415(a)(1)(i) and (iii) thereunder,
covering the resale by the Purchaser of the Registered Securities, on or prior
to the thirty (30) day anniversary of this Agreement and use its commercially
best efforts to have such Registration Statement declared effective by the SEC
as soon thereafter as possible.

              (b) Counsel. Subject to Section 5 hereof, in connection with any
                  -------
offering of the Registered Securities pursuant to the Registration Statement,
the Holders shall have the right to select one legal counsel to administer the
interests of all the Holders in the offering. The Company shall reasonably
cooperate with any such counsel.

                                       2

<PAGE>

          3.  RELATED OBLIGATIONS.
              -------------------

              At all times that the Company is obligated to maintain the
Registration Statement effective, the Company will use its commercially best
efforts to effect and maintain the registration of the Registered Securities in
accordance with the intended method of disposition thereof and, pursuant
thereto, the Company shall have the following obligations:

              (a) The Company shall keep the Registration Statement (covering
all Registered Securities) effective pursuant to Rule 415 at all times during
the period beginning on the date ("Required Effective Date") on which the
Registration Statement is declared effective by the SEC and ending on the later
of (I) the twenty-six (26) month anniversary of the Required Effective Date,
(II) the fifth (5th) anniversary of this Agreement, and (III) the date on which
all Registered Securities are able to be sold publicly by the Holder pursuant to
Rule 144(k) (or any successor regulation) promulgated under the 1933 Act
(collectively, the "Registration Period"), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.

              (b) The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, shall comply with the provisions of the 1933 Act with respect to
the disposition of all Registered Securities of the Company covered by such
Registration Statement until such time as all of such Registered Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement.

              (c) Subject to Section 3(h)(ii), the Company shall furnish to each
Holder and one legal counsel representing all Holders without charge (i)
promptly after the same is prepared and filed with the SEC, such number of
copies as such Holder may reasonably request of such Registration Statement and
any amendment(s) and supplements thereto, including financial statements and
schedules, all documents incorporated therein by reference and all exhibits, the
prospectus included in such Registration Statement (including each prospectus
supplement) and, with regards to such Registration Statement(s), any
correspondence by or on behalf of the Company to the SEC or the staff of the SEC
and any correspondence from the SEC or the staff of the SEC to the Company or
its representatives and (ii) such other documents, including copies of any final
prospectus and supplements thereto, as such Holder may reasonably request from
time to time in order to facilitate the disposition of the Registered Securities
owned by such Holder.

              (d) Immediately after becoming aware of the existence of such
event, the Company shall notify (subject to Section 3(h)(ii)) each Holder by
telephone and in writing (the "Materiality Notice") that the prospectus included
in a Registration Statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be

                                       3

<PAGE>

stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Thereafter, the
Company shall either:

                  (A)      promptly prepare a supplement or amendment to such
                           Registration Statement (which, if such Registration
                           Statement is on Form S-3, may consist of a document
                           to be filed by the Company with the SEC pursuant to
                           Section 13(a), 13(c), 14 or 15(d) of the Securities
                           Exchange Act of 1934, as amended (the "Exchange Act")
                           and to be incorporated by reference in the
                           prospectus) to correct such untrue statement or
                           omission, and deliver ten (10) copies of such
                           supplement or amendment to each Holder (or such other
                           number of copies as such Holder may reasonably
                           request), or

                  (B)      immediately  notify the  Purchaser in writing and by
                           telephone  that the Company does not intend to
                           prepare and file such a supplement  or  amendment to
                           the  Registration  Statement  at the current time
                           because,  as certified  by the  president  of the
                           Company,  in the good faith  judgment of the Board
                           of Directors of the Company (after consultation with
                           its appropriate  professional  advisors), it would be
                           seriously detrimental (assuming  such  detriment is
                           the cause of the  Materiality  Notice) to the Company
                           for such  supplement  or amendment to be filed in the
                           near future and is therefore  essential to defer
                           filing of such  supplement  or amendment  until such
                           time  (subject to the proviso in the next  sentence)
                           as such  deferment  is no longer essential (such
                           notice being referred to herein as a "Suspension
                           Notice"). Upon the Company's delivery of a Suspension
                           Notice to the Purchaser, the Company's rights and
                           obligations to sell Drawdown Shares to the Purchaser
                           and the Purchaser's obligation to buy  Drawdown
                           Shares from the Company shall each be  suspended
                           until such time as (i) the Company files a supplement
                           or amendment to the Registration Statement
                           in accordance with clause (A) above, or (ii) the
                           filing of such supplement or amendment is no longer
                           necessary to render the Registration Statement and
                           prospectus current and deliverable (the period
                           beginning upon the delivery of a Suspension Notice
                           and ending upon the satisfaction of clause (i) or
                           (ii) above being a "Suspension Period"); provided
                                                                    --------
                           that no such Suspension Period shall be more than
                           ten (10) consecutive Trading Days or an aggregate of
                           thirty (30) Trading Days in any twelve (12) month
                           period.

              If a Suspension Notice is delivered by the Company to the
Purchaser during an existing Purchase Period, that Purchase Period shall
immediately terminate. The Company's obligation to deliver to the Purchaser any
shares of Common Stock previously purchased by the Purchaser pursuant to the
Purchase Agreement with respect to which there has not been a Closing shall not
be affected or relieved in any way as a result of this Section 3(d). Without
limiting the foregoing, if the Company delivers a Suspension Notice either (i)
within an existing Purchase Period or (ii) within ten (10) Trading Days of the
end of the previous Purchase Period, and the Purchaser has purchased shares of
Common Stock which the Purchaser has not resold by the time the Suspension
Notice is received, then the Purchaser may (but shall not be obligated to)

                                       4

<PAGE>

resell any or all of such shares of Common Stock to the Company for cash at a
price equal to the Payment Amount. Such resale shall occur on the third Trading
Day after the Purchaser gives notice to the Company of its intention to resell
such shares of Common Stock. The Purchaser may exercise this resale right one or
multiple times.

              The Company shall immediately notify (subject to Section 3(h)(ii)
below) the Purchaser in writing (i) when a prospectus or any prospectus
supplement or post-effective amendment has been filed, and when a Registration
Statement or any post-effective amendment has become effective (notification of
such effectiveness shall be delivered to the Purchaser by facsimile on the same
day of such effectiveness and by overnight mail), (ii) of any request by the SEC
for amendments or supplements to a Registration Statement or related prospectus
or related information, and (iii) of the Company's reasonable determination that
a post-effective amendment to a Registration Statement would be appropriate.

              (e) The Company shall use its commercially best efforts to prevent
the issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registered Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify (subject to Section 3(h)(ii)) each
Holder who holds Registered Securities being sold of the issuance of such order
and the resolution thereof or its receipt of actual notice of the initiation or
threat of any proceeding for such purpose.

              (f) Subject to Section 3(h)(ii), the Company shall permit each
Holder, Inspector (as defined below) and/or Purchaser's counsel, to review and
comment upon a Registration Statement and all amendments and prospectus
supplements thereto at least three (3) business days prior to their filing with
the SEC, and not file any document in a form to which such counsel reasonably
objects. Without limiting Section 3(h)(iii), the Company shall not submit to the
SEC any Registration Statement, amendment or prospectus supplement thereto
without the prior approval of such Holder or its counsel.

              (g) Subject to Section 3(h)(ii), the Company shall make available
for inspection by (i) any Holder and (ii) its attorneys and accountants or other
agents or Persons retained or designated by the Holders (collectively, the
"Inspectors") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "Records"), as shall
be reasonably deemed necessary by each Inspector, and cause the Company's
officers, directors and employees to supply all information which any Holder or
Inspector may reasonably request. The Purchaser agrees (to the extent it has
approved receipt of non-public information pursuant to Section 3(h)(ii)) to keep
confidential (and to cause its Inspectors and counsel to keep confidential and
execute mutually acceptable non-disclosure agreements with the Company that are
not inconsistent with the terms of the Transaction Documents) all non-public
information and Records received pursuant to Section 3(h)(ii) which the Company
determines in good faith to be confidential, and of which determination the
Holder and Inspectors are so notified, unless such information or Records are
permitted to be disclosed under the standards specified in clauses (i) to (iv)
of Section 3(p) below.

              (h) Due Diligence Review. (i) Subject to Section 3(h)(ii), the
                  --------------------
Company shall make available, during normal business hours, for inspection and
review by the Purchaser,

                                       5

<PAGE>

its Inspectors (who may or may not be affiliated with the Purchaser), any
underwriter participating in any disposition of Common Stock on behalf of the
Purchaser pursuant to the Registration Statement or amendments or prospectus
supplements thereto or any blue sky, NASD or other filing, all financial and
other records, all SEC Documents and other filings with the SEC, and all other
corporate documents and properties of the Company as the Purchaser may request
for the purpose of such review, and cause the Company's officers, directors and
employees to promptly supply all such information requested by the Purchaser or
its Inspectors or any underwriter in connection with such Registration Statement
(including, without limitation, in response to all questions and other inquiries
reasonably made or submitted by any of them), prior to and from time to time
after the filing and effectiveness of the Registration Statement for the sole
purpose of enabling the Purchaser and its Inspectors and any underwriters and
their respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.

                  (ii) Notwithstanding any other provision of any of the
Transaction Documents, the Company shall not directly or indirectly disclose
material nonpublic information to the Purchaser or its Inspectors unless prior
to disclosure of such information the Company identifies such information as
being material nonpublic information (without conveying the substance of such
nonpublic information) and provides the Purchaser and its Inspectors with the
opportunity to accept or refuse to accept such material nonpublic information
for review; except that the Company may disclose material nonpublic information
without such prior acceptance to Inspectors unaffiliated with the Purchaser who
are conducting diligence at the Company's facility(ies), so long as
simultaneously with such disclosure, the Company identifies to those Inspectors
the portions of such information which are material and nonpublic. If material
nonpublic information is provided by the Company or its representatives or
advisors in violation of this Section 3(h)(ii), the Purchaser may require that
the Company disclose such information to the public within 2 Trading Days of the
Purchaser's demand therefore. If the Purchaser accepts such material nonpublic
information, the Company will provide such information only to the Inspector
designated by the Purchaser. Nothing in the Transaction Documents shall entitle
the Company to withhold non-public information accepted pursuant to this Section
3(h)(ii).

                  (iii) Subject to Section 3(h)(ii), the Company will
immediately notify the Inspectors and, if any, underwriters, of any event or the
existence of any circumstance of which it becomes aware, constituting nonpublic
information (whether or not requested of the Company specifically or generally
during the course of due diligence or otherwise by any such persons or
entities), which, if not disclosed in the prospectus included in the
Registration Statement, would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements therein, in light of the circumstances in which they were
made, not misleading. In no event shall the Purchaser's Inspectors receiving
nonpublic information pursuant to Section 3(h)(ii) disclose to the Purchaser the
nature of the specific event or circumstances constituting any nonpublic
information discovered by such advisors or representatives in the course of
their due diligence without the written consent of the Purchaser prior to
disclosure of such information. The Purchaser's Inspectors shall make complete
disclosure to the Purchaser's independent counsel of all events or circumstances
constituting nonpublic information discovered by such Inspectors in the course
of their due diligence upon which such Inspectors form the opinion that the
Registration Statement contains an untrue statement of a material fact or omits
a material fact required to be stated in the Registration

                                       6

<PAGE>

Statement or necessary to make the statements contained therein, in the light of
the circumstances in which they were made, not misleading. Upon receipt of such
disclosure, the Purchaser's independent counsel shall consult with the Company's
independent counsel (who, for all purposes of this Agreement, must be an
independent law firm with substantial experience in underwritten offerings which
is reasonably acceptable to the Purchaser) in order to address the concern
raised as to the existence of a material misstatement or omission and to discuss
appropriate disclosure with respect thereto.

              (i) Without limiting the Company's obligations under the Purchase
Agreement, the Company shall cooperate with the Holders to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legend)
representing the Registered Securities to be offered pursuant to a Registration
Statement and enable such certificates to be in such denominations or amounts,
as the case may be, as the Holders may reasonably request and registered in such
names of the Persons as the Holders may request.

              (j) If requested by the Holders holding a majority of the
Registered Securities, the Company shall (i) as soon as practical incorporate in
a prospectus supplement or post-effective amendment such information as such
Holders reasonably determine should be included therein relating to the sale and
distribution of Registered Securities, including, without limitation,
information with respect to the offering of the Registered Securities to be sold
in such offering; (ii) make all required filings of such prospectus supplement
or post-effective amendment as soon as notified of such matters to be
incorporated in such prospectus supplement or post-effective amendment; and
(iii) supplement or make amendments to any Registration Statement if reasonably
requested by such Holders for such matters.

              (k) The Company shall use its best efforts to cause the Registered
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registered Securities.

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

              (m) The Company shall comply with all applicable rules and
regulations of the SEC and any other regulatory authorities of competent
jurisdiction in connection with any registration hereunder.

              (n) Immediately after the Registration Statement is declared
effective the Company shall deliver, and shall cause legal counsel for the
Company to deliver, to the transfer agent for such Registered Securities (with
copies to the Holders whose Registered Securities are included in such
Registration Statement) confirmation that such Registration Statement has been
declared effective by the SEC in the form attached hereto as Exhibit A.

                                       7

<PAGE>

              (o) The Company shall take all other reasonable actions necessary
to expedite and facilitate disposition by the Holders of Registered Securities
pursuant to a Registration Statement.

              (p) The Company shall hold in confidence and not make any
disclosure of information concerning a Holder provided to the Company unless and
except to the extent that (i) disclosure of such information is necessary to
comply with federal or state securities laws, (ii) the disclosure of such
information is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (iii) the release of such information is sought pursuant
to a legal process, including without limitation, subpoena, interrogatory,
request for documents or information, civil investigative demand, deposition or
similar process, or a court of competent jurisdiction or by a governmental,
quasi-governmental, regulatory or administrative entity, provided that the
Company shall immediately notify such Holder of the existence, terms and
circumstances of such request, and the Company shall reasonably cooperate with
such Holder in attempting to (a) prevent or limit such disclosure and (b) obtain
confidential treatment of any information required to be disclosed, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of the Company's obligations under the Transaction
Documents or any other agreement or otherwise. The Company agrees that it shall,
upon learning that disclosure of such information concerning a Holder is sought
in or by a court or governmental body of competent jurisdiction or through other
means, give prompt written notice to such Holder and allow such Holder, at the
Holder's expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, such information.

              (q) The Company shall engage a transfer agent and registrar for
all the Registered Securities not later than the effective date of the first
Registration Statement filed pursuant hereto.

        4.    OBLIGATIONS OF THE HOLDERS.
              --------------------------

                  Each Holder agrees that, upon receipt of any written notice
from the Company of the happening of any event of the kind described in Section
3(e) or the first sentence of 3(d), such Holder will immediately discontinue
disposition of Registered Securities pursuant to any prospectus in the
Registration Statement(s) covering such Registered Securities until such
Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3(e) or the first sentence of 3(d).

        5.    EXPENSES OF REGISTRATION.
              ------------------------

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

        6.    INDEMNIFICATION.
              ---------------

            (a) To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Holder, the directors,
officers, partners, employees,

                                       8

<PAGE>

members, agents, representatives of, and each Person, if any, who controls,
any Holder within the meaning of the 1933 Act or the Exchange Act, (each, an
"Indemnified Person"), from and against any losses, claims, damages,
liabilities, judgments, fines, penalties, charges, costs, attorneys' fees and
disbursements, amounts paid in settlement or expenses, joint or several,
(collectively, "Claims") incurred in investigating, preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or other
regulatory agency, body or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto ("Indemnified Damages"),
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any jurisdiction in
which Registered Securities are offered ("Blue Sky Filing"), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which the statements therein were made, not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading, (iii) any violation or alleged violation by the Company of
the 1933 Act, the Exchange Act, any other law, including, without limitation,
any state securities law, or any rule or regulation thereunder relating to the
offer or sale of the Registered Securities pursuant to a Registration Statement
(the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"), or (iv) enforcement of this indemnification. The Company shall
reimburse the Holders and each such controlling Person, promptly as such
expenses are incurred and are due and payable, for any reasonable legal fees and
disbursements or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a): (i) shall not apply to a Claim to the extent arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by any Indemnified Person
expressly for inclusion in the Registration Statement or any such amendment
thereof or supplement thereto, if such prospectus was timely made available by
the Company pursuant to Section 3(c); (ii) shall not be available to the extent
such Claim is based on (a) a failure of the Holder to deliver or to cause to be
delivered the current prospectus made available by the Company, (b) the
Indemnified Person's use of an incorrect prospectus after and despite being
promptly advised in advance by the Company in writing not to use such incorrect
prospectus or (c) the failure of the Indemnified Person to be registered with
the SEC as a broker-dealer; and (iii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld,
delayed or conditioned. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registered Securities by the Holders
pursuant to Section 8.

              (b) In connection with any Registration Statement in which a
Holder is participating, each such Holder agrees, severally and not jointly, to
indemnify, hold harmless and

                                       9

<PAGE>

defend, to the same extent and in the same manner as is set forth in Section
6(a), the Company, each of its directors, each of its officers who signs the
Registration Statement, each Person, if any, who controls the Company within the
meaning of the 1933 Act or the Exchange Act (collectively and together with an
Indemnified Person, an "Indemnified Party"), against any Claim or Indemnified
Damages to which any of them may become subject, under the 1933 Act, the
Exchange Act or otherwise, insofar as such Claim or Indemnified Damages arise
out of or are based upon any Violation, in each case to the extent, and only to
the extent, that such Violation occurs in reliance upon and in conformity with
written information furnished to the Company by such Holder expressly for
inclusion in such Registration Statement; and, subject to Section 6(c), such
Holder will reimburse the reasonably incurred legal expenses of one counsel or
other expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
                          --------  -------
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Holder, which consent shall not be unreasonably withheld, delayed or
conditioned; provided, further, however, that the Holder shall be liable under
             --------  -------
this Section 6(b) for only that amount of a Claim or Indemnified Damages as does
not exceed the net profits to such Holder as a result of the sale of Registered
Securities under such Registration Statement. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
such Indemnified Party and shall survive the transfer of the Registered
Securities by the Holders pursuant to Section 8. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(b) with respect to any preliminary prospectus shall not inure to the
benefit of any Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented.

              (c) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement or threat of
commencement of any action or proceeding (including any governmental action or
proceeding) involving a Claim, such Indemnified Person or Indemnified Party
shall, if a Claim in respect thereof is to be made against any indemnifying
party under this Section 6, deliver to the indemnifying party a written notice
thereof, and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires and can reasonably establish its
financial ability to meet its indemnity obligations, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided, however, that an
                                                     --------  -------
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses thereof to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The indemnifying
party shall pay for only one separate legal counsel for the Indemnified Persons
or the Indemnified Parties, as applicable, and such counsel shall be selected by
the Purchaser, if the Holders are entitled to indemnification hereunder, or the
Company, if the Company is entitled to indemnification hereunder, as applicable.
The Indemnified Party or Indemnified Person shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any

                                       10

<PAGE>

such Claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Indemnified Party or
Indemnified Person which relates to such Claim. The indemnifying party shall
keep the Indemnified Party or Indemnified Person fully apprised at all times as
to the status of the defense or any settlement negotiations with respect
thereto. No indemnifying party shall be liable for any settlement of any action,
claim or proceeding effected without its written consent; provided, however,
                                                          --------  -------
that the indemnifying party shall not unreasonably withhold, delay or condition
its consent. No indemnifying party shall, without the consent of the Indemnified
Party or Indemnified Person, consent to entry of any judgment or enter into any
settlement or other compromise which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party or
Indemnified Person of a release from all liability in respect to such Claim.
Following indemnification as provided for hereunder, the indemnifying party
shall be subrogated to all rights of the Indemnified Party or Indemnified Person
with respect to all third parties, firms or corporations relating to the matter
for which indemnification has been made. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is materially prejudiced in its ability to
defend such action.

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

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

         7.   CONTRIBUTION.
              ------------

                  To the extent any indemnification by an indemnifying party is
prohibited or limited by law or otherwise, the indemnifying party agrees to make
the maximum contribution with respect to any amounts for which it would
otherwise be liable under Section 6 to the fullest extent permitted by law or
otherwise; provided, however, that: (i) no contribution shall be made under
           --------  -------
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6; (ii) no seller of Registered
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any seller of
Registered Securities who was not guilty of fraudulent misrepresentation; and
(iii) contribution by any Holder shall be limited in amount to the net amount of
profits received by such Holder from the sale of such Registered Securities
under such Registration Statement.

         8.   ASSIGNMENT OF REGISTRATION RIGHTS.
              ---------------------------------

              The rights under this Agreement shall be automatically assignable
by any Holder in their entirety or in part to any transferee of all or any
portion of the Registered Securities owned by such Holder, provided that such
Holder gives prior notice to the Company of (a) the

                                       11

<PAGE>

name and address of such transferee or assignee, and (b) the Registered
Securities with respect to which such registration rights are being transferred
or assigned, and such Holder agrees to be bound by the terms and conditions of
this Agreement with respect to such Registered Securities. Notwithstanding
anything to the contrary contained in the Transaction Documents, the Purchaser
shall be entitled to pledge the Purchased Shares, the Warrant and the Warrant
Shares in connection with a bona fide margin account.

         9.   AMENDMENT OF REGISTRATION RIGHTS.
              --------------------------------

              Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company,
the Purchaser and Holders who hold fifty percent (50%) of the Registered
Securities. Any amendment or waiver effected in accordance with this Section 9
shall be binding upon each Holder and the Company.

         10.  MISCELLANEOUS.
              -------------

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

              (b) Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement (which must
be given subject to Section 3(h)(ii)) must be in writing, must be delivered by
(i) courier, mail or hand delivery or (ii) facsimile, and will be deemed to have
been delivered upon receipt. The addresses and facsimile numbers for such
communications shall be:

                   If to the Company:

                            Constellation 3D, Inc.
                            805 Third Avenue, 14th Floor
                            New York, New York 10022
                            Telephone:       212-983-1107
                            Facsimile:       212-983-1108
                            Attention:       Mr. Leonardo Berezowsky

                            with a copy to:

                            Blank Rome Comiskey & McCauley LLP
                            One Logan Square
                            Philadelphia, Pennsylvania 19103
                            Telephone:       215-569-5754
                            Facsimile:       215-569-5628
                            Attention:       Alan L. Zeiger, Esq.

                                       12

<PAGE>

                  If to the Purchaser:

                           The Gleneagles Fund Company II
                           c/o The Palladin Group, L.P.
                           195 Maplewood Avenue
                           Maplewood, New Jersey 07040
                           Telephone:       973-313-6424
                           Facsimile:       973-313-6490
                           Attention:       Mr. Maurice Hryshko

                           with a copy to:

                           Kleinberg, Kaplan, Wolff & Cohen, P.C.
                           551 Fifth Avenue, 18th Floor
                           New York, New York 10176
                           Telephone:       212-986-6000
                           Facsimile:       212-986-8866
                           Attention:       Stephen M. Schultz, Esq.

                  Each party shall provide five (5) days prior written notice to
the other party of any change in address, telephone number or facsimile number.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by a nationally recognized overnight delivery service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.

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

              (d) THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE STATE OF
NEW YORK, CITY OF NEW YORK, BOROUGH OF MANHATTAN FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED
HEREBY OR DISCUSSED HEREIN, AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO
ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY
SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT,
ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL
SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION
OR PROCEEDING BY MAILING A COPY

                                       13

<PAGE>

THEREOF TO SUCH PARTY AT THE ADDRESS FOR SUCH NOTICES TO IT UNDER THIS
AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT
SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED
TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
IF ANY PROVISION OF THIS AGREEMENT SHALL BE INVALID OR UNENFORCEABLE IN ANY
JURISDICTION, SUCH INVALIDITY OR UNENFORCEABILITY SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF THE REMAINDER OF THIS AGREEMENT IN THAT JURISDICTION OR THE
VALIDITY OR ENFORCEABILITY OF ANY PROVISION OF THIS AGREEMENT IN ANY OTHER
JURISDICTION.

              (e) This Agreement and the Purchase Agreement and the documents
contemplated hereby and thereby constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof. There are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement and the Purchase
Agreement and the documents contemplated hereby and thereby supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.

              (f) Subject to the requirements of Section 8, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.

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

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

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

              (j) All consents and other determinations to be made by the
Holders pursuant to this Agreement shall be made, unless otherwise specified in
this Agreement, by Holders holding a majority of the Registered Securities.

                                       14

<PAGE>

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

              (l) Nothing in this Agreement shall confer any rights upon any
person or entity other than the parties hereto and their respective successors
and assigns.

                            [Signature Page Follows]

                                       15

<PAGE>

         IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.

COMPANY:                                PURCHASER:

CONSTELLATION 3D, INC.                  THE GLENEAGLES FUND COMPANY II

By: /s/ Leonardo Berezowsky             By: /s/ Maurice Hryshko
   ----------------------------            ----------------------------------
Name:  Leonardo Berezowsky                 Name:  Maurice Hryshko
Title: Chief Financial Officer             Title: Counsel
                                                  The Palladin Group, L.P.
                                                    Attorney-in-fact

                                       16

<PAGE>

                                    EXHIBIT A
                         FORM OF NOTICE OF EFFECTIVENESS
                            OF REGISTRATION STATEMENT

[TRANSFER AGENT]

The Gleneagles Fund Company
c/o The Palladin Group, L.P.
195 Maplewood Avenue
Maplewood, New Jersey 07040
Attention:  Mr. Maurice Hryshko

                  Re:      CONSTELLATION 3D, INC.
                           ---------------------

Ladies and Gentlemen:

         We are counsel to Constellation 3D, Inc., a Delaware corporation (the
"Company"), and have represented the Company in connection with that certain
Amended and Restated Common Stock Purchase Agreement (the "Purchase Agreement")
dated August 16, 2001 entered into by and between the Company and The Gleneagles
Fund Company II (the "Purchaser") pursuant to which the Company may, from time
to time, issue to the Purchaser shares of the Company's common stock, par value
$.00001 per share ("Common Stock"), and has issued Warrants to purchase shares
of Common Stock ("Warrant Shares") and Adjustment Warrants exercisable for
shares of Common Stock ("Adjustment Shares"). On ____________ ___, 2001, the
Company filed a Registration Statement on Form S-3 (File No. ___-______) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the shares of Common Stock issuable under the Purchase
Agreement, the Adjustment Shares and the Warrant Shares.

         In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge as
of the date hereof, after telephonic inquiry of a member of the SEC's staff,
that any stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC, and
the shares of Common Stock issued or issuable under the Purchase Agreement
(including, without limitation, the Initial Shares), the Warrant Shares and the
Adjustment Shares are available for issuance and sale under the 1933 Act
pursuant to the Registration Statement.

                          Very truly yours,

                          [LAW FIRM]

                          By:
                             -----------------------------

cc:      Kleinberg, Kaplan, Wolff & Cohen, P.C.

                                       17

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