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                                   EXHIBIT 4.4

                           INVESTORS' RIGHTS AGREEMENT

            THIS INVESTORS' RIGHTS AGREEMENT (the "Agreement") is made as of the
28th day of January,  2005, by and between PacificHealth  Laboratories,  Inc., a
Delaware  corporation (the "Company"),  Hormel Health Labs, LLC ("Investor") and
any Additional  Investor (as defined in the Purchase  Agreement)  that becomes a
party to this Agreement by executing and delivering to the Company a counterpart
signature page hereto (which such person shall thereupon be deemed an "Investor"
for all purposes of this Agreement).

                                    RECITALS

            WHEREAS,  the Company and the  Investors are parties to the Series A
Preferred  Stock  Purchase  Agreement  of  even  date  herewith  (the  "Purchase
Agreement"); and

            WHEREAS,  in order to induce the Company to enter into the  Purchase
Agreement and to induce the Investors to invest funds in the Company pursuant to
the Purchase  Agreement,  the Investors  and the Company  hereby agree that this
Agreement  shall  govern the  rights of the  Investors  to cause the  Company to
register  shares of Common Stock issuable to the Investors,  to receive  certain
information  from the Company,  to participate in future equity offerings by the
Company and certain other matters as set forth in this Agreement;

            NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:

                  1. Definitions. For purposes of this Agreement:

                  1.1.  The term  "Affiliate"  shall  mean with  respect  to any
individual,  corporation,  partnership,  association, trust, or any other entity
(in each case, a "Person"), any Person which, directly or indirectly,  controls,
is controlled by or is under common control with such Person, including, without
limitation  any  general  partner,  officer or  director  of such Person and any
venture  capital fund now or hereafter  existing which is controlled by or under
common control with one or more general  partners or shares the same  management
company with such Person.

                  1.2.  The  term  "Common  Stock"  shall  mean  shares  of  the
Company's common stock, par value $0.01 per share.

                  1.3.  The  term  "Exchange  Act"  shall  mean  the  Securities
Exchange  Act of 1934,  as amended,  and the rules and  regulations  promulgated
thereunder.

                  1.4. The term "Form S-3" means such form under the  Securities
Act  as in  effect  on the  date  hereof  or any  registration  form  under  the
Securities  Act  subsequently  adopted  by the SEC which  permits  inclusion  or
incorporation  of substantial  information by reference to other documents filed
by the Company with the SEC.

                  1.5. The term "GAAP" shall mean generally accepted  accounting
principles.

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                  1.6. The term "Holder"  shall mean any Person owning or having
the  right  to  acquire  Registrable  Securities  or  any  assignee  thereof  in
accordance with Section 2.12 hereof.

                  1.7. The Term  "Immediate  Family  Member" shall mean a child,
stepchild,   grandchild,  parent,  stepparent,   grandparent,  spouse,  sibling,
mother-in-law,  father-in-law,  son-in-law, daughter-in-law,  brother-in-law, or
sister-in-law, including adoptive relationships, of a person referred to herein.

                  1.8. The term "Initiating  Holders" means,  collectively,  any
Holders who properly initiate a registration request under this Agreement.

                  1.9.  The  term  "Key  Employee"  means  any   executive-level
employee  (including  division  director and Vice President level  positions) as
well as any  employee  who either  alone or in  concert  with  others  develops,
invents,  programs or designs any Company  Intellectual  Property (as defined in
Section 2.8 of the Purchase Agreement)

                  1.10. Intentionally Left Blank.

                  1.11. The term "New Securities"  shall mean equity  securities
of the Company,  whether now authorized or not, or rights,  options, or warrants
to purchase said equity  securities,  or securities of any type  whatsoever that
are, or may become,  convertible  into or  exchangeable  into or exercisable for
said equity securities (collectively "New Securities").

                  1.12.  The term  "Preferred  Stock" shall mean,  collectively,
shares of the Company's Series A Preferred Stock.

                  1.13. The term "register,"  "registered,"  and  "registration"
refer  to a  registration  effected  by  preparing  and  filing  a  registration
statement or similar  document in compliance  with the  Securities  Act, and the
declaration  or ordering of  effectiveness  of such  registration  statement  or
document.

                  1.14. The term  "Registrable  Securities" means (i) the Common
Stock issuable or issued upon  conversion of the Series A Preferred  Stock ( and
(ii) any Common Stock of the Company  issued as (or issuable upon the conversion
or  exercise  of any  warrant,  right or other  security  which is issued  as) a
dividend  or other  distribution  with  respect  to,  or in  exchange  for or in
replacement  of the shares  referenced  in clause (i)  above,  excluding  in all
cases, however, any Registrable  Securities sold by a person in a transaction in
which his rights under Section 2 hereof are not assigned or any shares for which
registration rights have terminated pursuant to Section 2.14 of this Agreement.

                  1.15. The term "Registrable Securities then outstanding" means
the number of shares  determined  by adding the number of shares of Common Stock
outstanding  which  are,  and the  number of shares  of  Common  Stock  issuable
pursuant to then exercisable or convertible  securities  which are,  Registrable
Securities.

                  1.16.  The  term  "SEC"  means  the  Securities  and  Exchange
Commission.


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                  1.17.  The term "SEC Rule 144" means Rule 144  promulgated  by
the SEC under the Securities Act.

                  1.18. The term "SEC Rule 144(k)" means Rule 144(k) promulgated
by the SEC under the Securities Act.

                  1.19.  The term "SEC Rule 145" means Rule 145  promulgated  by
the SEC under the Securities Act.

                  1.20.  The term  "Securities  Act" means the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.

                  1.21. The term "Series A Preferred  Stock" means shares of the
Company's Series A Preferred Stock, par value $0.01 per share.

                  1.22. The term "Violation" means losses,  claims,  damages, or
liabilities  (joint or several) to which a party hereto may become subject under
the Securities  Act, the Exchange Act or other federal or state law,  insofar as
such losses,  claims,  damages,  or liabilities (or actions in respect  thereof)
arise out of or are based upon any of the  following  statements,  omissions  or
violations:  (i) any untrue  statement or alleged untrue statement of a material
fact  contained  in  such  registration  statement,  including  any  preliminary
prospectus  or  final  prospectus   contained   therein  or  any  amendments  or
supplements  thereto,  (ii) the omission or alleged  omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by any other
party hereto,  of the Securities Act, the Exchange Act, any state securities law
or any rule or regulation promulgated under the Securities Act, the Exchange Act
or any state securities law.

            2. Registration Rights. The Company covenants and agrees as follows:

                  2.1. Request for Registration.

                        (a) If the Company  shall  receive at any time after the
date  of this  Agreement  a  written  request  from  the  Holders  of 50% of the
Registrable  Securities  then  outstanding  that the Company file a registration
statement under the Securities Act covering the  registration  for resale of the
Registrable  Securities if the  anticipated  aggregate  offering  price,  net of
underwriting discounts and commissions,  would equal or exceed $1,000,000,  then
the Company shall:

                              (i) within ten (10) days of the  receipt  thereof,
give written notice of such request to all Holders;

                              (ii)  as  soon as  practicable,  and in any  event
within 45 days of the receipt of such  request,  file a  registration  statement
under the Securities Act covering all Registrable  Securities  which the Holders
request to be  registered,  subject to the  limitations  of  subsection  2.1(b),
within  twenty  (20)  days of the  mailing  of such  notice  by the  Company  in
accordance with Section 5.5; and


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                              (iii)  use  its  best   efforts   to  cause   such
registration  statement  to  be  declared  effective  by  the  SEC  as  soon  as
practicable but in no event later than 120 days after such request.

                        (b) If the  Initiating  Holders intend to distribute the
Registrable  Securities  covered by their  request by means of an  underwriting,
they shall so advise the  Company as a part of their  request  made  pursuant to
subsection  2.1(a) and the Company shall include such information in the written
notice referred to in subsection 2.1(a). The underwriter will be selected by the
Initiating  Holders subject only to the reasonable  approval of the Company.  In
such  event,  the  right of any  Holder to  include  such  Holder's  Registrable
Securities  in  such  registration  shall  be  conditioned  upon  such  Holder's
participation   in  such   underwriting  and  the  inclusion  of  such  Holder's
Registrable  Securities in the underwriting to the extent provided  herein.  All
Holders proposing to distribute their securities through such underwriting shall
(together  with the  Company as  provided in  subsection  2.3(e))  enter into an
underwriting  agreement in customary form with the  underwriter or  underwriters
selected  for such  underwriting.  Notwithstanding  any other  provision of this
Section 2.1, if the underwriter  advises the Initiating  Holders in writing that
marketing   factors  require  a  limitation  of  the  number  of  shares  to  be
underwritten,  then the  Initiating  Holders  shall so  advise  all  Holders  of
Registrable  Securities  which would otherwise be underwritten  pursuant hereto,
and the number of shares of Registrable  Securities  that may be included in the
underwriting  shall be allocated  among all Holders of  Registrable  Securities,
including the Initiating  Holders,  in proportion (as nearly as  practicable) to
the  number of  Registrable  Securities  of the  Company  owned by each  Holder;
provided,  however, that the number of shares of Registrable  Securities held by
the Holders to be included in such underwriting  shall not be reduced unless all
other  securities  are  first  entirely  excluded  from  the  underwriting.   To
facilitate the allocation of shares in accordance with the above provisions, the
Company  or the  underwriters  may round the number of shares  allocated  to any
Holder to the nearest 100 shares.

                        (c) The Company shall not be obligated to effect,  or to
take any action to effect, any registration

      (i) pursuant to this Section 2.1:

                              (i) In any  particular  jurisdiction  in which the
Company would be required to execute a general  consent to service of process in
effecting such registration, unless the Company is already subject to service in
such jurisdiction and except as may be required under the Securities Act;

                              (ii)   After  the   Company   has   effected   one
registration  pursuant  to this  Section  2.1 and  such  registration  has  been
declared or ordered effective;

                              (iii) If the Initiating Holders propose to dispose
of shares of Registrable  Securities that may be immediately  registered on Form
S-3 pursuant to a request made pursuant to Section 2.11 below; or

                              (iv) If the Registrable  Securities to be included
in the registration  statement could be sold without  restriction under SEC Rule
144 within a three-month


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day  period and the  Company is  currently  subject  to the  periodic  reporting
requirements of Sections 12(b),12(g) or 15(d) of the Exchange Act, or

                              (v) If the  Registrable  Securities to be included
in the registration  statement could be sold without  restriction under SEC Rule
144(k)  and  the  Company  is  currently  subject  to  the  periodic   reporting
requirements of Sections 12(b), 12(g) or 15(d) of the Exchange Act, or

      (ii) pursuant to any other provision of this Agreement:

                              (i) In any  particular  jurisdiction  in which the
Company would be required to execute a general  consent to service of process in
effecting such registration, unless the Company is already subject to service in
such jurisdiction and except as may be required under the Securities Act; or

                              (ii) If the Registrable  Securities to be included
in the registration  statement could be sold without  restriction under SEC Rule
144(k)  within a ninety (90) day period and the Company is currently  subject to
the periodic  reporting  requirements of Sections  12(b),  12(g) or 15(d) of the
Exchange Act.

                        (d) Notwithstanding the foregoing,  if the Company shall
furnish to Holders requesting a registration  statement pursuant to this Section
2.1 a certificate  signed by the Chief Executive  Officer of the Company stating
that in the good faith  judgment  of the Board of  Directors  of the  Company it
would be materially  detrimental  to the Company and its  stockholders  for such
registration  statement to become  effective  or to remain  effective as long as
such  registration  statement  would  otherwise be required to remain  effective
because  such  action  (x)  would   materially   interfere  with  a  significant
acquisition, corporate reorganization or other similar transaction involving the
Company, (y) would require premature disclosure of material information that the
Company has a bona fide business  purpose for preserving as  confidential or (z)
would render the Company unable to comply with requirements under the Securities
Act or Exchange  Act, the Company  shall have the right to defer  taking  action
with respect to such filing for a period of not more than ninety (90) days after
receipt of the request of the Initiating Holders;  provided,  however,  that the
Company may not utilize this right more than once in any twelve-month period and
provided  further that the Company  shall not register  any  securities  for the
account of itself or any other stockholder  during such one hundred twenty (120)
day period other than a registration  statement  relating  either to the sale of
securities  to  employees  of the  Company  pursuant  to a stock  option,  stock
purchase or similar plan or an SEC Rule 145  transaction,  a registration on any
form  that  does not  include  substantially  the same  information  as would be
required to be included in a  registration  statement  covering  the sale of the
Registrable  Securities,  or a registration in which the only Common Stock being
registered is Common Stock issuable upon  conversion of debt securities that are
also being registered).

      A  registration  statement  shall not be  counted  until such time as such
registration  statement  has been  declared  effective  by the SEC  (unless  the
Initiating  Holders withdraw their request for such registration other than as a
result of  information  concerning  the business or  financial  condition of the
Company  which  is made  known to the  Investors  after  the date on which  such
registration  was  requested  and  elect  not to pay the  registration  expenses
therefor


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pursuant to Section 2.5). A registration statement shall not be counted if, as a
result of an exercise of the underwriter's  cut-back provisions,  fewer than 50%
of the total number of Registrable  Securities that Holders have requested to be
included in such registration statement are actually included.

                  2.2. Company Registration. If the Company proposes to register
(including  for  this  purpose  a  registration  effected  by  the  Company  for
stockholders  other than the Holders) any of its stock or other securities under
the Securities  Act in connection  with the public  offering of such  securities
solely for cash (other than a registration statement relating either to the sale
of  securities  to employees of the Company  pursuant to a stock  option,  stock
purchase or similar plan or an SEC Rule 145  transaction,  a registration on any
form which  does not  include  substantially  the same  information  as would be
required to be included in a  registration  statement  covering  the sale of the
Registrable  Securities or a  registration  in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being  registered),  the Company  shall,  at such time,  promptly give each
Holder written  notice of such  registration.  Upon the written  request of each
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 5.5, the Company shall,  subject to the provisions of
Section  2.7,  cause  to be  registered  under  the  Securities  Act  all of the
Registrable Securities that each such Holder has requested to be registered. The
Company shall have the right to terminate or withdraw any registration initiated
by it under this  Section 2.2 prior to the  effectiveness  of such  registration
whether  or  not  any  Holder  has  elected  to  include   securities   in  such
registration.  The expenses of such withdrawn registration shall be borne by the
Company in accordance with Section 2.6 hereof.

                  2.3. Obligations of the Company.  Whenever required under this
Section 2 to effect the registration of any Registrable Securities,  the Company
shall, as expeditiously as reasonably possible,

                        (a)  prepare  and  file  with  the  SEC  a  registration
statement  with respect to such  Registrable  Securities  and use its reasonable
best  efforts to cause such  registration  statement to become  effective,  and,
except for  registrations  solely  under  Section  2.2,  upon the request of the
Holders of a majority of the Registrable Securities registered thereunder,  keep
such registration  statement  effective for a period of up to one hundred eighty
(180)  days  or,  if  earlier,  until  the  distribution   contemplated  in  the
Registration  Statement has been  completed;  provided,  however,  that (i) such
180-day  period  shall be extended  for a period of time equal to the period the
Holder refrains from selling any securities included in such registration at the
request of an underwriter of Common Stock (or other  securities) of the Company;
and (ii) in the case of any  registration of Registrable  Securities on Form S-3
which are intended to be offered on a continuous  or delayed  basis,  subject to
compliance with applicable SEC rules,  such 180-day period shall be extended for
up to one year, if necessary, to keep the registration statement effective until
all such Registrable Securities are sold;

                        (b)  prepare and file with the SEC such  amendments  and
supplements to such registration statement and the prospectus used in connection
with  such  registration  statement  as may be  necessary  to  comply  with  the
provisions  of  the  Securities  Act  with  respect  to the  disposition  of all
securities covered by such registration statement;


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                        (c) furnish to the Holders  such  numbers of copies of a
prospectus,   including  a  preliminary  prospectus,   in  conformity  with  the
requirements  of the  Securities  Act,  and  such  other  documents  as they may
reasonably  request  in order  to  facilitate  the  disposition  of  Registrable
Securities owned by them;

                        (d) use its  reasonable  best  efforts to  register  and
qualify the securities  covered by such registration  statement under such other
securities  or Blue  Sky  laws of such  jurisdictions  as  shall  be  reasonably
requested by the  Holders;  provided  that the Company  shall not be required in
connection  therewith or as a condition  thereto to qualify to do business or to
file  a  general   consent  to  service  of  process  in  any  such   states  or
jurisdictions,  unless  the  Company  is  already  subject  to  service  in such
jurisdiction and except as may be required by the Securities Act;

                        (e) in the event of any  underwritten  public  offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering.  Each Holder
participating  in such  underwriting  shall  also  enter  into and  perform  its
obligations under such an agreement;

                        (f) cause  all such  Registrable  Securities  registered
pursuant  to this  Agreement  hereunder  to be listed on a  national  securities
exchange or trading  system and each  securities  exchange and trading system on
which similar securities issued by the Company are then listed;

                        (g) use its reasonable  best efforts to furnish,  at the
request of any Holder requesting registration of Registrable Securities pursuant
to this Section 2, on the date on which such Registrable  Securities are sold to
the underwriter,  (i) an opinion,  dated such date, of the counsel  representing
the Company for the purposes of such  registration,  in form and substance as is
customarily given to underwriters in an underwritten public offering,  addressed
to the  underwriters,  if any, and (ii) a "comfort" letter dated such date, from
the  independent  certified  public  accountants  of the  Company,  in form  and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering,  addressed to the underwriters,
if any.

                  2.4. Furnish Information. (a)It shall be a condition precedent
to the  obligations of the Company to take any action pursuant to this Section 2
with  respect to the  Registrable  Securities  of any  selling  Holder that such
Holder  shall  furnish to the Company such  information  regarding  itself,  the
Registrable  Securities  held by it, and the intended  method of  disposition of
such  securities as shall be reasonably  required to effect the  registration of
such Holder's Registrable Securities.

                  2.5. Expenses of Demand Registration.  All expenses other than
underwriting   discounts   and   commissions   incurred   in   connection   with
registrations,  filings or  qualifications  pursuant to Section  2.1,  including
(without limitation) all registration,  filing and qualification fees, printers'
and  accounting  fees,  fees  and  disbursements  of  counsel  for the  Company;
provided,  however,  that  the  Company  shall  not be  required  to pay for any
expenses of any  registration  proceeding  begun  pursuant to Section 2.1 if the
registration request is subsequently  withdrawn at the request of the Holders of
a majority of the  Registrable  Securities


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to be  registered  (in which  case all  participating  Holders  shall  bear such
expenses pro rata based upon the number of Registrable  Securities  that were to
be included in the withdrawn registration),  unless the Holders of a majority of
the  Registrable   Securities  agree  to  forfeit  their  right  to  one  demand
registration pursuant to Section 2.1; provided further,  however, that if at the
time of such  withdrawal,  the Holders have learned of a material adverse change
in the condition,  business,  or prospects of the Company from that known to the
Holders  at the time of  their  request  and have  withdrawn  the  request  with
reasonable promptness after learning of such information, then the Holders shall
not be  required  to pay any of such  expenses  and shall  retain  their  rights
pursuant to Section 2.1.

                  2.6. Expenses of Company Registration.  The Company shall bear
and pay all expenses  incurred in connection  with any  registration,  filing or
qualification  of  Registrable  Securities  with  respect  to the  registrations
pursuant to Section 2.2 hereof for each Holder  (which  right may be assigned as
provided  in  Section  2.12  hereof),   including   (without   limitation)   all
registration,  filing,  and  qualification  fees,  printers and accounting  fees
relating or  apportionable  thereto,  but excluding  underwriting  discounts and
commissions relating to Registrable Securities.

                  2.7.  Underwriting   Requirements.   In  connection  with  any
offering  involving an  underwriting  of shares of the  Company's  capital stock
pursuant to Section 2.2, the Company shall not be required to include any of the
Holders'  securities  in such  underwriting  unless they accept the terms of the
underwriting as agreed upon between the Company and its  underwriters,  and then
only in such  quantity as the  underwriters  determine in their sole  discretion
will not  jeopardize  the success of the offering by the  Company.  If the total
number  of   securities,   including   Registrable   Securities,   requested  by
stockholders to be included in such offering exceeds the amount of securities to
be sold other  than by the  Company  that the  underwriters  determine  in their
reasonable  discretion is compatible with the success of the offering,  then the
Company  shall be required to include in the  offering  only that number of such
securities,  including  Registrable  Securities,  which the underwriters and the
Company  determine in their sole  discretion  will not jeopardize the success of
the offering. In no event shall any Registrable Securities be excluded from such
offering unless all other securities held by officers, directors or greater than
5%  stockholders  (as  determined in accordance  with Rule 13d-1 of the Exchange
Act) also having  registration rights are also reduced on a pro rata basis along
with  the  holders  of  the  Registrable  Securities.  In  the  event  that  the
underwriters  determine  that  less  than  all  of  the  Registrable  Securities
requested  to  be  registered  can  be  included  in  such  offering,  then  the
Registrable  Securities  that are included in such offering shall be apportioned
pro rata among the selling Holders based on the number of Registrable Securities
held by all selling  Holders or in such other  proportions  as shall mutually be
agreed to by all such selling  Holders.  Notwithstanding  the  foregoing,  in no
event shall ( the amount of  securities of the selling  Holders  included in the
offering be reduced below twenty percent (20%) of the total amount of securities
included  in  such  offering.  For  purposes  of  the  preceding   parenthetical
concerning  apportionment,  for any  selling  stockholder  which is a Holder  of
Registrable  Securities and which is an investment  fund,  partnership,  limited
liability  company or  corporation,  the partners,  members,  retired  partners,
retired members,  stockholders and Affiliates of such Holder, or the estates and
family  members of any such  partners,  retired  partners,  members  and retired
members and any trusts for the benefit of any of the foregoing  persons shall be
deemed to be a single "selling Holder",  and any pro-rata reduction with respect
to such  "selling  Holder"  shall be based


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upon the aggregate  amount of shares carrying  registration  rights owned by all
entities and individuals  included in such "selling  Holder," as defined in this
sentence.

                  2.8. Delay of Registration.  No Holder shall have any right to
obtain or seek an injunction  restraining or otherwise delaying any registration
pursuant to this  Agreement  as the result of any  controversy  that might arise
with respect to the interpretation or implementation of this Section 2.

                  2.9. Indemnification.  In the event any Registrable Securities
are included in a registration statement under this Section 2:

                        (a) To the extent  permitted  by law,  the Company  will
indemnify  and hold  harmless  each Holder,  the  partners,  members,  officers,
directors and  stockholders  of each Holder,  legal counsel and  accountants for
each Holder,  any underwriter (as defined in the Securities Act) for such Holder
and each  person,  if any, who controls  such Holder or  underwriter  within the
meaning of the Securities Act or the Exchange Act, against any Violation and the
Company will pay to each such Holder,  underwriter,  controlling person or other
aforementioned  person, any legal or other expenses  reasonably incurred by them
in connection  with  investigating  or defending any such loss,  claim,  damage,
liability, or action as such expenses are incurred;  provided, however, that the
indemnity  agreement  contained  in this  subsection  2.9(a)  shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage,  liability,  or action to the extent that
it arises out of or is based upon a Violation  which occurs in reliance upon and
in conformity with written information furnished expressly for use in connection
with such registration by any such Holder,  underwriter,  controlling  person or
other aforementioned person.

                        (b) To the extent  permitted by law, each selling Holder
will severally and not jointly indemnify and hold harmless the Company,  each of
its directors,  each of its officers who has signed the registration  statement,
each  person,  if any,  who  controls  the  Company  within  the  meaning of the
Securities Act, legal counsel and accountants for the Company,  any underwriter,
any other Holder  selling  securities  in such  registration  statement  and any
controlling person of any such underwriter or other Holder,  against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject,  under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses,  claims,  damages,  or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such  Violation  occurs in
reliance  upon and in  conformity  with  written  information  furnished by such
Holder  expressly for use in connection  with such  registration;  and each such
Holder will pay, any legal or other expenses  reasonably  incurred by any person
intended to be indemnified  pursuant to this  subsection  2.9(b),  in connection
with  investigating or defending any such loss,  claim,  damage,  liability,  or
action;  provided,  however,  that the  indemnity  agreement  contained  in this
subsection  2.9(b)  shall not apply to amounts  paid in  settlement  of any such
loss, claim, damage,  liability or action if such settlement is effected without
the consent of the Holder,  which  consent shall not be  unreasonably  withheld;
provided,  further,  that, in no event shall any indemnity under


                                       9
<PAGE>

this  subsection  2.9(b) exceed the net proceeds  from the offering  received by
such Holder, except in the case of fraud or willful misconduct by such Holder.

                        (c) Promptly after receipt by an indemnified party under
this  Section 2.9 of notice of the  commencement  of any action  (including  any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying  party under this Section 2.9, deliver to
the  indemnifying  party a written  notice of the  commencement  thereof and the
indemnifying  party shall have the right to  participate  in, and, to the extent
the indemnifying  party so desires,  jointly with any other  indemnifying  party
similarly  noticed,   to  assume  the  defense  thereof  with  counsel  mutually
satisfactory  to the  parties;  provided,  however,  that an  indemnified  party
(together with all other  indemnified  parties which may be represented  without
conflict by one counsel)  shall have the right to retain one  separate  counsel,
with  the  fees  and  expenses  to  be  paid  by  the  indemnifying   party,  if
representation  of  such  indemnified  party  by  the  counsel  retained  by the
indemnifying  party would be inappropriate due to actual or potential  differing
interests between such indemnified party and any other party represented by such
counsel  in such  proceeding.  The  failure  to  deliver  written  notice to the
indemnifying  party within a  reasonable  time of the  commencement  of any such
action, if prejudicial to its ability to defend such action,  shall relieve such
indemnifying  party of any liability to the indemnified party under this Section
2.9, but the omission so to deliver  written  notice to the  indemnifying  party
will not relieve it of any liability that it may have to any  indemnified  party
otherwise than under this Section 2.9.

                        (d)  In  order  to  provide   for  just  and   equitable
contribution  to joint  liability  under the Securities Act in any case in which
either (i) any Holder exercising rights under this Agreement, or any controlling
person of any such Holder,  makes a claim for  indemnification  pursuant to this
Section 2.9 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such  indemnification may not be
enforced in such case  notwithstanding  the fact that this  Section 2.9 provides
for  indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any such selling  Holder or any such  controlling
person in circumstances for which indemnification is provided under this Section
2.9, then, and in each such case, the Company and such Holder will contribute to
the  aggregate  losses,  claims,  damages  or  liabilities  to which they may be
subject (after contribution from others) in such proportion as is appropriate to
reflect the relative fault of the indemnifying  party on the one hand and of the
indemnified  party on the other in connection  with the  statements or omissions
that resulted in such loss, liability,  claim, damage, or expense as well as any
other relevant equitable considerations.  The relative fault of the indemnifying
party and of the  indemnified  party shall be  determined by reference to, among
other things,  whether the untrue or alleged untrue statement of a material fact
or the  omission  or  alleged  omission  to state a  material  fact  relates  to
information  supplied by the indemnifying  party or by the indemnified party and
the parties' relative intent, knowledge, access to information,  and opportunity
to correct or prevent such statement or omission; provided however, that, in any
such case,  (I) no such  Holder will be  required  to  contribute  any amount in
excess of the public offering price of all such Registrable  Securities  offered
and sold by such Holder  pursuant to such  registration  statement,  and (II) no
person or entity guilty of fraudulent  misrepresentation  (within the meaning of
Section 11(f) of the Securities Act) will be entitled to  contribution  from any
person  or  entity  who was not  guilty  of such  fraudulent  misrepresentation;
provided further,  that in no event shall a Holder's


                                       10
<PAGE>

liability  pursuant to this Section 2.9(d),  when combined with the amounts paid
or payable by such holder pursuant to Section  2.9(b),  exceed the proceeds from
the offering (net of any underwriting discounts or commissions) received by such
Holder, except in the case of willful fraud by such Holder.

                        (e)  Notwithstanding  the foregoing,  to the extent that
the provisions on indemnification and contribution contained in the underwriting
agreement  entered into in connection with the underwritten  public offering are
in conflict with the foregoing  provisions,  the provisions in the  underwriting
agreement shall control.

                        (f)  Unless  otherwise  superceded  by  an  underwriting
agreement entered into in connection with the underwritten public offering,  the
obligations  of the Company and Holders under this Section 2.9 shall survive the
completion of any offering of Registrable Securities in a registration statement
under this Section 2, and otherwise and shall  survive the  termination  of this
Agreement.

                  2.10.  Reports  Under  Exchange  Act.  With a view  to  making
available  to the Holders the  benefits  of Sec Rule 144  promulgated  under the
Securities  Act and any other rule or regulation of the SEC that may at any time
permit  a  Holder  to sell  securities  of the  Company  to the  public  without
registration or pursuant to a registration on Form S-3, the Company agrees to:

                        (a) make and keep public information available, as those
terms are  understood  and  defined in SEC Rule 144,  so long as the  Company is
subject to the periodic reporting requirements under Sections 13 or 15(d) of the
Exchange Act;

                        (b) file with the SEC in a timely manner all reports and
other  documents  required  of the  Company  under  the  Securities  Act and the
Exchange Act; and

                        (c)  furnish to any  Holder,  so long as the Holder owns
any Registrable  Securities,  forthwith upon request (i) a written  statement by
the Company that it has complied  with the  reporting  requirements  of SEC Rule
144,  the  Securities  Act and the  Exchange  Act,  or  that it  qualifies  as a
registrant  whose  securities  may be resold  pursuant  to Form S-3 (at any time
after it so  qualifies),  and (ii) such other  information  as may be reasonably
requested  in  availing  any Holder of any rule or  regulation  of the SEC which
permits the selling of any such securities  without  registration or pursuant to
such form.

                  2.11. Form S-3 Registration. In case the Company shall receive
from Holders of at least 25% of all Registrable  Securities  then  outstanding a
written  request or requests that the Company effect a registration  on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:

                        (a)  promptly  give  written   notice  of  the  proposed
registration, and any related qualification or compliance, to all other Holders;
and

                        (b) as soon as practicable, effect such registration and
all such  qualifications  and compliances as may be reasonably  requested and as
would permit or facilitate


                                       11
<PAGE>

the sale and  distribution  of all or such portion of such  Holder's or Holders'
Registrable  Securities as are  specified in such request,  together with all or
such  portion  of the  Registrable  Securities  of any other  Holder or  Holders
joining in such request as are  specified in a written  request  given within 15
days after receipt of such written notice from the Company;  provided,  however,
that the  Company  shall  not be  obligated  to  effect  any such  registration,
qualification  or compliance,  pursuant to this Section 2.11: (1) if Form S-3 is
not then  available  for  such  offering  by the  Holders;  (2) if the  Holders,
together  with the holders of any other  securities  of the Company  entitled to
inclusion in such registration,  propose to sell Registrable Securities and such
other  securities  (if  any) at an  aggregate  price to the  public  (net of any
underwriters'  discounts  or  commissions)  of less than $1 million;  (3) if the
Company shall  furnish to the Holders a  certificate  signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the  Company,  it  would  be  materially  detrimental  to the  Company  and  its
stockholders  for such Form S-3  Registration  to be effected  at such time,  in
which event the Company shall have the right to defer the filing of the Form S-3
registration  statement  for a period of not more than 90 days after  receipt of
the request of the Holder or Holders under this Section 2.11; provided, however,
that the Company shall not utilize this right more than once in any twelve month
period and provided  further that the Company shall not register any  securities
for the account of itself or any other stockholder  during such sixty day period
(other  than a  registration  relating  solely  to the  sale  of  securities  of
participants  in a Company  stock plan, a  registration  relating to a corporate
reorganization   or  transaction  under  Rule  145  of  the  Securities  Act,  a
registration  on  any  form  that  does  not  include   substantially  the  same
information  as would be required to be  included  in a  registration  statement
covering the sale of the Registrable Securities,  or a registration in which the
only Common Stock being  registered is Common Stock issuable upon  conversion of
debt securities that are also being registered);  (4) if the Company has, within
the  twelve  (12)  month  period  preceding  the date of such  request,  already
effected two  registrations on Form S-3 for the Holders pursuant to this Section
2.11;  or (5) in any  particular  jurisdiction  in which  the  Company  would be
required to qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance.

                        (c) Subject to the  foregoing,  the Company shall file a
registration  statement covering the Registrable Securities and other securities
so  requested  to be  registered  as soon as  practicable  after  receipt of the
request or requests of the Holders.  All expenses  incurred in connection with a
registration  requested pursuant to Section 2.11, including (without limitation)
all registration,  filing, qualification,  printer's and accounting fees and the
reasonable fees and disbursements of counsel for the Company,  but excluding any
underwriters'  discounts or commissions associated with Registrable  Securities,
shall be borne by the Company.  Registrations  effected pursuant to this Section
2.11 shall not be counted as demands for registration or registrations  effected
pursuant to Sections 2.1.

                        (d) If the  Initiating  Holders intend to distribute the
Registrable  Securities  covered by their  request by means of an  underwriting,
they shall so advise the Company as part of their  request made pursuant to this
Section  2.11 and the Company  shall  include  such  information  in the written
notice referred to in Section 2.11(a). The provisions of Section 2.1(b) shall be
applicable to such request (with the substitution of Section 2.11 for references
to Section 2.1).


                                       12
<PAGE>

                  2.12.  Assignment of Registration  Rights. The rights to cause
the Company to register Registrable Securities pursuant to this Section 2 may be
assigned (but only with all related  obligations) by a Holder to a transferee or
assignee  of  such  securities  that  (i) is a  subsidiary,  Affiliate,  parent,
partner, member, limited partner, retired partner, retired member or stockholder
of a Holder,  (ii) is a Holder's  family  member or trust for the  benefit of an
individual Holder, or (iii),  after such assignment or transfer,  holds at least
250,000 shares of Registrable  Securities (subject to appropriate adjustment for
stock  splits,  stock  dividends,  combinations  and  other  recapitalizations),
provided:  (a) the Company is,  within a  reasonable  time after such  transfer,
furnished  with  written  notice of the name and address of such  transferee  or
assignee and the securities with respect to which such  registration  rights are
being assigned; (b) such transferee or assignee agrees in writing to be bound by
and subject to the terms and  conditions of this  Agreement,  including  without
limitation the provisions of Section 2.14 below;  and (c) such assignment  shall
be effective only if immediately following such transfer the further disposition
of such  securities  by the  transferee  or  assignee  is  restricted  under the
Securities  Act.  For the  purposes  of  determining  the  number  of  shares of
Registrable  Securities  held by a  transferee  or  assignee,  the  holdings  of
transferee  or  assignee  (i) that is a  subsidiary,  parent,  partner,  limited
partner,  retired  partner,  member,  retired member or stockholder of a Holder;
(ii) that is an Affiliate  of the Holder,  which means with respect to a limited
liability company or a limited liability  partnership,  a fund or entity managed
by the same manager or managing member or general partner or management  company
or by an entity  controlling,  controlled  by, or under common control with such
manager or managing member or general partner or management  company,  (iii) who
is a Holder's  Immediate Family Member,  or (iv) that is a trust for the benefit
of an  individual  Holder or such Holder's  Immediate  Family  Member,  shall be
aggregated  together and with those of the assigning  Holder;  provided that all
assignees and transferees who would not qualify  individually  for assignment of
registration  rights  shall have a single  attorney-in-fact  for the  purpose of
exercising any rights, receiving notices or taking any action under this Section
2.

                  2.13. Limitations on Subsequent  Registration Rights. From and
after the date of this  Agreement,  the  Company  shall not,  without  the prior
written consent of the Holders of a majority of the Registrable  Securities then
outstanding,  enter into any agreement with any holder or prospective  holder of
any  securities  of the Company  which  would  allow such holder or  prospective
holder (a) to include such securities in any registration unless under the terms
of such agreement, such holder or prospective holder may include such securities
in any  such  registration  only  to the  extent  that  the  inclusion  of  such
securities  will not  reduce  the amount of the  Registrable  Securities  of the
Holders that are included or (b) to demand  registration  of any securities held
by such holder or prospective holder.

                  2.14. Termination of Registration Rights.

                        (a) No Holder  shall be entitled  to exercise  any right
provided for in this Section 2 after three (3) years following the date hereof.

                        (b)  The  rights  set  forth  in  this  Section  2 shall
terminate (i) upon a Deemed  Liquidation  Event,  as such term is defined in the
Company's  Certificate  of  Incorporation  and  (ii) as to any  Holder  upon the
earlier of, when the Registrable  Securities held by such Holder  (together with
any  Affiliate  of such Holder with whom such  Holder must


                                       13
<PAGE>

aggregate its sales under SEC Rule 144) could be sold without  restriction under
(x) SEC Rule 144 within a three-month period or (y) Rule 144(k).

            3. Right of First Offer.

                  3.1. Right of First Offer. Subject to the terms and conditions
specified in this Section 3.1, and applicable  securities laws, in the event the
Company  proposes to offer or sell any New  Securities,  the Company shall first
make an offering of such New Securities to each Investor in accordance  with the
following  provisions  of this  Section  3.1. An  Investor  shall be entitled to
apportion  the right of first  offer  hereby  granted  it among  itself  and its
partners, members and Affiliates in such proportions as it deems appropriate.

                        (a) The Company  shall  deliver a notice,  in accordance
with the provisions of Section 5.5 hereof,  (the "Offer  Notice") to each of the
Investors stating (i) its bona fide intention to offer such New Securities, (ii)
the number of such New Securities to be offered,  and (iii) the price and terms,
if any, upon which it proposes to offer such New Securities.

                        (b) By written  notification  received  by the  Company,
within twenty (20) calendar days after mailing of the Offer Notice,  each of the
Investors  may  elect to  purchase  or  obtain,  at the  price  and on the terms
specified in the Offer Notice,  up to that portion of such New Securities  which
equals the proportion that the number of shares of Common Stock issued and held,
or  issuable  upon  conversion  of the Series A  Preferred  Stock (and any other
securities  convertible  into, or otherwise  exercisable  or  exchangeable  for,
shares of Common Stock) then held, by such Investor bears to the total number of
shares of Common Stock of the Company then outstanding (assuming full conversion
and exercise of all  convertible or exercisable  securities).  The Company shall
promptly,  in writing,  inform  each  Investor  that elects to purchase  all the
shares  available  to it  (each,  a  "Fully-Exercising  Investor")  of any other
Investor's  failure to do  likewise.  During the ten (10) day period  commencing
after  receipt of such  information,  each  Fully-Exercising  Investor  shall be
entitled to obtain that portion of the New Securities  for which  Investors were
entitled to subscribe but which were not subscribed  for by the Investors  which
is equal to the proportion  that the number of shares of Common Stock issued and
held, or issuable upon conversion of Series A Preferred Stock then held, by such
Fully-Exercising  Investor  bears to the total  number of shares of Common Stock
issued and held,  or issuable upon  conversion  of the Series A Preferred  Stock
then  held,  by  all  Fully-Exercising  Investors  who  wish  to  purchase  such
unsubscribed shares.

                        (c) If  all  New  Securities  referred  to in the  Offer
Notice are not elected to be purchased or obtained as provided in Section 3.1(b)
hereof,  the  Company  may,  during the ninety  (90) day  period  following  the
expiration of the period provided in Section 3.1(b) hereof,  offer the remaining
unsubscribed  portion  of  such  New  Securities  (collectively,   the  "Refused
Securities")  to any person or persons at a price not less than,  and upon terms
no more favorable to the offeree than,  those specified in the Offer Notice.  If
the Company does not enter into an agreement for the sale of the New  Securities
within such period,  or if such agreement is not consummated  within thirty (30)
days of the execution thereof,  or 90 days after the Offer Notice,  whichever is
later,  the right provided  hereunder shall be deemed to be revived and such New
Securities  shall not be offered  unless  first  reoffered  to the  Investors in
accordance with this Section 3.1.


                                       14
<PAGE>

                        (d) The right of first  offer in this  Section 3.1 shall
not be applicable  to: (i)  securities  issuable  upon  conversion of any of the
Series A Preferred,  or as a dividend or distribution on the Series A Preferred;
(ii) securities issued upon the conversion of any debenture, warrant, option, or
other  convertible  security;  (iii) Common Stock  issuable  upon a stock split,
stock  dividend,  or any  subdivision of shares of Common Stock;  (iv) shares of
Common  Stock (or options to purchase  such  shares of Common  Stock)  issued or
issuable to employees or directors of, or consultants  to, the Company  pursuant
to any plan  approved by the Company's  Board of Directors,  (v) the issuance of
securities in  connection  with a bona fide  business  acquisition  of or by the
Company, whether by merger,  consolidation,  sale of assets, sale or exchange of
stock or otherwise,  approved by the Board of  Directors;  (vi) shares of Common
Stock issuable in connection  with lease lines,  bank financing or other similar
transactions  that  are  primarily  of a  non-equity  financing  nature  and are
approved by the Board of Directors;  and (vii)  securities  issued in connection
with joint  ventures,  strategic  alliances or other  agreements or arrangements
primarily intended for business or commercial purposes.

                        (e) The right of first  offer set forth in this  Section
3.1 may not be assigned or transferred  except that (i) such right is assignable
by each  Investor  to any  Affiliate  of such  Investor,  and (ii) such right is
assignable by any Investor to any other Investor. Notwithstanding the foregoing,
the right of first  offer set forth in this  Section  3.1 shall  terminate  with
respect to any  Investor who fails to purchase,  in any  transaction  subject to
this Section 3.1, all of such  Investor's  pro rata amount of the New Securities
allocated  (or if less than such  Investor's  pro rata  amount is offered by the
Company,  such  lesser  amount so  offered)  to such  Investor  pursuant to this
Section 3.1.  Following any such  termination,  such Investor shall no longer be
deemed a "Investor" for any purpose of this Section 3.1

                        (f) In lieu of  complying  with the  provisions  of this
Section 3.1, the Company may elect to give notice to the Investors within thirty
(30) days after the issuance of New  Securities.  Such notice shall describe the
type,  price and terms of the New  Securities.  Each Investor  shall have twenty
(20) days from the date of receipt of such notice to elect to purchase up to the
number of New Securities  that would,  if purchased by such  Investor,  maintain
such  Investor's  percentage  ownership  position,  calculated  as set  forth in
Section  3.1(b) prior to giving  effect to the issuance of such New  Securities.
The  closing  of such sale  shall  occur  within  sixty (60) days of the date of
notice to the Investors.

                  3.2.  Termination.  The  provisions  of this  Section  3 shall
terminate  three (3) years after the date of this  Agreement  or earlier  upon a
Deemed Liquidation  Event, as such term is defined in the Company's  Certificate
of  Incorporation  or upon a change of control  resulting from the transfer to a
third party of more the 50% of the outstanding voting power at such time.

            4. Additional Covenants.

                  4.1.  Director  Designees.  While at least 50% of the Series A
Preferred  is  outstanding,  an  Investor  holding  at least 50% of the Series A
Preferred is entitled to designate an individual to be nominated by the Board of
Directors,  subject  to  such  individual  satisfying  the  requirements  of  an
independent  director as set forth in the  Securities  Exchange Act of 1934,  as


                                       15
<PAGE>

amended,  and other applicable  requirements of the exchange or quotation system
upon which the Company's common stock is listed or quoted.

            5. Miscellaneous.

                  5.1. Transfers,  Successors and Assigns.  Subject to paragraph
3.1(e) of this Agreement, the terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the  respective  successors and assigns of
the  parties.  Nothing in this  Agreement,  express or  implied,  is intended to
confer  upon  any  party  other  than the  parties  hereto  or their  respective
successors and assigns any rights, remedies,  obligations,  or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.

                  5.2.  Governing Law. This  Agreement  shall be governed by and
construed  in  accordance  with  the  General  Corporation  Law of the  State of
Delaware as to matters  within the scope  thereof,  and as to all other  matters
shall be governed by and construed in  accordance  with the internal laws of the
state of New Jersey, without regard to its principles of conflicts of laws.

                  5.3.  Counterparts.  This  Agreement may be executed in two or
more counterparts,  each of which shall be deemed an original,  but all of which
together shall constitute one and the same  instrument.  This Agreement may also
be  executed  and   delivered  by  facsimile   signature  and  in  two  or  more
counterparts,  each of  which  shall be  deemed  an  original,  but all of which
together shall constitute one and the same instrument.

                  5.4.  Titles and  Subtitles.  The titles and subtitles used in
this  Agreement  are used for  convenience  only and are not to be considered in
construing or interpreting this Agreement.

                  5.5. Notices.  All notices and other  communications  given or
made  pursuant  to this  Agreement  shall be in  writing  and  shall  be  deemed
effectively  given: (a) upon personal delivery to the party to be notified,  (b)
when sent by  confirmed  electronic  mail or  facsimile  if sent  during  normal
business  hours  of the  recipient,  and if not so  confirmed,  then on the next
business  day,  (c)  five (5) days  after  having  been  sent by  registered  or
certified mail, return receipt  requested,  postage prepaid,  or (d) one (1) day
after deposit with a nationally  recognized  overnight courier,  specifying next
day delivery,  with written verification of receipt. All communications shall be
sent to the  respective  parties at their  address as set forth on the signature
page or Schedule A hereto, or to such email address, facsimile number or address
as subsequently modified by written notice given in accordance with this Section
5.5.  If notice is given to the  Company,  a copy  shall also be sent to Gary A.
Miller,  Eckert Seamans Cherin & Mellott,  LLC, 1515 Market Street, Ninth Floor,
Philadelphia, Pennsylvania 19102.

                  5.6 Costs of Enforcement. If any Party to this Agreement seeks
to  enforce  its  rights  under  this  Agreement  by  legal   proceedings,   the
non-prevailing Party shall pay all costs and expenses incurred by the prevailing
Party, including, without limitation, all reasonable attorneys' fees.

                  5.7 Amendments and Waivers.  Any term of this Agreement may be
amended and the  observance of any term of this  Agreement may be waived (either
generally   or


                                       16
<PAGE>

in a particular instance and either  retroactively or prospectively),  only with
the  written  consent  of the  Company  and the  holders  of a  majority  of the
Registrable  Securities  then  outstanding.  Any amendment or waiver effected in
accordance  with  this  paragraph  shall be  binding  upon  each  holder  of any
Registrable  Securities  then  outstanding,  each  future  holder  of  all  such
Registrable  Securities,  and the Company.  Notwithstanding the foregoing,  this
Agreement  may not be  amended  or  terminated  and the  observance  of any term
hereunder  may not be waived with  respect to any  Investor  without the written
consent of such Investor,  unless such amendment,  termination or waiver applies
to all  Investors  in the same  fashion  (it being  agreed  that a waiver of the
provisions of Section 4 with respect to a particular transaction shall be deemed
to apply to all  Investors  in the same  fashion if such  waiver  does so by its
terms,  notwithstanding  the fact that certain  Investors  may  nonetheless,  by
agreement  with the  Company,  purchase  securities  in such  transaction).  The
Company shall give prompt written notice of any amendment or termination  hereof
or waiver  hereunder to any party hereto that did not consent in writing to such
amendment,  termination or waiver. Any amendment, termination or waiver effected
in accordance with this Section 5.7 shall be binding on all parties hereto, even
if they do not execute such  consent.  No waivers of or  exceptions to any term,
condition or provision of this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing  waiver of any such term,
condition or provision.

                  5.8 Severability.  The invalidity of  unenforceability  of any
provision  hereof shall in no way affect the validity or  enforceability  of any
other provision.

                  5.9 Aggregation of Stock. All shares of Registrable Securities
held or acquired by Affiliates  shall be aggregated  together for the purpose of
determining the availability of any rights under this Agreement.

                  5.10 Entire Agreement.  This Agreement (including the Exhibits
hereto,  if any)  constitutes  the full and entire  understanding  and agreement
between the parties with  respect to the subject  matter  hereof,  and any other
written or oral agreement relating to the subject matter hereof existing between
the parties are expressly canceled.

                  5.11 Transfers of Rights.  Each Investor  hereto hereby agrees
that it will  not,  and  may,  not  assign  any of its  rights  and  obligations
hereunder,  unless such rights and  obligations are assigned by such Investor to
(a) any person or entity to which Registrable Securities are transferred by such
Investor,  or (b) to any  Affiliate of such  Investor,  and, in each case,  such
transferee  shall be  deemed  an  "Investor"  for  purposes  of this  Agreement;
provided that such  assignment of rights shall be contingent upon the transferee
providing  a written  instrument  to the Company  notifying  the Company of such
transfer and assignment and agreeing in writing to be bound by the terms of this
Agreement.

                  5.12 Dispute Resolution.  Any unresolved  controversy or claim
arising out of or relating to this Agreement,  except as (i) otherwise  provided
in this  Agreement,  or (ii) any such  controversies  or claims  arising  out of
either party's  intellectual  property rights for which a provisional  remedy or
equitable relief is sought,  shall be submitted to arbitration by one arbitrator
mutually  agreed upon by the parties,  and if no agreement can be reached within
30 days after names of potential  arbitrators have been proposed by the American
Arbitration  Association (the "AAA"),  then by one arbitrator  having reasonable
experience in corporate


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<PAGE>

finance  transactions  of the type  provided  for in this  Agreement  and who is
chosen by the AAA. The arbitration  shall take place in Newark,  New Jersey,  in
accordance  with the AAA  rules  then in  effect,  and  judgment  upon any award
rendered  in such  arbitration  will be binding  and may be entered in any court
having  jurisdiction  thereof.  There  shall be limited  discovery  prior to the
arbitration  hearing as follows:  (a)  exchange  of witness  lists and copies of
documentary  evidence and documents  relating to or arising out of the issues to
be  arbitrated,  (b)  depositions  of all  party  witnesses  and (c) such  other
depositions as may be allowed by the  arbitrators  upon a showing of good cause.
Depositions  shall be conducted in accordance  with the New Jersey Code of Civil
Procedure, the arbitrator shall be required to provide in writing to the parties
the basis for the award or order of such arbitrator,  and a court reporter shall
record all hearings,  with such record  constituting the official  transcript of
such  proceedings.   The  prevailing  party  shall  be  entitled  to  reasonable
attorney's  fees,  costs,  and necessary  disbursements in addition to any other
relief  to  which  such  party  may be  entitled.  Each of the  parties  to this
Agreement  consents to personal  jurisdiction for any equitable action sought in
the U.S. District Court for the District of New Jersey or any court of the State
of New Jersey having subject matter jurisdiction.

                  5.13 Delays or Omissions. No delay or omission to exercise any
right,  power or remedy  accruing  to any party under this  Agreement,  upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such  non-breaching or non-defaulting  party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein,  or of or in any similar breach or default  thereafter  occurring;  nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default  theretofore  or  thereafter  occurring.  Any waiver,  permit,
consent or  approval  of any kind or  character  on the part of any party of any
breach or default under this  Agreement,  or any waiver on the part of any party
of any provisions or conditions of this Agreement,  must be in writing and shall
be effective  only to the extent  specifically  set forth in such  writing.  All
remedies,  either under this  Agreement  or by law or otherwise  afforded to any
party, shall be cumulative and not alternative.

                  [Remainder of Page Intentionally Left Blank]


                                       18
<PAGE>

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

                                            PacificHealth Laboratories, Inc.

                                       By:  ____________________________________
                                     Name:  ____________________________________
                                    Title:  ____________________________________
                                  Address:  ____________________________________


                                            INVESTOR:
                                            Hormel Health Labs, LLC

                                       By:  ____________________________________
                                     Name:  ____________________________________
                                    Title:  ____________________________________
                                  Address:  ____________________________________


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