EXHIBIT 10.25

                          SECURITIES PURCHASE AGREEMENT

         This Securities  Purchase  Agreement (this  "AGREEMENT") is dated as of
January 10, 2007 among Intraop Medical  Corporation,  a Nevada  corporation (the
"COMPANY"),  and each purchaser  identified on the signature pages hereto (each,
including  its  successors  and assigns,  a  "PURCHASER"  and  collectively  the
"PURCHASERS").

         WHEREAS,  subject  to the  terms  and  conditions  set  forth  in  this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "SECURITIES ACT"), and Rule 506 promulgated thereunder, the Company desires
to issue  and sell to each  Purchaser,  and each  Purchaser,  severally  and not
jointly, desires to purchase from the Company, securities of the Company as more
fully described in this Agreement.

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

ARTICLE I.
                                   DEFINITIONS

         1.1  DEFINITIONS.  In addition to the terms  defined  elsewhere in this
Agreement:  (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein),  and (b) the
following terms have the meanings set forth in this Section 1.1:

                  "ACTION"  shall  have the  meaning  ascribed  to such  term in
Section 3.1(j).

                  "AFFILIATE"  means any Person  that,  directly  or  indirectly
         through one or more intermediaries,  controls or is controlled by or is
         under  common  control  with a  Person,  as such  terms are used in and
         construed  under Rule 144 under the  Securities  Act. With respect to a
         Purchaser,  any investment fund or managed account that is managed on a
         discretionary  basis by the same  investment  manager as such Purchaser
         will be deemed to be an Affiliate of such Purchaser.

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

                  "CLOSING"  means the closing of the  purchase  and sale of the
Securities pursuant to Section 2.1.

                  "CLOSING   DATE"  means  the  Trading  Day  when  all  of  the
         Transaction   Documents   have  been  executed  and  delivered  by  the
         applicable  parties  thereto,  and all conditions  precedent to (i) the
         Purchasers'  obligations  to pay the  Subscription  Amount and (ii) the
         Company's  obligations to deliver the Securities have been satisfied or
         waived.
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                  "COMMISSION" means the Securities and Exchange Commission.

                  "COMMON  STOCK"  means the common  stock of the  Company,  par
         value $0.001 per share,  and any other class of  securities  into which
         such securities may hereafter be reclassified or changed into.

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

                  "COMPANY COUNSEL" means Hanson Bridgett, Marcus Vlahos & Rudy,
         LLP with offices at 425 Market Street, San Francisco, CA 94105.

                  "CONVERTIBLE DEBENTURES PURCHASE AGREEMENT" means collectively
         the Securities Purchase Agreement, dated as of August 31, 2005, between
         the Company and the purchasers signatory thereto in connection with the
         purchase and sale of the 7% Convertible  Debentures due August 31, 2008
         and the  Securities  Purchase  Agreement  dated as of October 25, 2005,
         between the Company and the purchasers  signatory thereto in connection
         with the purchase and sale of the 7% Convertible Debentures due October
         25, October 31 and November 4, 2008, respectively.

                  "DEBENTURES"  means,  the 8%  Debentures  due,  subject to the
         terms  therein,  120 days from  their date of  issuance,  issued by the
         Company to the Purchasers hereunder,  in the form of EXHIBIT A attached
         hereto.

                  "DISCLOSURE SCHEDULES" shall have the meaning ascribed to such
term in Section 3.1.

                  "EFFECTIVE DATE" means the date that the initial  Registration
         Statement  filed by the  Company  pursuant to the  Registration  Rights
         Agreement is first declared effective by the Commission.

                   "EVALUATION  DATE"  shall have the  meaning  ascribed to such
term in Section 3.1(r).

                  "EXCHANGE ACT" means the  Securities  Exchange Act of 1934, as
         amended, and the rules and regulations promulgated thereunder.

                  "EXEMPT  ISSUANCE"  means the issuance of (a) shares of Common
         Stock or options to  employees,  officers or  directors  of the Company
         pursuant to any stock or option plan duly adopted for such purpose by a
         majority of the  non-employee  members of the Board of Directors of the
         Company or a majority  of the members of a  committee  of  non-employee
         directors established,  (b) securities upon the exercise or exchange of
         or  conversion  of  any  Securities   issued   hereunder  and/or  other
         securities  exercisable or exchangeable  for or convertible into shares
         of Common Stock issued and  outstanding on the date of this  Agreement,
         provided that such  securities  have not been amended since the date of
         this Agreement to increase the number of such securities or to decrease
         the exercise,  exchange or  conversion  price of such  securities,  (c)
         securities  issued pursuant to  acquisitions or strategic  transactions
         approved by a majority of the  disinterested  directors of the Company,
         provided  that any such  issuance  shall only be to a Person  which is,
         itself or through its subsidiaries,  an operating company in a business
         synergistic  with the  business of the Company and in which the Company
         receives benefits in addition to the investment of funds, but shall not
         include  a  transaction  in which the  Company  is  issuing  securities
         primarily  for the  purpose  of raising  capital or to an entity  whose
         primary business is investing in securities,  (d) common stock purchase
         warrants  issued to an advisor or consultant  pursuant to Section 4.19,
         (e) warrants or options to purchase  Common Stock issued in  connection
         with otherwise non-convertible or non-equity linked debt financing with
         a reputable  commercial lender provided that the exercise price of such
         warrants  or options at all times is equal to or greater  than the VWAP
         at the time of the  consummation  of such  financing  and the aggregate
         exercise  price of such  warrants or options does not exceed 10% of the
         net proceeds  raised by the Company in such financing  transaction  and
         (f)  securities  issued  in  connection  with any  stock  split,  stock
         dividend or recapitalization.

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                   "FWS"  means  Feldman  Weinstein  & Smith  LLP  with  offices
         located  at 420  Lexington  Avenue,  Suite  2620,  New  York,  New York
         10170-0002.

                  "GAAP" shall have the meaning ascribed to such term in Section
3.1(h).

                  "INDEBTEDNESS" shall have the meaning ascribed to such term in
Section 3.1(aa).

                  "INTELLECTUAL PROPERTY RIGHTS" shall have the meaning ascribed
to such term in Section 3.1(o).

                  "LEGEND REMOVAL DATE" shall have the meaning  ascribed to such
term in Section 4.1(c).

                  "LIENS" means a lien, charge, security interest,  encumbrance,
         right of first refusal, preemptive right or other restriction.

                  "MATERIAL  ADVERSE EFFECT" shall have the meaning  assigned to
such term in Section 3.1(b).

                  "MATERIAL  PERMITS"  shall have the  meaning  ascribed to such
term in Section 3.1(m).

                  "MAXIMUM RATE" shall have the meaning ascribed to such term in
Section 5.17.

                  "PARTICIPATION  MAXIMUM"  shall have the  meaning  ascribed to
such term in Section 4.13.

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

                  "PRE-NOTICE"  shall have the meaning  ascribed to such term in
Section 4.13.

                  "PRIOR  DEBENTURES  AND  WARRANTS"  means the  Debentures  and
         Warrant  issued  pursuant  to  the  Convertible   Debentures   Purchase
         Agreement.

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

                  "PURCHASER PARTY" shall have the meaning ascribed to such term
in Section 4.11.

                  "REGISTRATION  RIGHTS AGREEMENT" means the Registration Rights
         Agreement, dated the date hereof, among the Company and the Purchasers,
         in the form of EXHIBIT B attached hereto.

                  "REGISTRATION   STATEMENT"  means  a  registration   statement
         meeting the requirements set forth in the Registration Rights Agreement
         and  covering  the resale of the Warrant  Shares by each  Purchaser  as
         provided for in the Registration Rights Agreement.

                  "REQUIRED  APPROVALS"  shall have the meaning ascribed to such
term in Section 3.1(e).

                  "REQUIRED   MINIMUM"  means,  as  of  any  date,  the  maximum
         aggregate  number of shares of Common Stock then issued or  potentially
         issuable in the future pursuant to the Transaction Documents, including
         any Warrant  Shares  issuable  upon  exercise in full of all  Warrants,
         ignoring  any  conversion  or exercise  limits set forth  therein,  and
         assuming  that the  Conversion  Price is at all  times on and after the
         date of  determination  75% of the then Conversion Price on the Trading
         Day immediately prior to the date of determination.

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

                  "SEC REPORTS" shall have the meaning  ascribed to such term in
Section 3.1(h).

                  "SECURED  DEBENTURES  PURCHASE AGREEMENT" means the Securities
         Purchase  Agreement,  dated as of August 31, 2005,  between the Company
         and the purchasers  signatory  thereto in connection  with the purchase
         and sale of the 10% Senior Secured Debentures due August 31, 2008.

                  "SECURITIES"  means  the  Debentures,  the  Warrants  and  the
Warrant Shares.

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<PAGE>

                  "SECURITIES ACT" means the Securities Act of 1933, as amended,
         and the rules and regulations promulgated hereunder.

                  "SHORT  SALES" means all "short  sales" as defined in Rule 200
         of  Regulation  SHO under the  Exchange Act (but shall not be deemed to
         include the location and/or  reservation of borrowable shares of Common
         Stock).

                   "SUBSCRIPTION  AMOUNT"  means,  as  to  each  Purchaser,  the
         aggregate  amount  to be paid for  Debentures  and  Warrants  purchased
         hereunder as specified  below such  Purchaser's  name on the  signature
         page of this Agreement and next to the heading  "Subscription  Amount",
         in United States dollars and in immediately available funds.

                  "SUBSEQUENT FINANCING" shall have the meaning ascribed to such
term in Section 4.13.

                  "SUBSEQUENT  FINANCING NOTICE" shall have the meaning ascribed
to such term in Section 4.13.

                  "SUBSIDIARY"  means any subsidiary of the Company as set forth
on SCHEDULE 3.1(A).

                  "TRADING  DAY" means a day on which the Common Stock is traded
on a Trading Market.

                  "TRADING  MARKET" means the following  markets or exchanges on
         which the Common  Stock is listed or quoted for  trading on the date in
         question:  the American Stock Exchange,  the Nasdaq Capital Market, the
         Nasdaq Global  Market,  the Nasdaq Global Select  Market,  the New York
         Stock Exchange or the OTC Bulletin Board.

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

                  "TRANSFER  AGENT" means  Interwest  Transfer Co., Inc., with a
         mailing address of 1981 East 4800 South,  Suite 100, Salt Lake City, CA
         84117 and a  facsimile  number  of (801)  277-3147,  and any  successor
         transfer agent of the Company.

                   "VARIABLE RATE  TRANSACTION"  shall have the meaning ascribed
to such term in Section 4.14(b).

                  "VWAP" means,  for any date, the price determined by the first
         of the following clauses that applies:  (a) if the Common Stock is then
         listed or quoted on a Trading Market, the daily volume weighted average
         price of the Common Stock for such date (or the nearest preceding date)
         on the  Trading  Market on which  the  Common  Stock is then  listed or
         quoted as reported by Bloomberg L.P.  (based on a Trading Day from 9:30
         a.m.  New York City time to 4:02 p.m.  New York City time);  (b) if the
         OTC Bulletin Board is not a Trading Market, the volume weighted average
         price of the Common Stock for such date (or the nearest preceding date)
         on the OTC Bulletin  Board;  (c) if the Common Stock is not then listed
         or quoted on the OTC Bulletin  Board and if prices for the Common Stock
         are then  reported in the "Pink Sheets"  published by Pink Sheets,  LLC
         (or a similar  organization  or agency  succeeding  to its functions of
         reporting  prices),  the most  recent bid price per share of the Common
         Stock so reported;  or (d) in all other cases, the fair market value of
         a share of  Common  Stock as  determined  by an  independent  appraiser
         selected in good faith by the  Purchaser and  reasonably  acceptable to
         the  Company,  the fees  and  expenses  of  which  shall be paid by the
         Company.

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<PAGE>

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

                  "WARRANT  SHARES"  means the shares of Common  Stock  issuable
upon exercise of the Warrants.

                                  ARTICLE II.
                                PURCHASE AND SALE

         2.1  CLOSING.  On the Closing  Date,  upon the terms and subject to the
conditions  set forth herein,  substantially  concurrent  with the execution and
delivery of this  Agreement by the parties  hereto,  the Company agrees to sell,
and each  Purchaser,  severally  and not jointly,  agrees to purchase,  up to an
aggregate of $1,200,000 in principal  amount of the  Debentures.  Each Purchaser
shall  deliver  to  the  Company,  via  wire  transfer  or  a  certified  check,
immediately  available  funds equal to its  Subscription  Amount and the Company
shall deliver to each  Purchaser  its  respective  Debenture  and a Warrant,  as
determined  pursuant to Section 2.2(a), and the Company and each Purchaser shall
deliver  the other items set forth in Section 2.2  deliverable  at the  Closing.
Upon  satisfaction  of the  conditions  set forth in Sections  2.2 and 2.3,  the
Closing shall occur at the offices of FWS or such other  location as the parties
shall mutually agree.

         2.2 DELIVERIES



                  (a) On the Closing Date, the Company shall deliver or cause to
         be delivered to each Purchaser the following:

                           (i) this Agreement duly executed by the Company;

                           (ii) a legal opinion of Company Counsel,  in the form
                  of EXHIBIT D attached hereto;

                           (iii) a Debenture  with a principal  amount  equal to
                  such Purchaser's  Subscription Amount,  registered in the name
                  of such Purchaser;

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<PAGE>

                           (iv)  a  Warrant  registered  in  the  name  of  such
                  Purchaser to purchase up to a number of shares of Common Stock
                  equal to 30% of such Purchaser's  Subscription  Amount divided
                  by $0.28,  with an exercise  price equal to $0.28,  subject to
                  adjustment therein; and

                           (v) the  Registration  Rights Agreement duly executed
                  by the Company.

                  (b) On the Closing Date, each Purchaser shall deliver or cause
         to be delivered to the Company the following:

                  (i) this Agreement duly executed by such Purchaser;

                  (ii) such Purchaser's  Subscription Amount by wire transfer to
         the account as specified in writing by the Company; and

                  (iii) the Registration  Rights Agreement duly executed by such
         Purchaser.

         2.3 CLOSING CONDITIONS.

                  (a) The  obligations  of the Company  hereunder in  connection
         with the Closing are subject to the following conditions being met:

                           (i) the accuracy in all material  respects  when made
                  and on the Closing Date of the  representations and warranties
                  of the Purchasers contained herein;

                           (ii) all obligations, covenants and agreements of the
                  Purchasers required to be performed at or prior to the Closing
                  Date shall have been performed; and

                           (iii) the delivery by the Purchasers of the items set
                  forth in Section 2.2(b) of this Agreement.

                  (b) The respective  obligations of the Purchasers hereunder in
         connection  with the Closing are  subject to the  following  conditions
         being met:

                           (i) the accuracy in all material  respects  when made
                  and on the Closing Date of the  representations and warranties
                  of the Company contained herein;

                           (ii) all obligations, covenants and agreements of the
                  Company  required to be  performed  at or prior to the Closing
                  Date shall have been performed;

                           (iii) the  delivery  by the  Company of the items set
                  forth in Section 2.2(a) of this Agreement;

                           (iv) there shall have been no Material Adverse Effect
                  with respect to the Company since the date hereof; and

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<PAGE>

                           (v) from the date hereof to the Closing Date, trading
                  in the  Common  Stock  shall  not have been  suspended  by the
                  Commission or the Company's  principal  Trading Market (except
                  for any suspension of trading of limited duration agreed to by
                  the Company, which suspension shall be terminated prior to the
                  Closing),  and, at any time prior to the Closing Date, trading
                  in securities  generally as reported by Bloomberg  L.P.  shall
                  not have been  suspended or limited,  or minimum  prices shall
                  not have been  established  on  securities  whose  trades  are
                  reported by such service,  or on any Trading Market, nor shall
                  a banking  moratorium  have been declared either by the United
                  States or New York  State  authorities  nor shall  there  have
                  occurred any material outbreak or escalation of hostilities or
                  other national or international  calamity of such magnitude in
                  its  effect  on,  or  any  material  adverse  change  in,  any
                  financial  market  which,  in  each  case,  in the  reasonable
                  judgment  of  each  Purchaser,   makes  it   impracticable  or
                  inadvisable to purchase the Debentures at the Closing.

                                  ARTICLE III.
                         REPRESENTATIONS AND WARRANTIES

         3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  Except as set forth
under the  corresponding  section of the disclosure  schedules  delivered to the
Purchasers concurrently herewith (the "DISCLOSURE SCHEDULES"),  which Disclosure
Schedules  shall be deemed a part  hereof and to qualify any  representation  or
warranty  otherwise  made herein to the extent of such  disclosure,  the Company
hereby makes the following representations and warranties to each Purchaser:

                  (a) SUBSIDIARIES.  All of the direct and indirect subsidiaries
         of the  Company  are set forth on SCHEDULE  3.1(A).  The Company  owns,
         directly  or  indirectly,  all of the  capital  stock or  other  equity
         interests of each  Subsidiary  free and clear of any Liens,  and all of
         the issued and  outstanding  shares of capital stock of each Subsidiary
         are  validly  issued  and are fully  paid,  non-assessable  and free of
         preemptive and similar rights to subscribe for or purchase  securities.
         If the  Company  has  no  subsidiaries,  all  other  references  to the
         Subsidiaries  or any of  them in the  Transaction  Documents  shall  be
         disregarded.

                  (b)  ORGANIZATION AND  QUALIFICATION.  The Company and each of
         the Subsidiaries is an entity duly incorporated or otherwise organized,
         validly   existing  and  in  good  standing   under  the  laws  of  the
         jurisdiction of its incorporation or organization (as applicable), with
         the  requisite  power and authority to own and use its  properties  and
         assets and to carry on its business as currently conducted. Neither the
         Company nor any  Subsidiary  is in  violation  or default of any of the
         provisions of its respective  certificate or articles of incorporation,
         bylaws  or  other  organizational  or  charter  documents.  Each of the
         Company and the  Subsidiaries is duly qualified to conduct business and
         is in good  standing as a foreign  corporation  or other entity in each
         jurisdiction in which the nature of the business  conducted or property
         owned  by it makes  such  qualification  necessary,  except  where  the
         failure to be so  qualified  or in good  standing,  as the case may be,
         could not have or  reasonably  be  expected to result in (i) a material
         adverse  effect on the  legality,  validity  or  enforceability  of any
         Transaction Document,  (ii) a material adverse effect on the results of
         operations,  assets,  business,  prospects or condition  (financial  or
         otherwise) of the Company and the  Subsidiaries,  taken as a whole,  or
         (iii) a material adverse effect on the Company's  ability to perform in
         any  material  respect  on a timely  basis  its  obligations  under any
         Transaction  Document (any of (i), (ii) or (iii),  a "MATERIAL  ADVERSE
         EFFECT") and no Proceeding has been instituted in any such jurisdiction
         revoking, limiting or curtailing or seeking to revoke, limit or curtail
         such power and authority or qualification.

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<PAGE>

                  (c) AUTHORIZATION;  ENFORCEMENT. The Company has the requisite
         corporate  power and  authority  to enter  into and to  consummate  the
         transactions  contemplated  by each of the  Transaction  Documents  and
         otherwise to carry out its obligations  hereunder and  thereunder.  The
         execution  and  delivery of each of the  Transaction  Documents  by the
         Company and the  consummation  by it of the  transactions  contemplated
         hereby and thereby have been duly authorized by all necessary action on
         the part of the  Company  and no  further  action  is  required  by the
         Company,  its board of  directors  or its  stockholders  in  connection
         therewith  other than in connection with the Required  Approvals.  Each
         Transaction  Document has been (or upon  delivery  will have been) duly
         executed by the Company  and,  when  delivered in  accordance  with the
         terms  hereof  and  thereof,  will  constitute  the valid  and  binding
         obligation of the Company enforceable against the Company in accordance
         with its terms  except (i) as limited by general  equitable  principles
         and applicable bankruptcy, insolvency,  reorganization,  moratorium and
         other laws of general application  affecting  enforcement of creditors'
         rights generally,  (ii) as limited by laws relating to the availability
         of specific performance,  injunctive relief or other equitable remedies
         and (iii) insofar as indemnification and contribution provisions may be
         limited by applicable law.

                  (d) NO CONFLICTS.  The execution,  delivery and performance of
         the  Transaction  Documents by the Company and the  consummation by the
         Company of the other  transactions  contemplated  hereby and thereby do
         not and will not:  (i)  conflict  with or violate any  provision of the
         Company's or any Subsidiary's certificate or articles of incorporation,
         bylaws or other  organizational or charter documents,  or (ii) conflict
         with, or constitute a default (or an event that with notice or lapse of
         time or both would become a default)  under,  result in the creation of
         any Lien upon any of the  properties  or assets of the  Company  or any
         Subsidiary,  or give to others  any rights of  termination,  amendment,
         acceleration or cancellation (with or without notice,  lapse of time or
         both) of, any  agreement,  credit  facility,  debt or other  instrument
         (evidencing  a  Company  or  Subsidiary  debt or  otherwise)  or  other
         understanding  to which the Company or any  Subsidiary is a party or by
         which any property or asset of the Company or any  Subsidiary  is bound
         or affected, or (iii) subject to the Required Approvals,  conflict with
         or result in a violation of any law, rule, regulation, order, judgment,
         injunction,  decree or other  restriction of any court or  governmental
         authority  to which the Company or a Subsidiary  is subject  (including
         federal and state  securities  laws and  regulations),  or by which any
         property or asset of the Company or a Subsidiary  is bound or affected;
         except in the case of each of clauses (ii) and (iii), such as could not
         have or reasonably be expected to result in a Material Adverse Effect.

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<PAGE>

                  (e)  FILINGS,  CONSENTS  AND  APPROVALS.  The  Company  is not
         required to obtain any consent, waiver, authorization or order of, give
         any notice to, or make any filing or  registration  with,  any court or
         other federal,  state, local or other  governmental  authority or other
         Person in connection  with the execution,  delivery and  performance by
         the  Company  of the  Transaction  Documents,  other  than (i)  filings
         required  pursuant to Section 4.6, (ii) the filing with the  Commission
         of the Registration  Statement,  (iii) the notice and/or application(s)
         to each  applicable  Trading  Market for the  issuance  and sale of the
         Securities and the listing of the Warrant Shares for trading thereon in
         the time and manner required thereby and (iv) the filing of Form D with
         the  Commission  and such  filings  as are  required  to be made  under
         applicable   state   securities  laws   (collectively,   the  "REQUIRED
         APPROVALS").

                  (f)  ISSUANCE  OF THE  SECURITIES.  The  Securities  are  duly
         authorized  and,  when  issued  and  paid  for in  accordance  with the
         applicable  Transaction  Documents,  will be duly and  validly  issued,
         fully paid and  nonassessable,  free and clear of all Liens  imposed by
         the Company  other than  restrictions  on transfer  provided for in the
         Transaction  Documents.  The Warrant Shares,  when issued in accordance
         with the terms of the  Transaction  Documents,  will be validly issued,
         fully paid and  nonassessable,  free and clear of all Liens  imposed by
         the Company.  The Company has reserved from its duly authorized capital
         stock a number of shares of Common  Stock for  issuance  of the Warrant
         Shares at least equal to the Required Minimum on the date hereof.

                  (g)  CAPITALIZATION.  The  capitalization of the Company is as
         set forth on SCHEDULE  3.1(G),  which  schedule  shall also include the
         number of shares of Common Stock owned beneficially,  and of record, by
         Affiliates  of the Company as of the date  hereof.  The Company has not
         issued any capital stock since its most recently filed periodic  report
         under the Exchange Act, other than pursuant to the exercise of employee
         stock options under the Company's  stock option plans,  the issuance of
         shares of Common Stock to employees  pursuant to the Company's employee
         stock  purchase  plan and  pursuant  to the  conversion  or exercise of
         Common  Stock  Equivalents  outstanding  as of the  date  of  the  most
         recently  filed  periodic  report under the Exchange Act. No Person has
         any right of first refusal,  preemptive right,  right of participation,
         or any similar right to participate in the transactions contemplated by
         the Transaction Documents.  Except as a result of the purchase and sale
         of the Securities,  there are no outstanding options,  warrants,  scrip
         rights  to  subscribe  to,  calls  or   commitments  of  any  character
         whatsoever   relating  to,  or   securities,   rights  or   obligations
         convertible  into or  exercisable  or  exchangeable  for, or giving any
         Person  any right to  subscribe  for or  acquire,  any shares of Common
         Stock,  or contracts,  commitments,  understandings  or arrangements by
         which the  Company or any  Subsidiary  is or may become  bound to issue
         additional  shares of Common  Stock or Common  Stock  Equivalents.  The
         issuance  and sale of the  Securities  will not obligate the Company to
         issue shares of Common Stock or other  securities  to any Person (other
         than the  Purchasers)  and will not  result in a right of any holder of
         Company  securities  to adjust the  exercise,  conversion,  exchange or
         reset price under any of such securities. All of the outstanding shares
         of capital  stock of the  Company are  validly  issued,  fully paid and
         nonassessable,  have been  issued in  compliance  with all  federal and
         state securities  laws, and none of such outstanding  shares was issued
         in violation of any  preemptive  rights or similar  rights to subscribe
         for or purchase securities. No further approval or authorization of any
         stockholder,  the  Board of  Directors  of the  Company  or  others  is
         required  for the  issuance  and sale of the  Securities.  There are no
         stockholders agreements,  voting agreements or other similar agreements
         with respect to the  Company's  capital stock to which the Company is a
         party or, to the knowledge of the Company,  between or among any of the
         Company's stockholders.

                                       10
<PAGE>

                  (h) SEC REPORTS;  FINANCIAL STATEMENTS.  The Company has filed
         all reports,  schedules, forms, statements and other documents required
         to be filed by the Company  under the  Securities  Act and the Exchange
         Act, including pursuant to Section 13(a) or 15(d) thereof,  for the two
         years  preceding the date hereof (or such shorter period as the Company
         was required by law or regulation to file such material) (the foregoing
         materials, including the exhibits thereto and documents incorporated by
         reference therein,  being  collectively  referred to herein as the "SEC
         REPORTS") on a timely  basis or has received a valid  extension of such
         time of  filing  and has  filed  any  such  SEC  Reports  prior  to the
         expiration of any such extension. As of their respective dates, the SEC
         Reports complied in all material  respects with the requirements of the
         Securities Act and the Exchange Act, as applicable, and none of the SEC
         Reports, when filed,  contained any untrue statement of a material fact
         or omitted to state a material  fact  required to be stated  therein or
         necessary in order to make the statements  therein, in the light of the
         circumstances under which they were made, not misleading. The financial
         statements  of the Company  included  in the SEC Reports  comply in all
         material respects with applicable accounting requirements and the rules
         and  regulations of the Commission with respect thereto as in effect at
         the time of filing.  Such  financial  statements  have been prepared in
         accordance with United States generally accepted accounting  principles
         applied on a  consistent  basis during the periods  involved  ("GAAP"),
         except as may ---- be otherwise specified in such financial  statements
         or the notes thereto and except that unaudited financial statements may
         not contain all footnotes  required by GAAP,  and fairly present in all
         material  respects  the  financial  position  of the  Company  and  its
         consolidated  Subsidiaries  as of and for  the  dates  thereof  and the
         results  of  operations  and cash  flows for the  periods  then  ended,
         subject, in the case of unaudited  statements,  to normal,  immaterial,
         year-end audit adjustments.

                  (i)  MATERIAL  CHANGES.  Since the date of the latest  audited
         financial  statements  included  within  the  SEC  Reports,  except  as
         specifically  disclosed in a  subsequent  SEC Report filed prior to the
         date hereof,  (i) there has been no event,  occurrence  or  development
         that has had or that  could  reasonably  be  expected  to  result  in a
         Material  Adverse  Effect,  (ii)  the  Company  has  not  incurred  any
         liabilities (contingent or otherwise) other than (A) trade payables and
         accrued expenses incurred in the ordinary course of business consistent
         with past practice and (B)  liabilities not required to be reflected in
         the  Company's  financial  statements  pursuant to GAAP or disclosed in
         filings made with the Commission, (iii) the Company has not altered its
         method of  accounting,  (iv) the Company  has not  declared or made any
         dividend or distribution of cash or other property to its  stockholders
         or purchased, redeemed or made any agreements to purchase or redeem any
         shares of its  capital  stock and (v) the  Company  has not  issued any
         equity  securities  to  any  officer,  director  or  Affiliate,  except
         pursuant to existing  Company stock option plans.  The Company does not
         have  pending  before  the  Commission  any  request  for  confidential
         treatment of  information.  Except for the  issuance of the  Securities
         contemplated by this Agreement or as set forth on SCHEDULE  3.1(I),  no
         event,  liability or development has occurred or exists with respect to
         the  Company  or  its  Subsidiaries  or  their   respective   business,
         properties,  operations or financial condition,  that would be required
         to be disclosed by the Company under applicable  securities laws at the
         time this  representation is made that has not been publicly  disclosed
         at least one Trading Day prior to the date that this  representation is
         made.

                                       11
<PAGE>

                  (j) LITIGATION.  There is no action, suit, inquiry,  notice of
         violation,  proceeding or investigation pending or, to the knowledge of
         the  Company,   threatened  against  or  affecting  the  Company,   any
         Subsidiary  or any of  their  respective  properties  before  or by any
         court, arbitrator,  governmental or administrative agency or regulatory
         authority (federal, state, county, local or foreign) (collectively,  an
         "ACTION")  which (i)  adversely  affects or  challenges  the  legality,
         validity or enforceability  of any of the Transaction  Documents or the
         Securities or (ii) could, if there were an unfavorable  decision,  have
         or  reasonably  be  expected  to result in a Material  Adverse  Effect.
         Neither  the Company nor any  Subsidiary,  nor any  director or officer
         thereof,  is or has been the subject of any Action involving a claim of
         violation of or liability  under federal or state  securities laws or a
         claim of  breach of  fiduciary  duty.  There  has not been,  and to the
         knowledge of the  Company,  there is not pending or  contemplated,  any
         investigation by the Commission involving the Company or any current or
         former  director  or officer of the  Company.  The  Commission  has not
         issued any stop order or other order  suspending the  effectiveness  of
         any registration statement filed by the Company or any Subsidiary under
         the Exchange Act or the Securities Act.

                  (k) LABOR  RELATIONS.  No material labor dispute exists or, to
         the  knowledge of the Company,  is imminent  with respect to any of the
         employees of the Company  which could  reasonably be expected to result
         in  a  Material   Adverse   Effect.   None  of  the  Company's  or  its
         Subsidiaries'  employees  is a member of a union  that  relates to such
         employee's  relationship  with the Company,  and neither the Company or
         any  of  its  Subsidiaries  is  a  party  to  a  collective  bargaining
         agreement,  and the Company  and its  Subsidiaries  believe  that their
         relationships with their employees are good. No executive  officer,  to
         the  knowledge  of the  Company,  is,  or is  now  expected  to be,  in
         violation   of  any   material   term  of  any   employment   contract,
         confidentiality,  disclosure or  proprietary  information  agreement or
         non-competition  agreement,  or any other  contract or agreement or any
         restrictive  covenant,  and  the  continued  employment  of  each  such
         executive   officer  does  not  subject  the  Company  or  any  of  its
         Subsidiaries  to any  liability  with  respect to any of the  foregoing
         matters.  The Company and its  Subsidiaries  are in compliance with all
         U.S. federal, state, local and foreign laws and regulations relating to
         employment and employment practices, terms and conditions of employment
         and wages and hours, except where the failure to be in compliance could
         not, individually or in the aggregate, reasonably be expected to have a
         Material Adverse Effect.

                  (l) COMPLIANCE.  Neither the Company nor any Subsidiary (i) is
         in default under or in violation of (and no event has occurred that has
         not been  waived  that,  with  notice  or lapse of time or both,  would
         result in a default by the Company or any  Subsidiary  under),  nor has
         the Company or any Subsidiary  received notice of a claim that it is in
         default  under or that it is in violation  of, any  indenture,  loan or
         credit  agreement or any other agreement or instrument to which it is a
         party or by which it or any of its  properties is bound (whether or not
         such default or violation has been waived), (ii) is in violation of any
         order of any court, arbitrator or governmental body, or (iii) is or has
         been  in  violation  of  any  statute,   rule  or   regulation  of  any
         governmental  authority,  including  without  limitation  all  foreign,
         federal,  state and local laws  applicable to its business and all such
         laws that affect the environment, except in each case as could not have
         or reasonably be expected to result in a Material Adverse Effect.

                                       12
<PAGE>

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

                  (n) TITLE TO ASSETS.  The  Company and the  Subsidiaries  have
         good and  marketable  title in fee simple to all real property owned by
         them  that  is  material  to  the  business  of  the  Company  and  the
         Subsidiaries  and good and  marketable  title in all personal  property
         owned by them that is material  to the  business of the Company and the
         Subsidiaries,  in each  case free and clear of all  Liens,  except  for
         Liens as do not materially affect the value of such property and do not
         materially  interfere with the use made and proposed to be made of such
         property by the Company and the  Subsidiaries and Liens for the payment
         of  federal,  state or other  taxes,  the  payment  of which is neither
         delinquent  nor subject to penalties.  Any real property and facilities
         held under lease by the Company and the  Subsidiaries  are held by them
         under valid,  subsisting and enforceable  leases with which the Company
         and the Subsidiaries are in compliance.

                  (o) PATENTS AND TRADEMARKS.  The Company and the  Subsidiaries
         have,  or  have  rights  to  use,  all  patents,  patent  applications,
         trademarks,  trademark applications,  service marks, trade names, trade
         secrets,  inventions,   copyrights,  licenses  and  other  intellectual
         property  rights and similar  rights  necessary  or material for use in
         connection  with their  respective  businesses  as described in the SEC
         Reports and which the failure to so have could have a Material  Adverse
         Effect (collectively,  the "INTELLECTUAL PROPERTY RIGHTS"). Neither the
         Company nor any Subsidiary has received a notice (written or otherwise)
         that  the  Intellectual  Property  Rights  used by the  Company  or any
         Subsidiary  violates or infringes upon the rights of any Person. To the
         knowledge of the Company,  all such  Intellectual  Property  Rights are
         enforceable and there is no existing  infringement by another Person of
         any  of  the  Intellectual   Property  Rights.   The  Company  and  its
         Subsidiaries  have taken  reasonable  security  measures to protect the
         secrecy,  confidentiality  and  value  of  all  of  their  intellectual
         properties, except where failure to do so could not, individually or in
         the  aggregate,  reasonably  be  expected  to have a  Material  Adverse
         Effect.

                                       13
<PAGE>

                  (p) INSURANCE. The Company and the Subsidiaries are insured by
         insurers of recognized financial responsibility against such losses and
         risks  and  in  such  amounts  as  are  prudent  and  customary  in the
         businesses  in which the  Company  and the  Subsidiaries  are  engaged,
         including,  but  not  limited  to,  directors  and  officers  insurance
         coverage at least equal to the aggregate  Subscription Amount.  Neither
         the Company nor any  Subsidiary  has any reason to believe that it will
         not be able to renew its existing  insurance  coverage as and when such
         coverage expires or to obtain similar coverage from similar insurers as
         may be  necessary  to  continue  its  business  without  a  significant
         increase in cost.

                  (q) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES.  Except as set
         forth in the SEC  Reports,  none of the  officers or  directors  of the
         Company and, to the knowledge of the Company,  none of the employees of
         the Company is presently a party to any transaction with the Company or
         any  Subsidiary  (other than for  services as  employees,  officers and
         directors),  including  any  contract,  agreement or other  arrangement
         providing for the furnishing of services to or by, providing for rental
         of real  or  personal  property  to or  from,  or  otherwise  requiring
         payments to or from any officer,  director or such  employee or, to the
         knowledge of the Company, any entity in which any officer, director, or
         any  such  employee  has a  substantial  interest  or  is  an  officer,
         director,  trustee or partner,  in each case in excess of $60,000 other
         than  for (i)  payment  of  salary  or  consulting  fees  for  services
         rendered,  (ii)  reimbursement  for expenses  incurred on behalf of the
         Company and (iii)  other  employee  benefits,  including  stock  option
         agreements under any stock option plan of the Company.

                  (r) SARBANES-OXLEY;  INTERNAL ACCOUNTING CONTROLS. The Company
         is in material compliance with all provisions of the Sarbanes-Oxley Act
         of 2002 which are  applicable to it as of the Closing Date. The Company
         and the Subsidiaries  maintain a system of internal accounting controls
         sufficient to provide  reasonable  assurance that (i)  transactions are
         executed  in   accordance   with   management's   general  or  specific
         authorizations,  (ii)  transactions are recorded as necessary to permit
         preparation  of financial  statements  in  conformity  with GAAP and to
         maintain asset accountability, (iii) access to assets is permitted only
         in accordance with management's general or specific authorization,  and
         (iv) the  recorded  accountability  for  assets  is  compared  with the
         existing assets at reasonable intervals and appropriate action is taken
         with respect to any differences. The Company has established disclosure
         controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
         15d-15(e))  for the Company and designed such  disclosure  controls and
         procedures to ensure that  information  required to be disclosed by the
         Company in the reports it files or submits  under the  Exchange  Act is
         recorded,  processed,  summarized and reported, within the time periods
         specified in the Commission's rules and forms. The Company's certifying
         officers have evaluated the  effectiveness of the Company's  disclosure
         controls  and  procedures  as of the end of the  period  covered by the
         Company's most recently  filed  periodic  report under the Exchange Act
         (such date, the "EVALUATION  DATE").  The Company presented in its most
         recently filed periodic  report under the Exchange Act the  conclusions
         of the certifying  officers about the  effectiveness  of the disclosure
         controls and procedures based on their evaluations as of the Evaluation
         Date.  Since the  Evaluation  Date,  there  have been no changes in the
         Company's  internal  control over financial  reporting (as such term is
         defined  in the  Exchange  Act)  that has  materially  affected,  or is
         reasonably likely to materially  affect, the Company's internal control
         over financial reporting.

                                       14
<PAGE>

                  (s) CERTAIN FEES. No brokerage or finder's fees or commissions
         are or will be payable by the Company to any broker,  financial advisor
         or consultant,  finder,  placement agent,  investment  banker,  bank or
         other  Person  with  respect to the  transactions  contemplated  by the
         Transaction  Documents.  The Purchasers  shall have no obligation  with
         respect to any fees or with  respect to any claims made by or on behalf
         of other Persons for fees of a type  contemplated  in this Section that
         may be due in  connection  with the  transactions  contemplated  by the
         Transaction Documents.

                  (t)  PRIVATE   PLACEMENT.   Assuming   the   accuracy  of  the
         Purchasers' representations and warranties set forth in Section 3.2, no
         registration  under the  Securities  Act is required  for the offer and
         sale of the Securities by the Company to the Purchasers as contemplated
         hereby.  The issuance  and sale of the  Securities  hereunder  does not
         contravene the rules and regulations of the Trading Market.

                  (u)  INVESTMENT  COMPANY.  The  Company is not,  and is not an
         Affiliate  of,  and  immediately  after  receipt  of  payment  for  the
         Securities,  will not be or be an Affiliate of, an "investment company"
         within the meaning of the  Investment  Company Act of 1940, as amended.
         The Company  shall conduct its business in a manner so that it will not
         become subject to the Investment Company Act of 1940, as amended.

                  (v) REGISTRATION RIGHTS. Other than each of the Purchasers, no
         Person has any right to cause the  Company  to effect the  registration
         under the Securities Act of any securities of the Company.

                  (w) LISTING AND MAINTENANCE REQUIREMENTS. The Company's Common
         Stock is registered  pursuant to Section 12(b) or 12(g) of the Exchange
         Act,  and the Company has taken no action  designed to, or which to its
         knowledge is likely to have the effect of, terminating the registration
         of the Common Stock under the Exchange Act nor has the Company received
         any notification that the Commission is contemplating  terminating such
         registration.  The Company has not, in the 12 months preceding the date
         hereof,  received  notice from any  Trading  Market on which the Common
         Stock is or has been listed or quoted to the effect that the Company is
         not in compliance with the listing or maintenance  requirements of such
         Trading  Market.  The Company is, and has no reason to believe  that it
         will not in the  foreseeable  future continue to be, in compliance with
         all such  listing and  maintenance  requirements.  (x)  APPLICATION  OF
         TAKEOVER PROTECTIONS. The Company and its board of directors have taken
         all  necessary  action,  if any,  in order to render  inapplicable  any
         control share acquisition, business combination, poison pill (including
         any   distribution   under  a  rights   agreement)   or  other  similar
         anti-takeover    provision   under   the   Company's   certificate   of
         incorporation  (or similar charter  documents) or the laws of its state
         of incorporation  that is or could become  applicable to the Purchasers
         as a  result  of  the  Purchasers  and  the  Company  fulfilling  their
         obligations or exercising their rights under the Transaction Documents,
         including without  limitation as a result of the Company's  issuance of
         the Securities and the Purchasers' ownership of the Securities.

                                       15
<PAGE>

                  (y) DISCLOSURE.  Except with respect to the material terms and
         conditions  of  the   transactions   contemplated  by  the  Transaction
         Documents,  the Company  confirms  that neither it nor any other Person
         acting on its behalf has provided any of the Purchasers or their agents
         or counsel with any information  that it believes  constitutes or might
         constitute material, nonpublic information. The Company understands and
         confirms that the Purchasers will rely on the foregoing  representation
         in effecting  transactions in securities of the Company. All disclosure
         furnished  by or on behalf of the Company to the  Purchasers  regarding
         the Company,  its business and the  transactions  contemplated  hereby,
         including  the  Disclosure  Schedules  to this  Agreement,  is true and
         correct and does not contain any untrue statement of a material fact or
         omit to  state  any  material  fact  necessary  in  order  to make  the
         statements made therein, in light of the circumstances under which they
         were made,  not  misleading.  The press  releases  disseminated  by the
         Company  during the twelve months  preceding the date of this Agreement
         taken as a whole do not contain any untrue statement of a material fact
         or omit to state a  material  fact  required  to be stated  therein  or
         necessary   in  order  to  make  the   statements,   in  light  of  the
         circumstances under which they were made and when made, not misleading.
         The Company acknowledges and agrees that no Purchaser makes or has made
         any  representations  or  warranties  with respect to the  transactions
         contemplated  hereby other than those specifically set forth in Section
         3.2 hereof.

                  (z) NO  INTEGRATED  OFFERING.  Assuming  the  accuracy  of the
         Purchasers'  representations  and  warranties set forth in Section 3.2,
         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 the Securities to
         be integrated  with prior  offerings by the Company for purposes of the
         Securities Act or any applicable  shareholder approval provision of any
         Trading Market on which any of the securities of the Company are listed
         or designated.

                  (aa) SOLVENCY. Based on the financial condition of the Company
         as of the  Closing  Date  after  giving  effect to the  receipt  by the
         Company of the proceeds from the sale of the Securities hereunder,  (i)
         the fair saleable value of the Company's assets exceeds the amount that
         will be required to be paid on or in respect of the Company's  existing
         debts and other liabilities (including known contingent liabilities) as
         they mature;  (ii) the Company's assets do not constitute  unreasonably
         small capital to carry on its business as now conducted and as proposed
         to be  conducted  including  its capital  needs taking into account the
         particular  capital  requirements  of  the  business  conducted  by the
         Company,  and projected capital  requirements and capital  availability
         thereof; and (iii) the current cash flow of the Company,  together with
         the proceeds the Company would receive, were it to liquidate all of its
         assets,  after  taking into account all  anticipated  uses of the cash,
         would  be  sufficient  to  pay  all  amounts  on or in  respect  of its
         liabilities when such amounts are required to be paid. The Company does
         not intend to incur debts  beyond its ability to pay such debts as they
         mature  (taking  into  account  the  timing  and  amounts of cash to be
         payable on or in respect of its debt).  The Company has no knowledge of
         any facts or  circumstances  which lead it to believe that it will file
         for   reorganization   or   liquidation   under   the   bankruptcy   or
         reorganization  laws of any  jurisdiction  within  one  year  from  the
         Closing Date.  SCHEDULE  3.1(AA) sets forth as of the dates thereof all
         outstanding  secured and unsecured  Indebtedness  of the Company or any
         Subsidiary, or for which the Company or any Subsidiary has commitments.
         For  the  purposes  of this  Agreement,  "INDEBTEDNESS"  means  (a) any
         liabilities  for  borrowed  money or amounts  owed in excess of $50,000
         (other than trade accounts  payable  incurred in the ordinary course of
         business),  (b)  all  guaranties,  endorsements  and  other  contingent
         obligations in respect of  Indebtedness  of others,  whether or not the
         same are or should be reflected in the Company's  balance sheet (or the
         notes  thereto),   except   guaranties  by  endorsement  of  negotiable
         instruments  for deposit or collection or similar  transactions  in the
         ordinary  course of  business;  and (c) the present  value of any lease
         payments  in  excess  of  $50,000  due  under  leases  required  to  be
         capitalized  in  accordance  with GAAP.  Neither  the  Company  nor any
         Subsidiary is in default with respect to any Indebtedness.

                                       16
<PAGE>

                  (bb)  TAX  STATUS.   Except  for   matters   that  would  not,
         individually  or in the  aggregate,  have or  reasonably be expected to
         result in a Material  Adverse  Effect,  the Company and each Subsidiary
         has filed all necessary federal, state and foreign income and franchise
         tax returns and has paid or accrued all taxes shown as due thereon, and
         the  Company  has no  knowledge  of a tax  deficiency  which  has  been
         asserted or threatened against the Company or any Subsidiary.

                  (cc) NO GENERAL  SOLICITATION.  Neither  the  Company  nor any
         person  acting on behalf of the  Company has offered or sold any of the
         Securities by any form of general  solicitation or general advertising.
         The Company has offered the  Securities for sale only to the Purchasers
         and certain other "accredited investors" within the meaning of Rule 501
         under the Securities Act.

                  (dd) FOREIGN CORRUPT  PRACTICES.  Neither the Company,  nor to
         the  knowledge  of the  Company,  any agent or other  person  acting on
         behalf of the Company,  has (i) directly or indirectly,  used any funds
         for unlawful  contributions,  gifts,  entertainment  or other  unlawful
         expenses related to foreign or domestic political  activity,  (ii) made
         any  unlawful  payment to foreign or domestic  government  officials or
         employees or to any foreign or domestic  political parties or campaigns
         from corporate  funds,  (iii) failed to disclose fully any contribution
         made by the  Company  (or made by any  person  acting on its  behalf of
         which the  Company  is aware)  which is in  violation  of law,  or (iv)
         violated in any material  respect any provision of the Foreign  Corrupt
         Practices Act of 1977, as amended.

                  (ee) ACCOUNTANTS.  The Company's  accounting firm is set forth
         on SCHEDULE  3.1(EE) of the Disclosure  Schedule.  To the knowledge and
         belief of the Company,  such accounting firm (i) is a registered public
         accounting  firm as required by the Exchange Act and (ii) shall express
         its opinion with respect to the financial  statements to be included in
         the Company's Annual Report on Form 10-KSB for the year ended September
         30, 2007.

                                       17
<PAGE>

                  (ff)  SENIORITY.  As of the Closing Date, no  Indebtedness  or
         other claim against the Company is senior to the Debentures in right of
         payment,  whether  with  respect to  interest  or upon  liquidation  or
         dissolution,  or otherwise, other than indebtedness secured by purchase
         money security  interests (which is senior only as to underlying assets
         covered thereby) and capital lease obligations (which is senior only as
         to the property covered thereby).

                  (gg) NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS.  There are
         no  disagreements  of  any  kind  presently  existing,   or  reasonably
         anticipated  by the  Company  to arise,  between  the  Company  and the
         accountants and lawyers  formerly or presently  employed by the Company
         and the  Company  is  current  with  respect  to any  fees  owed to its
         accountants and lawyers.

                  (hh)   ACKNOWLEDGMENT   REGARDING   PURCHASERS'   PURCHASE  OF
         SECURITIES.  The  Company  acknowledges  and  agrees  that  each of the
         Purchasers  is  acting  solely  in  the  capacity  of an  arm's  length
         purchaser   with  respect  to  the   Transaction   Documents   and  the
         transactions  contemplated  thereby.  The Company further  acknowledges
         that no Purchaser is acting as a financial  advisor or fiduciary of the
         Company (or in any similar  capacity)  with respect to the  Transaction
         Documents  and the  transactions  contemplated  thereby  and any advice
         given by any Purchaser or any of their  respective  representatives  or
         agents  in   connection   with  the   Transaction   Documents  and  the
         transactions   contemplated   thereby  is  merely   incidental  to  the
         Purchasers' purchase of the Securities.  The Company further represents
         to each  Purchaser  that the  Company's  decision  to enter  into  this
         Agreement and the other Transaction  Documents has been based solely on
         the independent  evaluation of the transactions  contemplated hereby by
         the Company and its representatives.

                  (ii)  ACKNOWLEDGMENT  REGARDING  PURCHASERS' TRADING ACTIVITY.
         Anything  in  this  Agreement  or  elsewhere  herein  to  the  contrary
         notwithstanding  (except for Sections  3.2(f) and 4.16  hereof),  it is
         understood  and  acknowledged  by the  Company  (i)  that  none  of the
         Purchasers have been asked to agree, nor has any Purchaser  agreed,  to
         desist from purchasing or selling, long and/or short, securities of the
         Company,  or "derivative"  securities based on securities issued by the
         Company or to hold the  Securities  for any specified  term;  (ii) that
         past or future  open  market or other  transactions  by any  Purchaser,
         including Short Sales, and specifically including,  without limitation,
         Short Sales or "derivative"  transactions,  before or after the closing
         of this or future private placement transactions, may negatively impact
         the market price of the  Company's  publicly-traded  securities;  (iii)
         that any Purchaser, and counter-parties in "derivative" transactions to
         which any such Purchaser is a party, directly or indirectly,  presently
         may have a "short"  position  in the Common  Stock,  and (iv) that each
         Purchaser shall not be deemed to have any  affiliation  with or control
         over any arm's length  counter-party in any  "derivative"  transaction.
         The Company further  understands and acknowledges  that (a) one or more
         Purchasers may engage in hedging activities at various times during the
         period  that  the  Securities  are  outstanding,   including,   without
         limitation,  during the periods  that the value of the  Warrant  Shares
         deliverable  with respect to Securities  are being  determined  and (b)
         such hedging activities (if any) could reduce the value of the existing
         stockholders'  equity  interests  in the  Company at and after the time
         that  the  hedging   activities  are  being   conducted.   The  Company
         acknowledges  that  such  aforementioned   hedging  activities  do  not
         constitute a breach of any of the Transaction Documents.

                                       18
<PAGE>

                  (jj) REGULATION M COMPLIANCE.  The Company has not, and to its
         knowledge  no one acting on its behalf  has,  (i)  taken,  directly  or
         indirectly,   any  action  designed  to  cause  or  to  result  in  the
         stabilization  or  manipulation  of the  price of any  security  of the
         Company to facilitate the sale or resale of any of the Securities, (ii)
         sold,  bid for,  purchased,  or paid any  compensation  for  soliciting
         purchases  of, any of the  securities  of the  Company or (iii) paid or
         agreed to pay to any Person any compensation for soliciting  another to
         purchase any other  securities of the Company,  other than, in the case
         of clauses (ii) and (iii), compensation paid to the Company's placement
         agent in connection with the placement of the Securities.

                  (kk) FDA. As to each product  subject to the  jurisdiction  of
         the U.S. Food and Drug  Administration  ("FDA") under the Federal Food,
         Drug and  Cosmetic  Act, as  amended,  and the  regulations  thereunder
         ("FDCA") that is manufactured,  packaged, labeled, tested, distributed,
         sold,  and/or marketed by the Company or any of its Subsidiaries  (each
         such product, a "Pharmaceutical  Product"), such Pharmaceutical Product
         is being manufactured,  packaged,  labeled, tested,  distributed,  sold
         and/or  marketed  by the  Company  in  compliance  with all  applicable
         requirements  under  FDCA  and  similar  laws,  rules  and  regulations
         relating to registration,  investigational  use,  premarket  clearance,
         licensure, or application approval, good manufacturing practices,  good
         laboratory practices, good clinical practices, product listing, quotas,
         labeling,  advertising,  record  keeping and filing of reports,  except
         where the failure to be in compliance would not have a Material Adverse
         Effect. There is no pending,  completed or, to the Company's knowledge,
         threatened,  action  (including any lawsuit,  arbitration,  or legal or
         administrative  or  regulatory  proceeding,   charge,   complaint,   or
         investigation) against the Company or any of its Subsidiaries, and none
         of the  Company or any of its  Subsidiaries  has  received  any notice,
         warning  letter  or  other  communication  from  the  FDA or any  other
         governmental  entity,  which  (i)  contests  the  premarket  clearance,
         licensure,  registration, or approval of, the uses of, the distribution
         of, the  manufacturing or packaging of, the testing of, the sale of, or
         the  labeling  and  promotion  of  any  Pharmaceutical   Product,  (ii)
         withdraws its approval of, requests the recall,  suspension, or seizure
         of, or  withdraws  or orders the  withdrawal  of  advertising  or sales
         promotional  materials relating to, any Pharmaceutical  Product,  (iii)
         imposes a clinical hold on any clinical investigation by the Company or
         any of its Subsidiaries, (iv) enjoins production at any facility of the
         Company or any of its  Subsidiaries,  (v) enters or  proposes  to enter
         into a consent decree of permanent  injunction  with the Company or any
         of its  Subsidiaries,  or (vi)  otherwise  alleges any violation of any
         laws,  rules or regulations by the Company or any of its  Subsidiaries,
         and  which,  either  individually  or in the  aggregate,  would  have a
         Material Adverse Effect. The properties, business and operations of the
         Company have been and are being  conducted in all material  respects in
         accordance with all applicable  laws, rules and regulations of the FDA.
         The Company has not been informed by the FDA that the FDA will prohibit
         the marketing, sale, license or use in the United States of any product
         proposed to be  developed,  produced or marketed by the Company nor has
         the FDA expressed any concern as to approving or clearing for marketing
         any product being developed or proposed to be developed by the Company.

                                       19
<PAGE>

                  (ll)  ACKNOWLEDGEMENT  REGARDING  ANTI-DILUTION  ADJUSTMENT TO
         PRIOR DEBENTURES AND WARRANTS. The Company acknowledges and agrees that
         (a) as a result of the issuances pursuant to this Agreement,  the Prior
         Debentures  and  Warrants  held by each  Purchaser  are  subject  to an
         immediate  adjustment  pursuant  to  the  terms  of  the  anti-dilution
         provisions in such Prior Debentures and Warrants and (b) the conversion
         price and exercise  price, as applicable,  of the Prior  Debentures and
         Warrants shall be $0.28.

         3.2  REPRESENTATIONS  AND WARRANTIES OF THE PURCHASERS.  Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:

                  (a) ORGANIZATION;  AUTHORITY. Such Purchaser is an entity duly
         organized,  validly existing and in good standing under the laws of the
         jurisdiction  of  its  organization  with  full  right,   corporate  or
         partnership  power and  authority to enter into and to  consummate  the
         transactions contemplated by the Transaction Documents and otherwise to
         carry out its  obligations  hereunder and  thereunder.  The  execution,
         delivery  and  performance  by  such  Purchaser  of  the   transactions
         contemplated  by  this  Agreement  have  been  duly  authorized  by all
         necessary  corporate or similar  action on the part of such  Purchaser.
         Each Transaction Document to which it is a party has been duly executed
         by such  Purchaser,  and when delivered by such Purchaser in accordance
         with the terms hereof,  will  constitute the valid and legally  binding
         obligation of such Purchaser, enforceable against it in accordance with
         its terms,  except (i) as limited by general  equitable  principles and
         applicable bankruptcy, insolvency, reorganization, moratorium and other
         laws of general application  affecting enforcement of creditors' rights
         generally,  (ii) as limited by laws  relating  to the  availability  of
         specific performance, injunctive relief or other equitable remedies and
         (iii) insofar as  indemnification  and  contribution  provisions may be
         limited by applicable law.

                  (b)  OWN  ACCOUNT.   Such  Purchaser   understands   that  the
         Securities are  "restricted  securities"  and have not been  registered
         under the Securities Act or any applicable  state securities law and is
         acquiring the  Securities as principal for its own account and not with
         a view to or for  distributing or reselling such Securities or any part
         thereof in  violation of the  Securities  Act or any  applicable  state
         securities law, has no present  intention of  distributing  any of such
         Securities in violation of the Securities  Act or any applicable  state
         securities   law  and  has  no  direct  or  indirect   arrangement   or
         understandings  with any other  persons to  distribute or regarding the
         distribution of such Securities (this  representation  and warranty not
         limiting such Purchaser's right to sell the Securities  pursuant to the
         Registration  Statement  or  otherwise in  compliance  with  applicable
         federal and state  securities  laws) in violation of the Securities Act
         or any applicable state securities law. Such Purchaser is acquiring the
         Securities hereunder in the ordinary course of its business.

                                       20
<PAGE>

                  (c) PURCHASER  STATUS.  At the time such Purchaser was offered
         the Securities,  it was, and at the date hereof it is, and on each date
         on which it exercises  any Warrants or converts any  Debentures it will
         be either:  (i) an "accredited  investor" as defined in Rule 501(a)(1),
         (a)(2),  (a)(3),  (a)(7) or (a)(8) under the  Securities  Act or (ii) a
         "qualified  institutional  buyer" as defined in Rule 144A(a)  under the
         Securities  Act.  Such  Purchaser is not required to be registered as a
         broker-dealer under Section 15 of the Exchange Act.

                  (d) EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either alone
         or   together   with   its   representatives,   has   such   knowledge,
         sophistication  and experience in business and financial  matters so as
         to be capable  of  evaluating  the merits and risks of the  prospective
         investment in the Securities, and has so evaluated the merits and risks
         of such investment. Such Purchaser is able to bear the economic risk of
         an  investment in the  Securities  and, at the present time, is able to
         afford a complete loss of such investment.

                  (e) GENERAL SOLICITATION. Such Purchaser is not purchasing the
         Securities as a result of any advertisement,  article,  notice or other
         communication  regarding  the  Securities  published in any  newspaper,
         magazine or similar  media or  broadcast  over  television  or radio or
         presented at any seminar or any other general  solicitation  or general
         advertisement.

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

                                       21
<PAGE>

                                  ARTICLE IV.
                         OTHER AGREEMENTS OF THE PARTIES

         4.1 TRANSFER RESTRICTIONS.

         (a) The Securities may only be disposed of in compliance with state and
federal  securities  laws. In connection  with any transfer of Securities  other
than pursuant to an effective registration statement or Rule 144, to the Company
or to an Affiliate of a Purchaser or in connection with a pledge as contemplated
in Section 4.1(b),  the Company may require the transferor thereof to provide to
the Company an opinion of counsel  selected  by the  transferor  and  reasonably
acceptable  to the Company,  the form and  substance of which  opinion  shall be
reasonably  satisfactory  to the Company,  to the effect that such transfer does
not require  registration of such  transferred  Securities  under the Securities
Act. As a condition of transfer,  any such transferee  shall agree in writing to
be bound by the terms of this Agreement and shall have the rights of a Purchaser
under this Agreement and the Registration Rights Agreement.

         (b) The Purchasers  agree to the imprinting,  so long as is required by
this Section 4.1, of a legend on the Warrant in the following form:

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

         The Company  acknowledges  and agrees that a Purchaser may from time to
time  pledge  pursuant  to a  bona  fide  margin  agreement  with  a  registered
broker-dealer or grant a security interest in some or all of the Securities to a
financial institution that is an "accredited investor" as defined in Rule 501(a)
under the  Securities  Act and who agrees to be bound by the  provisions of this
Agreement and the Registration Rights Agreement and, if required under the terms
of such arrangement,  such Purchaser may transfer pledged or secured  Securities
to the  pledgees  or secured  parties.  Such a pledge or  transfer  would not be
subject to approval of the Company and no legal  opinion of legal counsel of the
pledgee,  secured party or pledgor  shall be required in  connection  therewith.
Further,  no  notice  shall  be  required  of such  pledge.  At the  appropriate
Purchaser's  expense,  the Company  will  execute and  deliver  such  reasonable
documentation as a pledgee or secured party of Securities may reasonably request
in connection  with a pledge or transfer of the  Securities,  including,  if the
Securities  are  subject to  registration  pursuant to the  Registration  Rights
Agreement,  the  preparation  and filing of any required  prospectus  supplement
under Rule 424(b)(3) under the Securities Act or other  applicable  provision of
the  Securities  Act to  appropriately  amend the list of  Selling  Stockholders
thereunder.

                                       22
<PAGE>

         (c)  Certificates  evidencing  the Warrant Shares shall not contain any
legend  (including the legend set forth in Section 4.1(b)  hereof):  (i) while a
registration  statement  (including  the  Registration  Statement)  covering the
resale of such security is effective under the Securities Act, or (ii) following
any sale of such Warrant  Shares  pursuant to Rule 144, or (iii) if such Warrant
Shares are eligible  for sale under Rule  144(k),  or (iv) if such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements  issued by the staff of the Commission).  The
Company shall cause its counsel to issue a legal  opinion to the Transfer  Agent
promptly  after the Effective  Date if required by the Transfer  Agent to effect
the removal of the legend  hereunder.  If all or any  portion of a Debenture  or
Warrant is  converted or exercised  (as  applicable)  at a time when there is an
effective  registration  statement to cover the resale of the Warrant Shares, or
if such  Warrant  Shares may be sold under Rule  144(k) or if such legend is not
otherwise   required  under  applicable   requirements  of  the  Securities  Act
(including judicial  interpretations  and pronouncements  issued by the staff of
the  Commission)  then such Warrant  Shares shall be issued free of all legends.
The Company  agrees that  following the  Effective  Date or at such time as such
legend is no longer required under this Section  4.1(c),  it will, no later than
three  Trading Days  following the delivery by a Purchaser to the Company or the
Transfer  Agent of a certificate  representing  Warrant  Shares,  as applicable,
issued with a restrictive  legend (such third  Trading Day, the "LEGEND  REMOVAL
DATE"),  deliver  or cause  to be  delivered  to such  Purchaser  a  certificate
representing  such shares that is free from all  restrictive  and other legends.
The Company may not make any notation on its records or give instructions to the
Transfer  Agent that  enlarge the  restrictions  on  transfer  set forth in this
Section.  Certificates  for Warrant Shares  subject to legend removal  hereunder
shall be  transmitted  by the Transfer  Agent to the Purchasers by crediting the
account of the  Purchaser's  prime  broker  with the  Depository  Trust  Company
System.

         (d) In addition  to such  Purchaser's  other  available  remedies,  the
Company shall pay to a Purchaser, in cash, as partial liquidated damages and not
as a penalty, for each $1,000 of Warrant Shares (based on the VWAP of the Common
Stock on the date such Securities are submitted to the Transfer Agent) delivered
for removal of the  restrictive  legend and subject to Section  4.1(c),  $10 per
Trading Day (increasing to $20 per Trading Day 5 Trading Days after such damages
have begun to accrue) for each  Trading Day after the Legend  Removal Date until
such certificate is delivered without a legend.  Nothing herein shall limit such
Purchaser's  right to pursue actual damages for the Company's failure to deliver
certificates   representing  any  Securities  as  required  by  the  Transaction
Documents,  and such  Purchaser  shall  have the  right to pursue  all  remedies
available to it at law or in equity including,  without limitation,  a decree of
specific performance and/or injunctive relief.

         (e)  Each   Purchaser,   severally  and  not  jointly  with  the  other
Purchasers,  agrees that the removal of the restrictive legend from certificates
representing  Securities as set forth in this Section 4.1 is predicated upon the
Company's  reliance  that the  Purchaser  will sell any  Securities  pursuant to
either the  registration  requirements  of the  Securities  Act,  including  any
applicable prospectus delivery requirements, or an exemption therefrom, and that
if Securities are sold pursuant to a Registration  Statement,  they will be sold
in compliance with the plan of distribution set forth therein.

                                       23
<PAGE>

         4.2  ACKNOWLEDGMENT  OF  DILUTION.  The Company  acknowledges  that the
issuance of the Securities may result in dilution of the  outstanding  shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company  further  acknowledges  that its  obligations  under the Transaction
Documents,  including  without  limitation  its  obligation to issue the Warrant
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not  subject  to any  right  of  set  off,  counterclaim,  delay  or  reduction,
regardless  of the effect of any such dilution or any claim the Company may have
against any Purchaser and  regardless of the dilutive  effect that such issuance
may have on the ownership of the other stockholders of the Company.

         4.3  FURNISHING  OF   INFORMATION.   As  long  as  any  Purchaser  owns
Securities,  the  Company  covenants  to timely  file (or obtain  extensions  in
respect  thereof  and file  within the  applicable  grace  period)  all  reports
required  to be filed by the  Company  after  the date  hereof  pursuant  to the
Exchange Act. As long as any Purchaser  owns  Securities,  if the Company is not
required to file  reports  pursuant  to the  Exchange  Act, it will  prepare and
furnish to the  Purchasers and make publicly  available in accordance  with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144.  The Company  further  covenants  that it will take such further
action  as any  holder of  Securities  may  reasonably  request,  to the  extent
required from time to time to enable such Person to sell such Securities without
registration  under the Securities Act within the  requirements of the exemption
provided by Rule 144.

         4.4 INTEGRATION.  The Company shall not sell, offer for sale or solicit
offers to buy or  otherwise  negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the  Securities  in a manner that would  require the  registration  under the
Securities  Act of the sale of the Securities to the Purchasers or that would be
integrated  with the offer or sale of the  Securities  for purposes of the rules
and regulations of any Trading Market.

         4.5 EXERCISE PROCEDURE.  The form of Notice of Exercise included in the
Warrants sets forth the totality of the procedures required of the Purchasers in
order to exercise the Warrants. No additional legal opinion or other information
or instructions  shall be required of the Purchasers to exercise their Warrants.
The Company  shall honor  exercises of the Warrants  and shall  deliver  Warrant
Shares in accordance  with the terms,  conditions  and time periods set forth in
the Transaction Documents.

         4.6 SECURITIES LAWS DISCLOSURE;  PUBLICITY.  The Company shall, by 8:30
a.m. New York City time on the Trading Day  following  the date hereof,  issue a
Current Report on Form 8-K  disclosing  the material  terms of the  transactions
contemplated hereby and attaching the Transaction Documents thereto. The Company
and each  Purchaser  shall  consult  with each other in issuing  any other press
releases with respect to the transactions  contemplated  hereby, and neither the
Company nor any Purchaser  shall issue any such press release or otherwise  make
any such public statement without the prior consent of the Company, with respect
to any press  release of any  Purchaser,  or without  the prior  consent of each
Purchaser, with respect to any press release of the Company, which consent shall
not  unreasonably be withheld or delayed,  except if such disclosure is required
by law,  in which case the  disclosing  party shall  promptly  provide the other
party  with  prior   notice  of  such   public   statement   or   communication.
Notwithstanding the foregoing,  the Company shall not publicly disclose the name
of any  Purchaser,  or include the name of any  Purchaser in any filing with the
Commission or any regulatory agency or Trading Market, without the prior written
consent of such Purchaser,  except (i) as required by federal  securities law in
connection with (A) any registration  statement contemplated by the Registration
Rights Agreement and (B) the filing of final  Transaction  Documents  (including
signature  pages  thereto)  with  the  Commission  and (ii) to the  extent  such
disclosure is required by law or Trading Market  regulations,  in which case the
Company  shall  provide  the  Purchasers  with prior  notice of such  disclosure
permitted under this subclause (ii).

                                       24
<PAGE>

         4.7  SHAREHOLDER  RIGHTS PLAN. No claim will be made or enforced by the
Company  or,  with the  consent  of the  Company,  any  other  Person,  that any
Purchaser is an "Acquiring Person" under any control share acquisition, business
combination,  poison pill (including any distribution  under a rights agreement)
or similar  anti-takeover  plan or arrangement in effect or hereafter adopted by
the Company,  or that any Purchaser could be deemed to trigger the provisions of
any such  plan or  arrangement,  by  virtue of  receiving  Securities  under the
Transaction  Documents or under any other agreement  between the Company and the
Purchasers.

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

         4.9 USE OF  PROCEEDS.  Except as set  forth on  SCHEDULE  4.9  attached
hereto,  the Company shall use the net proceeds from the sale of the  Securities
hereunder  first,  as to  $150,000  of  such  proceeds,  to meet  the  Company's
obligations set forth in Section 4.19 and then for working capital  purposes and
shall not use such proceeds for the satisfaction of any portion of the Company's
debt  (other  than  payment  of trade  payables  in the  ordinary  course of the
Company's business and prior practices), or to redeem any Common Stock or Common
Stock Equivalents or to settle any outstanding litigation.

         4.10  REIMBURSEMENT.  If any Purchaser becomes involved in any capacity
in any  Proceeding by or against any Person who is a stockholder  of the Company
(except as a result of sales, pledges,  margin sales and similar transactions by
such  Purchaser  to or with any other  stockholder),  solely as a result of such
Purchaser's acquisition of the Securities under this Agreement, the Company will
reimburse such Purchaser for its reasonable legal and other expenses  (including
the cost of any  investigation  preparation and travel in connection  therewith)
incurred  in  connection   therewith,   as  such  expenses  are  incurred.   The
reimbursement  obligations  of the  Company  under  this  paragraph  shall be in
addition to any  liability  which the Company may otherwise  have,  shall extend
upon the same terms and  conditions to any  Affiliates of the Purchasers who are
actually  named in such  action,  proceeding  or  investigation,  and  partners,
directors,  agents,  employees and controlling persons (if any), as the case may
be, of the  Purchasers  and any such  Affiliate,  and shall be binding  upon and
inure  to  the  benefit  of  any   successors,   assigns,   heirs  and  personal
representatives  of the Company,  the  Purchasers and any such Affiliate and any
such Person.  The Company also agrees that neither the  Purchasers  nor any such
Affiliates,  partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company  solely as a result of acquiring  the  Securities  under
this Agreement.

                                       25
<PAGE>

         4.11  INDEMNIFICATION OF PURCHASERS.  Subject to the provisions of this
Section  4.11,  the  Company  will  indemnify  and hold each  Purchaser  and its
directors, officers, shareholders,  members, partners, employees and agents (and
any other Persons with a functionally  equivalent  role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser  (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers,  shareholders,
agents,   members,   partners  or  employees  (and  any  other  Persons  with  a
functionally  equivalent role of a Person holding such titles  notwithstanding a
lack of such  title or any other  title) of such  controlling  person  (each,  a
"PURCHASER PARTY") harmless from any and all losses,  liabilities,  obligations,
claims,  contingencies,  damages,  costs and expenses,  including all judgments,
amounts paid in  settlements,  court costs and  reasonable  attorneys'  fees and
costs of  investigation  that any such Purchaser  Party may suffer or incur as a
result  of or  relating  to (a)  any  breach  of  any  of  the  representations,
warranties,  covenants or agreements made by the Company in this Agreement or in
the  other  Transaction  Documents  or  (b)  any  action  instituted  against  a
Purchaser, or any of them or their respective Affiliates,  by any stockholder of
the Company who is not an  Affiliate of such  Purchaser,  with respect to any of
the transactions  contemplated by the Transaction  Documents (unless such action
is based  upon a  breach  of such  Purchaser's  representations,  warranties  or
covenants  under the Transaction  Documents or any agreements or  understandings
such  Purchaser  may have with any such  stockholder  or any  violations  by the
Purchaser of state or federal  securities  laws or any conduct by such Purchaser
which constitutes fraud,  gross negligence,  willful misconduct or malfeasance).
If any action shall be brought  against any Purchaser  Party in respect of which
indemnity may be sought pursuant to this  Agreement,  such Purchaser Party shall
promptly notify the Company in writing,  and the Company shall have the right to
assume  the  defense  thereof  with  counsel  of  its  own  choosing  reasonably
acceptable to the Purchaser  Party.  Any Purchaser Party shall have the right to
employ  separate  counsel in any such  action  and  participate  in the  defense
thereof,  but the fees and expenses of such  counsel  shall be at the expense of
such Purchaser  Party except to the extent that (i) the  employment  thereof has
been  specifically  authorized  by the Company in writing,  (ii) the Company has
failed  after a  reasonable  period of time to assume such defense and to employ
counsel  or (iii) in such  action  there is, in the  reasonable  opinion of such
separate counsel, a material conflict on any material issue between the position
of the  Company  and the  position of such  Purchaser  Party,  in which case the
Company shall be  responsible  for the  reasonable  fees and expenses of no more
than one such separate counsel.  The Company will not be liable to any Purchaser
Party under this Agreement (i) for any settlement by a Purchaser  Party effected
without the Company's  prior written  consent,  which shall not be  unreasonably
withheld or delayed;  or (ii) to the extent, but only to the extent that a loss,
claim,  damage or liability is attributable  to any Purchaser  Party's breach of
any of the  representations,  warranties,  covenants or agreements  made by such
Purchaser Party in this Agreement or in the other Transaction Documents.

                                       26
<PAGE>

         4.12 RESERVATION AND LISTING OF SECURITIES.

                  (a) The  Company  shall  maintain  a  reserve  from  its  duly
         authorized  shares  of  Common  Stock  for  issuance  pursuant  to  the
         Transaction  Documents in such amount as may be required to fulfill its
         obligations in full under the Transaction Documents.

                  (b) If, on any date,  the number of  authorized  but  unissued
         (and  otherwise  unreserved)  shares of  Common  Stock is less than the
         Required  Minimum  on such  date,  then the Board of  Directors  of the
         Company  shall  use  commercially   reasonable  efforts  to  amend  the
         Company's  certificate  or articles of  incorporation  to increase  the
         number of  authorized  but unissued  shares of Common Stock to at least
         the Required Minimum at such time, as soon as possible and in any event
         not later than the 75th day after such date.

                  (c) The  Company  shall,  if  applicable:  (i) in the time and
         manner required by the principal Trading Market,  prepare and file with
         such Trading Market an additional shares listing application covering a
         number of shares of Common Stock at least equal to the Required Minimum
         on the date of such application, (ii) take all steps necessary to cause
         such shares of Common  Stock to be approved for listing on such Trading
         Market as soon as possible thereafter,  (iii) provide to the Purchasers
         evidence of such listing,  and (iv) maintain the listing of such Common
         Stock on any date at least equal to the  Required  Minimum on such date
         on such Trading Market or another Trading Market.

         4.13 PARTICIPATION IN FUTURE FINANCING.

                  (a)  Subject  to the  rights  of  purchasers  set forth in the
         Convertible  Debentures  Purchase  Agreement and the Secured Debentures
         Purchase Agreement,  from the date hereof until the date that is the 12
         month  anniversary  of the  Effective  Date,  upon any  issuance by the
         Company  or any of its  Subsidiaries  of Common  Stock or Common  Stock
         Equivalents (a "SUBSEQUENT  FINANCING"),  each Purchaser shall have the
         right to  participate  in up to an amount of the  Subsequent  Financing
         equal to 100% of the Subsequent Financing (the "PARTICIPATION MAXIMUM")
         on the same terms,  conditions and price provided for in the Subsequent
         Financing.

                  (b) At  least 5  Trading  Days  prior  to the  closing  of the
         Subsequent  Financing,  the Company shall  deliver to each  Purchaser a
         written  notice  of its  intention  to  effect a  Subsequent  Financing
         ("PRE-NOTICE"),  which  Pre-Notice shall ask such Purchaser if it wants
         to review the details of such  financing  (such  additional  notice,  a
         "SUBSEQUENT  FINANCING NOTICE").  Upon the request of a Purchaser,  and
         only upon a  request  by such  Purchaser,  for a  Subsequent  Financing
         Notice,  the Company  shall  promptly,  but no later than 1 Trading Day
         after  such  request,  deliver a  Subsequent  Financing  Notice to such
         Purchaser. The Subsequent Financing Notice shall describe in reasonable
         detail the proposed terms of such Subsequent  Financing,  the amount of
         proceeds  intended  to be raised  thereunder  and the Person or Persons
         through  or with whom  such  Subsequent  Financing  is  proposed  to be
         effected and shall  include a term sheet or similar  document  relating
         thereto as an attachment.

                                       27
<PAGE>

                  (c) Any Purchaser  desiring to participate in such  Subsequent
         Financing must provide  written notice to the Company by not later than
         5:30 p.m.  (New York City time) on the 5th Trading Day after all of the
         Purchasers  have received the Pre-Notice  that the Purchaser is willing
         to  participate  in  the  Subsequent  Financing,   the  amount  of  the
         Purchaser's participation, and that the Purchaser has such funds ready,
         willing,  and  available  for  investment on the terms set forth in the
         Subsequent  Financing  Notice. If the Company receives no notice from a
         Purchaser as of such 5th Trading Day, such Purchaser shall be deemed to
         have notified the Company that it does not elect to participate.

                  (d) If by 5:30 p.m.  (New York City  time) on the 5th  Trading
         Day  after  all  of  the  Purchasers   have  received  the  Pre-Notice,
         notifications by the Purchasers of their  willingness to participate in
         the Subsequent  Financing (or to cause their  designees to participate)
         is, in the  aggregate,  less than the  total  amount of the  Subsequent
         Financing,  then the Company may effect the  remaining  portion of such
         Subsequent Financing on the terms and with the Persons set forth in the
         Subsequent Financing Notice.

                  (e) If by 5:30 p.m.  (New York City  time) on the 5th  Trading
         Day after all of the  Purchasers  have  received  the  Pre-Notice,  the
         Company  receives  responses  to a  Subsequent  Financing  Notice  from
         Purchasers  seeking to purchase more than the  aggregate  amount of the
         Participation  Maximum,  each such  Purchaser  shall  have the right to
         purchase the greater of (a) their Pro Rata  Portion (as defined  below)
         of the  Participation  Maximum  and  (b)  the  difference  between  the
         Participation  Maximum and the aggregate amount of participation by all
         other  Purchasers.   "PRO  RATA  PORTION"  is  the  ratio  of  (x)  the
         Subscription  Amount of  Securities  purchased on the Closing Date by a
         Purchaser  participating under this Section 4.13 and (y) the sum of the
         aggregate  Subscription  Amounts of Securities purchased on the Closing
         Date by all Purchasers participating under this Section 4.13.

                  (f) The  Company  must  provide the  Purchasers  with a second
         Subsequent  Financing  Notice,  and the Purchasers  will again have the
         right of  participation  set forth above in this Section  4.13,  if the
         Subsequent Financing subject to the initial Subsequent Financing Notice
         is not  consummated  for any  reason  on the  terms  set  forth in such
         Subsequent  Financing  Notice  within 60 Trading Days after the date of
         the initial Subsequent Financing Notice.

                  (g) Notwithstanding the foregoing, this Section 4.13 shall not
         apply in  respect  of (i) an Exempt  Issuance  or (ii) an  underwritten
         public offering of Common Stock.

         4.14 [RESERVED].

                                       28
<PAGE>

         4.15 EQUAL TREATMENT OF PURCHASERS.  No consideration  shall be offered
or paid to any  Person to amend or consent  to a waiver or  modification  of any
provision of any of the Transaction  Documents unless the same  consideration is
also offered to all of the parties to the Transaction  Documents.  Further,  the
Company shall not make any payment of principal or interest on the Debentures in
amounts  which  are   disproportionate  to  the  respective   principal  amounts
outstanding  on  the  Debentures  at  any  applicable  time.  For  clarification
purposes,  this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser,  and is intended for
the  Company  to treat  the  Purchasers  as a class  and shall not in any way be
construed as the Purchasers  acting in concert or as a group with respect to the
purchase, disposition or voting of Securities or otherwise.

         4.16  SHORT  SALES  AND  CONFIDENTIALITY  AFTER THE DATE  HEREOF.  Each
Purchaser  severally and not jointly with the other  Purchasers  covenants  that
neither  it  nor  any  Affiliate  acting  on  its  behalf  or  pursuant  to  any
understanding  with it will execute any Short Sales during the period commencing
at the Discussion Time and ending at the time that the transactions contemplated
by this Agreement are first publicly announced as described in Section 4.6. Each
Purchaser,  severally and not jointly with the other Purchasers,  covenants that
until such time as the transactions  contemplated by this Agreement are publicly
disclosed  by the Company as  described  in Section  4.6,  such  Purchaser  will
maintain the  confidentiality  of all disclosures  made to it in connection with
this transaction  (including the existence and terms of this transaction).  Each
Purchaser understands and acknowledges, severally and not jointly with any other
Purchaser,  that the  Commission  currently  takes the position that coverage of
short  sales of  shares  of the  Common  Stock  "against  the box"  prior to the
Effective Date of the Registration  Statement with the Securities is a violation
of Section 5 of the  Securities  Act, as set forth in Item 65, Section A, of the
Manual  of  Publicly  Available  Telephone  Interpretations,  dated  July  1997,
compiled  by the  Office of Chief  Counsel,  Division  of  Corporation  Finance.
Notwithstanding the foregoing,  no Purchaser makes any representation,  warranty
or covenant  hereby that it will not engage in Short Sales in the  securities of
the Company after the time that the transactions  contemplated by this Agreement
are first publicly  announced as described in Section 4.6.  Notwithstanding  the
foregoing, in the case of a Purchaser that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such Purchaser's
assets and the  portfolio  managers have no direct  knowledge of the  investment
decisions  made  by the  portfolio  managers  managing  other  portions  of such
Purchaser's  assets,  the covenant set forth above shall only apply with respect
to the  portion  of  assets  managed  by the  portfolio  manager  that  made the
investment decision to purchase the Securities covered by this Agreement.

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

         4.18 CAPITAL  CHANGES.  Until the one year anniversary of the Effective
Date,  the  Company  shall not  undertake  a reverse or forward  stock  split or
reclassification  of the Common Stock without the prior  written  consent of the
Purchasers holding a majority in principal amount outstanding of the Debentures.

                                       29
<PAGE>

         4.19 HIRING OF  INVESTMENT  BANK.  The  Company  agrees to use its best
efforts   during  January  2007  to  employ  an  investment   bank,   reasonably
satisfactory to each Purchaser,  to create strategic corporate  alternatives for
the Company.  In the event that the Company  uses its best efforts but,  without
fault of the Company,  is unable to hire an investment bank during January 2007,
the  Company  agrees  to use its best  efforts  to hire as soon as  possible  an
investment bank, reasonably  satisfactory to each Purchaser, to create strategic
corporate alternatives for the Company.

         4.20 ISSUANCE OF SECURITIES FOR WORKING CAPITAL.  The Company agrees to
use its best efforts during the first fiscal quarter of 2007 to sell  securities
of the Company and to use the  proceeds of such sales as working  capital of the
Company.  In the event that the Company uses its best efforts but, without fault
of the Company,  is unable to sell securities during the first fiscal quarter of
January 2007, the Company  agrees to use its best efforts to sell  securities as
soon as possible.

                                   ARTICLE V.
                                  MISCELLANEOUS

         5.1 TERMINATION.  This Agreement may be terminated by any Purchaser, as
to such Purchaser's obligations hereunder only and without any effect whatsoever
on the  obligations  between the Company  and the other  Purchasers,  by written
notice to the other  parties,  if the  Closing  has not been  consummated  on or
before  January __, 2007;  PROVIDED,  HOWEVER,  that such  termination  will not
affect  the  right of any party to sue for any  breach  by the  other  party (or
parties).

         5.2 FEES AND  EXPENSES.  At the  Closing,  the  Company  has  agreed to
reimburse  Bushido Capital Master,  LLC ("BUSHIDO") the  non-accountable  sum of
$20,000 for its legal fees and expenses.  Accordingly,  in lieu of the foregoing
payments,  the aggregate amount that Bushido is to pay for the Securities at the
Closing shall be reduced by $20,000 in lieu  thereof.  The Company shall deliver
to each  Purchaser,  prior to the Closing,  a completed and executed copy of the
Closing  Statement  attached hereto as ANNEX A. Except as expressly set forth in
the  Transaction  Documents to the  contrary,  each party shall pay the fees and
expenses of its advisers,  counsel,  accountants and other experts,  if any, and
all  other  expenses  incurred  by  such  party  incident  to  the  negotiation,
preparation,  execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the delivery of any Securities to the Purchasers.

         5.3 ENTIRE  AGREEMENT.  The  Transaction  Documents,  together with the
exhibits and schedules thereto,  contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

         5.4 NOTICES.  Any and all notices or other communications or deliveries
required or permitted to be provided  hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of  transmission,  if
such notice or  communication is delivered via facsimile at the facsimile number
set forth on the signature  pages  attached  hereto prior to 5:30 p.m. (New York
City  time)  on a  Trading  Day,  (b) the next  Trading  Day  after  the date of
transmission,  if such notice or communication is delivered via facsimile at the
facsimile  number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day,  (c) the 2nd Trading  Day  following  the date of mailing,  if sent by U.S.
nationally  recognized  overnight courier service, or (d) upon actual receipt by
the party to whom such  notice is  required  to be given.  The  address for such
notices and communications shall be as set forth on the signature pages attached
hereto.

                                       30
<PAGE>

         5.5 AMENDMENTS;  WAIVERS. No provision of this Agreement may be waived,
modified,  supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and Purchasers then holding at least 75% of
the  Securities  or,  in the  case  of a  waiver,  by  the  party  against  whom
enforcement  of any such waived  provision  is sought.  No waiver of any default
with respect to any provision,  condition or requirement of this Agreement shall
be deemed to be a continuing  waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of any party to exercise any right  hereunder in any
manner impair the exercise of any such right.

         5.6  HEADINGS.  The headings  herein are for  convenience  only, do not
constitute a part of this  Agreement  and shall not be deemed to limit or affect
any of the provisions hereof.

         5.7  SUCCESSORS AND ASSIGNS.  This Agreement  shall be binding upon and
inure to the benefit of the parties and their successors and permitted  assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser (other than by merger).  Any
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such  Purchaser  assigns or  transfers  any  Securities,  provided  such
transferee  agrees in  writing  to be bound,  with  respect  to the  transferred
Securities,  by the  provisions of the  Transaction  Documents that apply to the
"Purchasers".

         5.8 NO  THIRD-PARTY  BENEFICIARIES.  This Agreement is intended for the
benefit of the parties  hereto and their  respective  successors  and  permitted
assigns and is not for the benefit of, nor may any provision  hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.

         5.9 GOVERNING LAW. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance  with the internal laws of the State of
New York,  without  regard to the  principles of conflicts of law thereof.  Each
party  agrees  that  all  legal  proceedings   concerning  the  interpretations,
enforcement and defense of the  transactions  contemplated by this Agreement and
any other Transaction  Documents  (whether brought against a party hereto or its
respective affiliates,  directors, officers, shareholders,  employees or agents)
shall be commenced  exclusively  in the state and federal  courts sitting in the
City of New  York.  Each  party  hereby  irrevocably  submits  to the  exclusive
jurisdiction  of the state and federal  courts  sitting in the City of New York,
borough  of  Manhattan  for the  adjudication  of any  dispute  hereunder  or in
connection  herewith or with any  transaction  contemplated  hereby or discussed
herein  (including  with respect to the  enforcement  of any of the  Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action  or  proceeding,  any  claim  that it is not  personally  subject  to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or is an inconvenient  venue for such proceeding.  Each party hereby irrevocably
waives  personal  service of process and consents to process being served in any
such suit,  action or  proceeding  by mailing a copy thereof via  registered  or
certified  mail or overnight  delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this  Agreement and agrees that
such service shall constitute good and sufficient  service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner  permitted by law. The parties hereby waive
all  rights to a trial by jury.  If either  party  shall  commence  an action or
proceeding to enforce any  provisions  of the  Transaction  Documents,  then the
prevailing  party in such action or proceeding  shall be reimbursed by the other
party for its reasonable  attorneys' fees and other costs and expenses  incurred
with  the   investigation,   preparation  and  prosecution  of  such  action  or
proceeding.

                                       31
<PAGE>

         5.10 SURVIVAL.  The  representations  and warranties  shall survive the
Closing  and the  delivery  of the  Securities  for  the  applicable  statue  of
limitations.

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

         5.12 SEVERABILITY.  If any term, provision,  covenant or restriction of
this  Agreement  is held by a court of  competent  jurisdiction  to be  invalid,
illegal,  void  or  unenforceable,  the  remainder  of  the  terms,  provisions,
covenants  and  restrictions  set forth  herein  shall  remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto  shall use their  commercially  reasonable  efforts to find and employ an
alternative  means to achieve the same or substantially  the same result as that
contemplated  by such term,  provision,  covenant or  restriction.  It is hereby
stipulated  and declared to be the intention of the parties that they would have
executed the remaining terms,  provisions,  covenants and  restrictions  without
including any of such that may be hereafter declared invalid,  illegal,  void or
unenforceable.

         5.13 RESCISSION AND WITHDRAWAL RIGHT.  Notwithstanding  anything to the
contrary  contained in (and without  limiting any similar  provisions of) any of
the other  Transaction  Documents,  whenever  any  Purchaser  exercises a right,
election, demand or option under a Transaction Document and the Company does not
timely perform its related obligations within the periods therein provided, then
such Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company,  any relevant notice,  demand or election in
whole or in part without  prejudice to its future actions and rights;  PROVIDED,
HOWEVER,  in the case of a rescission of a conversion of a Debenture or exercise
of a Warrant,  the  Purchaser  shall be  required to return any shares of Common
Stock  delivered in connection  with any such  rescinded  conversion or exercise
notice.

                                       32
<PAGE>

         5.14  REPLACEMENT  OF  SECURITIES.  If any  certificate  or  instrument
evidencing any Securities is mutilated,  lost, stolen or destroyed,  the Company
shall  issue or cause to be issued in  exchange  and  substitution  for and upon
cancellation thereof (in the case of mutilation), or in lieu of and substitution
therefor,  a new  certificate or  instrument,  but only upon receipt of evidence
reasonably  satisfactory to the Company of such loss, theft or destruction.  The
applicant for a new  certificate or instrument  under such  circumstances  shall
also  pay any  reasonable  third-party  costs  (including  customary  indemnity)
associated with the issuance of such replacement Securities.

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

         5.16 PAYMENT SET ASIDE.  To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such  enforcement  or exercise or any part thereof are  subsequently
invalidated,  declared to be fraudulent or  preferential,  set aside,  recovered
from, disgorged by or are required to be refunded,  repaid or otherwise restored
to the  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.

         5.17 USURY.  To the extent it may  lawfully  do so, the Company  hereby
agrees not to insist upon or plead or in any manner  whatsoever  claim, and will
resist any and all efforts to be compelled to take the benefit or advantage  of,
usury  laws  wherever  enacted,  now or at  any  time  hereafter  in  force,  in
connection  with any  claim,  action or  proceeding  that may be  brought by any
Purchaser  in  order to  enforce  any  right or  remedy  under  any  Transaction
Document.  Notwithstanding  any  provision  to  the  contrary  contained  in any
Transaction  Document,  it is  expressly  agreed  and  provided  that the  total
liability of the Company  under the  Transaction  Documents  for payments in the
nature of interest  shall not exceed the maximum  lawful rate  authorized  under
applicable law (the "MAXIMUM RATE"), and, without limiting the foregoing,  in no
event  shall any rate of  interest or default  interest,  or both of them,  when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed  that  if the  maximum  contract  rate  of  interest  allowed  by law and
applicable to the Transaction  Documents is increased or decreased by statute or
any official  governmental action subsequent to the date hereof, the new maximum
contract rate of interest  allowed by law will be the Maximum Rate applicable to
the  Transaction  Documents  from  the  effective  date  forward,   unless  such
application  is  precluded  by  applicable  law.  If  under  any   circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness  evidenced by the Transaction  Documents,
such excess shall be applied by such Purchaser to the unpaid  principal  balance
of any such  indebtedness or be refunded to the Company,  the manner of handling
such excess to be at such Purchaser's election.

                                       33
<PAGE>

         5.18  INDEPENDENT  NATURE OF PURCHASERS'  OBLIGATIONS  AND RIGHTS.  The
obligations of each Purchaser under any Transaction Document are several and not
joint with the  obligations of any other  Purchaser,  and no Purchaser  shall be
responsible in any way for the performance or non-performance of the obligations
of any other Purchaser under any Transaction Document.  Nothing contained herein
or in any  other  Transaction  Document,  and no action  taken by any  Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an  association,  a joint  venture  or any  other  kind of  entity,  or create a
presumption  that the  Purchasers are in any way acting in concert or as a group
with  respect  to  such  obligations  or the  transactions  contemplated  by the
Transaction Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights,  including without  limitation the rights arising out of
this Agreement or out of the other  Transaction  Documents,  and it shall not be
necessary  for any other  Purchaser to be joined as an  additional  party in any
proceeding  for such purpose.  Each  Purchaser has been  represented  by its own
separate  legal  counsel in their  review  and  negotiation  of the  Transaction
Documents. For reasons of administrative  convenience only, Purchasers and their
respective  counsel have chosen to communicate with the Company through FWS. FWS
does not  represent  all of the  Purchasers  but only  Bushido.  The Company has
elected to provide all Purchasers with the same terms and Transaction  Documents
for the  convenience of the Company and not because it was required or requested
to do so by the Purchasers.

         5.19 LIQUIDATED DAMAGES.  The Company's  obligations to pay any partial
liquidated  damages or other amounts owing under the Transaction  Documents is a
continuing  obligation of the Company and shall not  terminate  until all unpaid
partial liquidated damages and other amounts have been paid  notwithstanding the
fact that the instrument or security  pursuant to which such partial  liquidated
damages or other amounts are due and payable shall have been canceled.

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

                            (SIGNATURE PAGES FOLLOW)


                                       34
<PAGE>



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

INTRAOP MEDICAL CORPORATION            ADDRESS FOR NOTICE:
                                       -------------------


By: /S/ DONALD A. GOER                 570 DEL REY AVENUE
    ------------------
     Name: Donald A. Goer              SUNNYVALE, CA  94085
     Title: CEO

With a copy to (which shall not constitute notice):

ATTN: DONALD A. GOER, CEO
TEL:  (408) 636-1020
E-MAIL: DAGOER@INTRAOPMEDICAL.COM

Hanson Bridgett, Marcus Vlahos & Rudy, LLP
425 Market Street
San Francisco, CA 94105
Attn:  David M. Pike, Esq.
Tel:   (415) 995-5135
e-mail: (415) 995-3478

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                      SIGNATURE PAGE FOR PURCHASER FOLLOWS]




                                       35
<PAGE>




        [PURCHASER SIGNATURE PAGES TO IOPM SECURITIES PURCHASE AGREEMENT]

         IN  WITNESS  WHEREOF,  the  undersigned  have  caused  this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.


Name of Holder: Bushido Capital Master Fund L.P.
SIGNATURE OF AUTHORIZED SIGNATORY OF HOLDER: /S/ RON DAGAR
                                             -------------
Name of Authorized Signatory: Ron Dagar
Title of Authorized Signatory: Director

Email Address of Purchaser:
Facsimile Number of Purchaser: 646-486-6885

Address for Notice of Purchaser:

c/o Bushido Capital Partners Ltd.
275 Seventh Avenue, Suite 2000
New York, NY 10001

Address for Delivery of Securities for Purchaser (if not same as above):





Subscription Amount: 171,428.57

Warrant Shares: 186,673



EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]


                                       36


<PAGE>



        [PURCHASER SIGNATURE PAGES TO IOPM SECURITIES PURCHASE AGREEMENT]

         IN  WITNESS  WHEREOF,  the  undersigned  have  caused  this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.


Name of Holder: Gamma Opportunity Capital Partners LP Class A
SIGNATURE OF AUTHORIZED SIGNATORY OF HOLDER: /S/ JONATHAN PERRY KNIGHT
                                             -------------------------
Name of Authorized Signatory: Jonathan Perry Knight
Title of Authorized  Signatory:  Director,  Gamma Capital Advisors Ltd. as agent
for Gamma Capital Partners LP

Email Address of Purchaser: jonathan@coargroup.com
Facsimile Number of Purchaser: 407-771-4419

Address for Notice of Purchaser:  1967  Longwood - Lake Mary Road,  Longwood FL,
32750

Penson Financial Services, Inc.
1700 Pacific Avenue, Suite 1400
Dallas, TX 75201-7332

Attn: Mail Room 214-765-1049
Address for Delivery of Securities for Purchaser (if not same as above):





Subscription Amount: 85,714.50

Warrant Shares: 91,836


EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]


                                       37


<PAGE>



        [PURCHASER SIGNATURE PAGES TO IOPM SECURITIES PURCHASE AGREEMENT]

         IN  WITNESS  WHEREOF,  the  undersigned  have  caused  this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.


Name of Holder: Gamma Opportunity Capital Partners LP Class C
SIGNATURE OF AUTHORIZED SIGNATORY OF HOLDER: /S/ JONATHAN PERRY KNIGHT
                                             -------------------------
Name of Authorized Signatory: Jonathan Perry Knight
Title of Authorized  Signatory:  Director,  Gamma Capital Advisors Ltd. as agent
for Gamma Capital Partners LP

Email Address of Purchaser: jonathan@coargroup.com
Facsimile Number of Purchaser: 407-771-4419

Address for Notice of Purchaser:  1967  Longwood - Lake Mary Road,  Longwood FL,
32750

Penson Financial Services, Inc.
1700 Pacific Avenue, Suite 1400
Dallas, TX 75201-7332

Attn: Mail Room 214-765-1049
Address for Delivery of Securities for Purchaser (if not same as above):





Subscription Amount: 85,714.50

Warrant Shares: 91,836




EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]



                                       38

<PAGE>



        [PURCHASER SIGNATURE PAGES TO IOPM SECURITIES PURCHASE AGREEMENT]

         IN  WITNESS  WHEREOF,  the  undersigned  have  caused  this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.


Name of Holder: Crestview Capital Master, LLC by Crestview Capital Partners, LLC
SIGNATURE OF AUTHORIZED SIGNATORY OF HOLDER: /S/ ROBERT HOYT
                                             -----------------
Name of Authorized Signatory: Robert Hoyt
Title of Authorized Signatory: Manager

Email Address of Purchaser: bob@crestviewcap.com
Facsimile Number of Purchaser: 847-559-5807

Address for Notice of Purchaser:

95 Revere Drive, Suite A
Northbrook IL 60062

Address for Delivery of Securities for Purchaser (if not same as above):





Subscription Amount: $214,286.80

Warrant Shares: 229,593




EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]


                                       39


<PAGE>



        [PURCHASER SIGNATURE PAGES TO IOPM SECURITIES PURCHASE AGREEMENT]

         IN  WITNESS  WHEREOF,  the  undersigned  have  caused  this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.


Name of Holder: Dolphin Offshore Partners, L.P.
SIGNATURE OF AUTHORIZED SIGNATORY OF HOLDER: /S/ PETER E. SALAS
                                             ------------------
Name of Authorized Signatory: Peter E. Salas
Title of Authorized Signatory: General Partner

Email Address of Purchaser: psalas@dolphinasset.com
Facsimile Number of Purchaser: 212-202-3817

Address for Notice of Purchaser:

c/o Dolphin Asset Management
129 East 17th Street
New York NY 10003

Address for Delivery of Securities for Purchaser (if not same as above):





Subscription Amount: $128,571

Warrant Shares: 137,754




EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]




                                       40
<PAGE>



        [PURCHASER SIGNATURE PAGES TO IOPM SECURITIES PURCHASE AGREEMENT]

         IN  WITNESS  WHEREOF,  the  undersigned  have  caused  this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.


Name of Holder: Alpha Capital Anstaht
SIGNATURE OF AUTHORIZED SIGNATORY OF HOLDER: /S/ KONRAD ACKERMANN
                                              -------------------
Name of Authorized Signatory: Konrad Ackermann
Title of Authorized Signatory: Director

Email Address of Purchaser:
Facsimile Number of Purchaser: 01141714773504

Address for Notice of Purchaser:

Pradafat7, 9940 Furstentums
FL-9490 Vaduz, Liechtenstein

Address for Delivery of Securities for Purchaser (if not same as above):

150 Central Park South, Second Fl
New York, NY 10019


Subscription Amount: $85,714

Warrant Shares: 91,836




EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]



                                       41

<PAGE>



        [PURCHASER SIGNATURE PAGES TO IOPM SECURITIES PURCHASE AGREEMENT]

         IN  WITNESS  WHEREOF,  the  undersigned  have  caused  this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.


Name of Holder: Hans Morkner
SIGNATURE OF AUTHORIZED SIGNATORY OF HOLDER: /S/ HANS MORKNER
                                             ----------------
Name of Authorized Signatory: Hans Morkner
Title of Authorized Signatory:
Facsimile Number of Purchaser: ________________________________________________
Email Address of Purchaser:
Facsimile Number of Purchaser:


Address for Notice of Purchaser:

15720 Simoni Drive
San Jose CA 95127

Address for Delivery of Securities for Purchaser (if not same as above):




Subscription Amount: $200,000

Warrant Shares: 214,285



EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]




                                       42
<PAGE>



        [PURCHASER SIGNATURE PAGES TO IOPM SECURITIES PURCHASE AGREEMENT]

         IN  WITNESS  WHEREOF,  the  undersigned  have  caused  this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.


Name of Holder: Donald A. Goer and Henci L. Goer 1998 Trust
SIGNATURE OF AUTHORIZED SIGNATORY OF HOLDER: /S/ DONALD A. GOER
                                             ------------------
Name of Authorized Signatory: Donald A. Goer
Title of Authorized Signatory: Trustee

Email Address of Purchaser: dagoer@intraopmedical.com
Facsimile Number of Purchaser: 408-636-0022

Address for Notice of Purchaser:

570 Del Rey Avenue
Sunnyvale CA 94085

Address for Delivery of Securities for Purchaser (if not same as above):





Subscription Amount: $40,000

Warrant Shares: 42,857




EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]



                                       43

<PAGE>


        [PURCHASER SIGNATURE PAGES TO IOPM SECURITIES PURCHASE AGREEMENT]

         IN  WITNESS  WHEREOF,  the  undersigned  have  caused  this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.


Name of Holder: Donald A. Goer
SIGNATURE OF AUTHORIZED SIGNATORY OF HOLDER: /S/ DONALD A. GOER
                                             ------------------
Name of Authorized Signatory: Donald A. Goer
Title of Authorized Signatory:

Email Address of Purchaser: dagoer@intraopmedical.com
Facsimile Number of Purchaser: 408-636-0022

Address for Notice of Purchaser:

570 Del Rey Avenue
Sunnyvale CA 94085

Address for Delivery of Securities for Purchaser (if not same as above):





Subscription Amount: $143,570.63

Warrant Shares: 153,825




EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]



                                       44

<PAGE>


        [PURCHASER SIGNATURE PAGES TO IOPM SECURITIES PURCHASE AGREEMENT]

         IN  WITNESS  WHEREOF,  the  undersigned  have  caused  this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.


Name of Holder: Tomovation Gmbh
SIGNATURE OF AUTHORIZED SIGNATORY OF HOLDER: /S/ MICHAEL FRIEBE
                                             ------------------
Name of Authorized Signatory: Michael Friebe
Title of Authorized Signatory: CEO and President

Email Address of Purchaser: mfriebe@tomovation.com
Facsimile Number of Purchaser: 49(0)2305-99897-9

Address for Notice of Purchaser:

Einstrasse 28
D-44575 Castrop-Rauxel,
GERMANY


Address for Delivery of Securities for Purchaser (if not same as above):





Subscription Amount: $20,000

Warrant Shares: 21,428




EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]


                                       45


<PAGE>



        [PURCHASER SIGNATURE PAGES TO IOPM SECURITIES PURCHASE AGREEMENT]

         IN  WITNESS  WHEREOF,  the  undersigned  have  caused  this  Securities
Purchase   Agreement  to  be  duly  executed  by  their  respective   authorized
signatories as of the date first indicated above.


Name of Holder: Mestman Family Trust dated August 30, 2005
SIGNATURE OF AUTHORIZED SIGNATORY OF HOLDER: /S/ SCOTT MESTMAN
                                             -----------------
Name of Authorized Signatory: Scott Mestman
Title of Authorized Signatory: Trustee

Email Address of Purchaser: smestman@intraopmedical.com
Facsimile Number of Purchaser:

Address for Notice of Purchaser:

570 Del Rey Avenue
Sunnyvale CA 94085

Address for Delivery of Securities for Purchaser (if not same as above):





Subscription Amount: $25,000

Warrant Shares: 26,785




EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]


                                       46


<PAGE>



                                                                         ANNEX A

                                CLOSING STATEMENT

Pursuant to the attached  Securities  Purchase  Agreement,  dated as of the date
hereto,  the  purchasers  shall  purchase up to  $1,200,000  of  Debentures  and
Warrants from Intraop Medical  Corporation  (the  "COMPANY").  All funds will be
wired into a trust account  maintained  by Hanson,  Bridgett,  Marcus,  Vlahos &
Rudy,  LLP,  counsel to the Company.  All funds will be disbursed in  accordance
with this Closing Statement.

DISBURSEMENT DATE:    January __, 2007


I.   PURCHASE PRICE

                           GROSS PROCEEDS TO BE RECEIVED IN TRUST     $

II.  DISBURSEMENTS

                                                                      $
                                                                      $
                                                                      $
                                                                      $
                                                                      $

TOTAL AMOUNT DISBURSED:                                               $



WIRE INSTRUCTIONS:


To: _____________________________________





To: _____________________________________


                                       47